COURT FILE NO.: FS-14-19258-0002
DATE: 20190318
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
F.B.M.
Applicant
– and –
B.F.
Respondent
Alexandra Carr, for the Applicant
Michelle M. Dwyer, for the Respondent
HEARD: October 4, 5, 8, 9, 10, 11, 12, 15, 16, 17 and 18, 2018
dietrich J.
Overview
[1] The parties were married on May 20, 2000 and separated on November 4, 2012. There are two children of the marriage, boys aged 13 and 10.
[2] Since separation there has been protracted litigation between the parties, especially about child support. The early litigation was settled by a final Order of this court dated November 27, 2015. The applicant mother received a lump sum of retroactive and ongoing child support to June 30, 2017 of $50,000, together with a further $25,000 for the children’s retrospective and prospective s. 7 special or extraordinary expenses.
[3] This settlement was actually funded by the children’s paternal grandfather. It is not known whether the source of those funds was the grandfather’s personal assets, private companies or family trusts.
[4] The mother brings this application to vary the November 27, 2015 Order, which provides that either party may seek a variation of the child support after June 30, 2017. The mother seeks child support from the father, including s. 7 special or extraordinary expenses for the benefit of each of their sons.
[5] The most difficult task for the court in this matter is to ascertain a reasonable income to impute to the father from which to order child support.
[6] This task has not been made any easier by the evidence led by the father. Incomplete and unresponsive are appropriate words to describe the evidence of his recent significant lifestyle expenditures. His financial disclosure provides no credible explanation for such expenditure.
Issues
[7] The issues in this matter are:
What is the father’s income for 2016 and 2017 and going forward?
What are the s. 7 special or extraordinary expenses of the children, and how should these expenses be shared between the father and mother?
The Mother’s Position
[8] The applicant mother is 37 years old and university educated. She is employed on a full-time basis. The mother submits that an income of $806,666 should be imputed to the father for each of 2016, 2017 and going forward. Notwithstanding that the father is unemployed, she submits that he nonetheless enjoys an extravagant lifestyle, largely supported by wealth created by the grandfather and made available to him through gifts and personal loans, payments from the grandfather’s companies and distributions from a family trust.
[9] Further, she submits that the father failed to provide timely, complete and accurate financial disclosure with respect to Chintamani Wellness Limited (“Chintamani”), the corporation through which he operated his business, Urban Nirvana, and with respect to the family trust of which he is a beneficiary and from which he was receiving distributions. As a result, neither she nor her expert could meaningfully calculate the father’s income in accordance with the Federal Child Support Guidelines, SOR/97-175 (the “Guidelines”). Accordingly, they determined the father’s income with reference to his personal bank accounts and credit card statements (from 2016 to 2018) and the discretionary expenses, such as meals, travel, telephone and internet that he charged to Chintamani. The mother asserts that annual income at the $800,000 level is consistent with amounts available to the father as a beneficiary of two family trusts, effectively controlled by the grandfather.
[10] The mother seeks a contribution by the father of $10,800 per year for each child (for a total of $21,600) on account of s. 7 expenses for the children’s counselling and to enroll them in camps and extracurricular activities. The mother submits that her own income has been depleted through financing the costs of camps and programs for the children. The mother further submits that her request is reasonable and one that the father (or his family) can easily afford.
[11] She also submits that the father only makes a contribution to expenses to which he has consented in advance and only when pressured to (e.g., as a court date is approaching). To avoid delays in payment or ongoing litigation, the mother asks the court to award a fixed monthly contribution from the father for the s. 7 expenses in proportion to the parties’ respective incomes.
[12] In support of her assertions and the relief sought, the mother relies on a report, dated September 24, 2018, prepared by Anna Barrett of Marmer Penner, and subsequent calculations prepared by Ms. Barrett. Ms. Barrett qualified as an expert and testified at the trial.
The Father’s Position
[13] The respondent father is also 37 years old and university educated. In his evidence, he emphasized that he holds an MBA from the prestigious Wharton School of Finance. However, he acknowledges that he has a thin employment record and he complains of lower back problems.
[14] The father asserts that he cannot pay child support in the amount sought by the mother. At the time of the trial, the father was unemployed and his business, Chintamani, had filed for bankruptcy protection. He submits that his assets consist of a house in Rockwood, Ontario, with a value of about $1,000,000 and a mortgage of $600,000, and a Range Rover vehicle. He testified that he is indebted, on a personal guarantee, to creditors who lent money to Chintamani.
[15] The father submits that while he has an MBA, he has little business and employment experience. He has worked at companies owned or operated by the grandfather, but such work was sporadic, of limited duration, and his most recent period of such employment ended in his termination in August of 2017. His only attempt at his own business was the purchase of the Urban Nirvana wellness spa (through Chintamani) in April of 2016. By June 2018, it had ceased operations, and by September 2018, it had sought bankruptcy protection.
[16] The father further submits that other than amounts of $12,500 per month, distributed to him from a family trust from September 2017 to November 1, 2018 he has received no other trust funds. On the eve of trial, the father was advised by the grandfather’s lawyer that he would receive no further distributions from the family trust after November 1, 2018. At trial, the grandfather testified that, in his opinion, it was time for the father to fend for himself and his family and that gifts and loans and distributions from trusts and family-run businesses would no longer be forthcoming.
[17] The father agrees that the children should be involved in extracurricular activities but asserts that there should be a limit on the number of extracurricular activities, especially since both children are currently pursuing personal therapy and family reintegration therapy, which absorbs some of their time when they are not in school or doing their homework.
[18] The father submits that he is willing to contribute to the children’s expenses but objects to the fact that many of the special or extraordinary s. 7 expenses in respect of which the mother seeks contribution were unilaterally incurred. He also disputes that all of these expenses are special or extraordinary and asserts that his share of the usual or common costs of raising children (i.e., camps, swimming lessons and music lessons) ought to be covered by the table child support paid by him.
[19] The father asserts that his income for support purposes should be $100,000 in 2015, $125,000 in 2016 and $169,000 in 2017. In making this assertion he relies on a report on his income, dated August 30, 2018, prepared by Tim Rickert of BDO. Mr. Rickert qualified as an expert and testified at the trial. Mr. Rickert’s report was admitted into evidence.
Issue 1: What is the father’s income for 2016, 2017 and going forward?
[20] The first objective of the Guidelines is to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after the separation.
[21] At s. 16, the Guidelines provide that the calculation of a spouse’s annual income begins with a two-step process. It starts with a determination of the spouse’s “total income” reflected on his personal tax return (commonly referred to as line 150 income), followed by adjustments in accordance with Schedule III of the Guidelines. Schedule III adjustments to income include adjustments for employment expenses, dividends from taxable Canadian corporations, and business investment losses, among others.
[22] Section 17 of the Guidelines provides that if the determination of a spouse’s annual income pursuant to s. 16 would not be the fairest determination, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of non-recurring amounts during those years.
[23] Further, pursuant to s. 19 of the Guidelines, the court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances may include, among others: i) where the spouse is intentionally unemployed or underemployed, other than as required by the needs of a child of the marriage or by the reasonable educational or health needs of the spouse; ii) the spouse has failed to provide income information when under a legal obligation to do so; iii) the spouse unreasonably deducts expenses from income; and iv) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.
[24] Section 23 of the Guidelines provides that where a spouse has failed to comply with financial disclosure requirements (e.g., tax returns and financial statements of a corporation controlled by the spouse, and copies of the trusts agreement and financial statements of the trust where the spouse is a beneficiary of a trust), the court may impute income to such spouse.
Analysis
The father’s line 150 income and adjustments
[25] The parties agree that the father’s line 150 income for 2016 was $116,779 and for 2017 was $104,474. These amounts include the taxable portion of dividends received by the father.
[26] The parties also agree on adjustments to the line 150 income, in accordance with the Guidelines, to include the amount of the actual eligible dividends paid to the father and the funds received from the family trust. They also agree on the gross-up of the capital portion of such funds.
[27] The mother does not accept the father’s calculation of his income for 2015, 2016 and 2017 as set out in the BDO Report. She relies, instead, on the Marmer Penner Report which states that the father’s income for support purposes was $1,190,000 in 2016 and $710,000 in 2017.
[28] The mother relies on the provisions of the Guidelines that allow the court to impute income to the father and she asks the court to draw adverse inferences in respect of the father’s reluctant disclosure regarding his business and his own personal spending.
Income Imputation
i. Inadequate financial disclosure
[29] Section 19(1)(f) of the Guidelines provides that income may be imputed to a party where the party has failed to provide income information when under a legal obligation to do so.
[30] Section 21 of the Guidelines requires a spouse who controls a corporation to provide financial statements of the corporation and its subsidiaries and a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length. Section 23 of the Guidelines permits the court to draw an adverse inference for failure to comply with these disclosure obligations and to impute income to the spouse in such amount as it considers appropriate.
[31] The father provided financial information for Chintamani; however, it was erroneous and inadequate. His own expert, Mr. Rickert, testified that his report could not be prepared properly based on the information provided without adjustments to correct obvious errors. The father failed to provide the required breakdown of all payments made to or on behalf of persons with whom he does not deal at arm’s length. He provided his own expert with a redacted “salary and wages” general ledger and did not disclose to his expert that the father’s girlfriend was employed by Chintamani.
[32] The father testified that he attempted to obtain the requested financial information relating to the family trust from which he had received distributions but that the grandfather, a trustee of the trust, refused to provide it. Not wishing to “bite the hand that feeds”, the father did not insist on delivery of the information. In his testimony, the grandfather admitted that he did not accede to the father’s request for the financial records of the trust. In the course of the grandfather’s testimony, the court learned of a second trust of which the father is a beneficiary. The existence of this second trust was unknown to the father until revealed by the grandfather at the trial.
[33] On the mother’s motion during the course of the trial, the grandfather was ordered to make full disclosure of the financial statements for the trusts, including financial statements for any corporation in which either trust holds an interest. The grandfather fully cooperated and complied with the order.
[34] The father’s failure to provide adequate pre-trial disclosure of income information or any satisfactory explanation of his lifestyle expenses leaves the court with no option other than to weigh the evidence available to impute income to the father. As noted by Justice McDermot in Milutinovic v. Milutinovic, 2018 ONSC 4310 at para. 21, this approach is especially appropriate where the payor’s lifestyle is inconsistent with his reported income without a good explanation.
[35] I find that the financial information provided by the father for his business, Chintamani, was woefully inadequate. The father does not dispute this. He admitted that the tax returns for the corporation could not be filed because the financial statements were erroneous and unreliable. Notwithstanding that the father made frequent references, over the course of his testimony, to his MBA from the Wharton School of Finance, he operated a company whose financial statements could not be relied on, and he himself could not seem to put them to rights for the purposes of this litigation or to enable him to file its tax returns. Accordingly, I am prepared to draw an adverse inference and impute income to the father in respect of certain discretionary expenses run through Chintamani by the father.
ii. Personal expenses run through the corporation
[36] The Guidelines permit the court to impute additional income where a party gains an advantage by earning a portion of his or her income at lower tax rates. Section 19(g) of the Guidelines allows the court to impute income where a spouse unreasonably deducts expenses from income. Expenses such as car, home office, travel, meals/entertainment, phone, internet and legal expenses are common examples of expenses that get added back into income for support purposes. Depending on the evidence, the amount added back can range from 20 percent to the full amount: Ludmer v. Ludmer, 2013 ONSC 784 at para. 153 (“Ludmer”).
[37] The parties’ experts agreed that a portion of such expenses are typically added back to income for support purposes. However, the experts disagreed on the percentage of the expenses to be added back for certain of these discretionary expenses. The mother’s expert considered 75% of certain of the discretionary expenses to be appropriate while the father’s expert considered 50% of all such expenses to be appropriate.
[38] The father’s accounting for business expenses is lacking to say the least. Expenses that were not business expenses were deducted as such. For example, two payments were made to the family’s reintegration therapist in 2017 using the Chintamani credit card and only one of these payments was re-credited by the father. The father ran both his cell phone expense and his home internet expense through Chintamani. He testified that to the extent that he charged expenses relating to his personal residence to Chintamani, he recorded those expenses against his shareholder loan. The evidence is that the father was not consistent in recording these expenses against his shareholder loan. It shows that certain expenses (e.g., payments for a John Deere tractor used at the residence, and a land survey) were not recorded against the shareholder loan. The father testified that a portion of these expenses was legitimately claimed by Chintamani because it was his intention for Chintamani to run wellness programs at his residence. He testified that one such program had been held at the residence but it did not generate any profit. The mother objected to the travel expenses of two trips to Estonia in 2016 for business conferences because there was no corresponding expense for conference fees. The father testified that the conference fees were waived for him because he was a guest speaker. Very late in the trial, the father produced some evidence of his attendance at a Tibetan medicine conference in Estonia in 2016.
[39] The father was able to produce some additional receipts during the course of the trial that supported what appear to be legitimate business expenses. The mother’s expert conceded that if these receipts were accepted as business expenses for 2016 and 2017, the amounts to be added back into the father’s income for 2016 and 2017 would be $19,628 in 2016 and $33,299 in 2017. Notwithstanding the failure of the father to provide timely disclosure of these receipts for business expenses, I am satisfied that these receipts represent business expenses for Chintamani.
[40] Based on the father’s failure to provide full and timely financial disclosure relating to his business, and the gaps and errors in the financial statements that were ultimately provided, I am prepared to draw an adverse inference and impute income to the father in the amount of $19,628 for 2016; $33,299 for 2017 and $7,716 for 2018, on account of discretionary business expenses, as calculated by Ms. Barrett.
iii. The father’s spending and lifestyle
[41] The father’s lifestyle is relevant to whether the court may impute income under s. 19(1) of the Guidelines. In Bak v. Dobell, 2007 ONCA 304 (“Bak”), Lang J.A. stated, at paras. 42 and 43, that lifestyle is not a standalone ground for imputing income and lifestyle is not income, but rather evidence from which an inference may be drawn that the payor has undisclosed income that may be imputed for the purpose of determining child support. I am compelled to draw this inference in this case.
[42] Ms. Barrett testified that the father’s spending from his personal bank account and credit cards amounted to $318,000 in 2016, $547,000 in 2017 and $412,972 in 2018 (projected). His line 150 income was $116,779 in 2016 and $109,424 for 2017. The evidence is that the father never earned any income from an employer that was not a corporation owned and operated by the grandfather’s family. Contrary to the testimony given by the father that he worked for various companies owned by the grandfather since graduating from university, the grandfather testified that the father only ever worked for Metro Label Group Inc. (and associated companies) and that the duration of the father’s employment at that company was from mid-2006 to 2011. During part of that time, the father was also pursuing his MBA and the father’s evidence was that while doing so he contributed considerably less to Metro Label’s operations. Notwithstanding, his income from this company increased slightly after his studies began. Based on the evidence, it appears that there was no nexus between the father’s contributions to the company and the income he was paid.
[43] The grandfather testified that some of the income the father received from companies controlled by the grandfather was as a result of income splitting by the grandfather and not because the father was actively employed in the companies. The evidence is that between 2001 and 2017, the father received income from one or both of Metro Label Group Inc. and Triveni Property Holdings Inc., another company controlled, indirectly, by the grandfather. In addition to income splitting with his children (the father and the father’s sister), the grandfather testified that he made a gift of shares in a private company, SNR Co., to each of his children. The shares were later sold, resulting in net proceeds to the father of US$393,200. In addition to the gift of the shares, the grandfather paid the capital gains tax that arose when the father sold the shares.
[44] The father and the grandfather both testified that the grandfather made a gift of $500,000 to the father in 2014 and another gift of $1,100,000 to him in 2016.
[45] Section 19(1) of Guidelines does not list receipts by a spouse of gifted property as a circumstance in which the court may impute income. However, the court will consider whether the circumstances surrounding the receipt of gifts by a payor spouse are so unusual that they constitute an appropriate circumstance in which to impute income. The Court of Appeal, in the Bak case, at para. 75, set out the following factors to consider in assessing whether it is appropriate to include the receipt of unusual gifts in income: i) the regularity of gifts; ii) the duration of their receipt; iii) whether the gifts were part of the family’s income during cohabitation that entrenched a particular lifestyle; iv) the circumstances of the gifts that earmarked them as exceptional; v) whether the gifts do more than provide a basic standard of living; vi) the income generated by the gifts in proportion to the payor’s income; vii) whether they are paid to support an adult child through a crisis period or period of instability; viii) whether the gifts are likely to continue; and ix) the true purpose and nature of the gifts.
[46] In the Bak case, the Court of Appeal did not impute any income to the payor father as a result of gifts made to him by his father. The payor had a personality disorder and was unable to earn an income. His father had substantial means and wished to provide a better life for his son than would have been the case if the son’s income were limited to welfare. Further, the gifts made to the payor were not made for discretionary spending by the payor. The gifts were made for specific purposes, for example, the purchase of a condominium (the proceeds of sale from which were repaid to his father, the donor) and to provide a basic standard of living. The gifts to the payor from his father did not furnish him with an extravagant lifestyle.
[47] In the case at bar, there is no evidence to establish that the father is unable to work. As noted, in his testimony, he frequently referred his MBA from Wharton as well as other degrees he had earned. The father testified that he has a back injury, which will require surgery. However, no medical expert testified as to the father’s injury or the impact it may have on his ability to earn an income. The notes from his physician that were admitted into evidence make no mention of an inability that would prevent the father from working. No date for his surgery has been scheduled.
[48] Unlike in the Bak case, in the case at bar, the gifted funds pass from grandfather to father without condition. When testifying, the grandfather could not specifically recall the quantum of various amounts he gifted to the father. The gift of $1,100,000 was used by the father to purchase a new residence. Shortly after receiving the funds, the father took out a mortgage loan of $600,000, spent a portion of the borrowed funds personally and invested the balance in Chintamani. In his sworn financial statement, the father describes the gift as a “loan against inheritance”, which, in essence, means that the father has no obligation to repay the funds to the grandfather. The gifts made by the grandfather to the father, by almost any standard, would be considered extravagant. During his entire cohabitation with the mother (of more than 12 years), the father had sufficient financial support from the grandfather such that he was not required to pursue remunerative employment. Instead, he was largely free to pursue his education and spiritual pursuits, including moving his family to India where he could learn Sanskrit.
[49] Recently, this court has imputed income to the payor in circumstances where there was evidence establishing a settled pattern of monetary gifts from the payor’s parents that established a lifestyle in excess of a basic standard of living and the gifts continued post-separation in material amounts. The court found that imputing income on the basis of these gifts reflected a determination about the payor’s past revenues and likely financial futures. See Korman v. Korman, 2015 ONCA 578, at paras. 62-67. In Malkov v. Stovichek-Malkov, 2017 ONSC 6822, at paras. 69-73, Justice McGee found that when gifts to the husband (e.g., payments for housing, utility costs, realty taxes) take on the appearance of a long-term subsidy as if the spouse was a beneficiary of income or benefits from an unwritten trust, the advances bend towards income. In Kkabbazy v. Esfahani, 2012 ONSC 4591, at paras. 77-87, the court imputed income to the husband based on evidence that he typically received and expected to receive funds “as needed” to support his lifestyle from his family. In Teitler v. Dale, 2017 ONSC 248, at paras. 41-67, the court imputed income to the husband despite his assertion that the funds advanced from his parents were loans and not gifts. He had adduced no evidence that he had repaid any part of the alleged loans and his expenses were far in excess of his asserted income.
[50] The mother asserts that the father has some control over the gifts made to him by the grandfather. Under cross-examination, the grandfather admitted to providing financial support to his son for things that did not necessarily meet with his approval. For example, the grandfather testified that he resented the father’s insistence that the grandfather pay the tax on the gain that arose on the sale of the father’s shares of SNR Co., but ultimately paid it. He disagreed with the father’s choice to move his family to India so the father could pursue his spirituality, but the grandfather nonetheless arranged for a regular salary to be paid for the benefit of the family, at that time, through one of his companies. While in India, the family had staff including a driver. The grandfather also disapproved of the father’s decision to invest funds in Chintamani, but nonetheless arranged for one of the corporations controlled by the grandfather to make a $200,000 loan to Chintamani. Despite the grandfather’s disappointment in the inability of the father and mother to resolve their support issues, even after he contributed a significant amount of money to the family for support when they entered into a settlement agreement in 2015, he has been funding the father’s legal costs in this proceeding. The grandfather conceded in cross-examination that he has no legal means of enforcing the repayment of any amount given or lent to the father. It is only his hope that the father will repay him if and when the father receives significant distributions from the family trusts.
[51] In addition to receiving income from companies controlled by the grandfather, the mother asserts that the father has access to income from family trusts. The evidence at trial is that the father is a discretionary beneficiary of two significant family trusts, described as the “2003 Trust” and the “2015 Trust”. The grandfather testified that each of these trusts was created by him for the benefit of future generations. The grandfather is one of two trustees of the 2003 Trust, together with his sister. The grandfather testified that while there are two trustees, he effectively controls the trust as his sister defers to his decision-making in this regard. The grandfather is one of three trustees of the 2015 Trust but has the power to appoint new trustees and remove existing trustees.
[52] The grandfather testified that he is very disappointed in both the father and the mother and described each of them as selfish and immature. He commented that his relationship with each of his son and his daughter was strained because of the lifestyle choices they continue to make in spite of his requests to make wiser choices. He stated that “when polite requests are ignored and rude and insulting remarks are made to the benefactor, then the benefactor feels less generous.” The grandfather did not deny that he would continue to provide for the father in the future. When questioned directly about such financial assistance, he stated that, at this stage, it was not his intention, and added that it would be up to the father as to how “he is going to change things.”
[53] The evidence is that the grandfather has provided the father with generous financial support throughout his cohabitation with, and marriage to, the mother and following the separation. Significant gifts of money have been made on a fairly regular basis, which have allowed the father, for the bulk of his adult life, to choose to engage in non-remunerative pursuits. When the father acquired the Urban Nirvana spa business and attempted to operate it, he did so with financial assistance from the grandfather. When the father faced litigation, the grandfather paid for his legal counsel. The grandfather has also paid for some of the reintegration therapy on behalf of the father.
[54] When the father, mother and children were living in the U.S., and the father was pursuing his MBA, the grandfather provided the father and mother with cars and paid for a nanny to assist with the care of the children. These financial contributions allowed the family to enjoy a lifestyle that continues to be enjoyed by the father but not mother, who is the custodial parent of the children.
[55] The gifts provided by the grandfather do more than provide a basic standard of living. On the evidence, it would appear that the gifts have allowed the father to spend between $300,000 and $500,000 on personal expenses in each of 2016, 2017 and 2018. While the grandfather has told the father that there will be no more such gifts and that it is time for the father to take responsibility for his own family, in his testimony, he did not deny that there may be additional gifts to the father in the future. In fact, he suggested that the father could cause him to be generous again if the father modified his behavior and was more respectful of the grandfather. The true purpose of the grandfather’s generous gifts to his son, the father, appears to be to provide the father with an income to support a comfortable lifestyle for himself and his children. Accordingly, I find that this is a unique case in which the circumstances surrounding the receipt of generous gifts by the father from the grandfather are sufficiently unusual that they constitute an appropriate circumstance in which to impute income.
iv. Beneficial Interests in Family Trusts
[56] The mother submits that income imputation in the $800,000 range can be supported with reference to the father’s beneficial interest in each of the 2003 Trust and the 2015 Trust. Section 19(1)(i) of the Guidelines permits a court to impute income to a spouse as it considers appropriate where the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.
[57] In this case, the father has received no distributions from the 2015 Trust and in fact had no knowledge of this trust until the grandfather made reference to it in his testimony during this trial. The father did receive distributions from the 2003 Trust in the last year, but has since been advised that he will not be receiving any more distributions from that trust after November 1, 2018.
[58] There is authority for income imputation to a beneficiary where the amounts are recurrent and used to finance a significant portion of the recipient’s living expenses. See: Laurain v. Clarke, 2011 ONSC 7195 at para. 55 and Clapp v. Clapp, 2014 ONSC 4591 at paras. 22-28. However, in this case, the amounts paid to the father are not recurrent and are determined by the trustees in their discretion.
[59] In reliance on Waese v. Bojman, 2001 CanLII 28221 (ON SC), 2001 CarswellOnt 1813 (S.C.), the mother urges the court to consider potential income available to a beneficiary of a trust where the beneficiary has a close personal relationship with the trustee. In Lay v. Lay, 1997 CarswellOnt 4083 (Div. Ct.), the Divisional Court upheld an order that the wife pay interim child support on the basis of income potentially earned from a discretionary trust with an asset base of over $2 million.
[60] The father is a discretionary beneficiary of the 2003 Trust of which there are only two discretionary beneficiaries at this time, being himself and his sister. The 2003 Trust had an asset value of $7,144,767 in 2017 and $7,445,878 in 2018. The father is also a discretionary beneficiary of the 2015 Trust of which there are currently five discretionary beneficiaries including the grandfather, the father and his sister, and the father’s two sons. The 2015 Trust had an asset value of $69,418,844 in 2016; $69,859,640 in 2017; and $72,420,171 in 2018.
[61] The mother applies a rate of return of 5% to the asset value of each of these trusts and then applies it to the father’s current percentage interest in each of the trusts. In so doing, she submits that the income available to the father, and accumulating in these trusts, was $844,204 in 2016, $877,216 in 2017 and $910,349 in 2018.
[62] I reject the mother’s analysis of the availability of over $800,000 of income to the father from these discretionary trusts in each of 2016, 2017 and 2018. Given the testimony of the grandfather at trial, there is little reason to believe that the father would be able to persuade the grandfather to make distributions of income from the trusts to the father any time soon. The evidence is to the contrary. Both the father and the grandfather testified that distributions to the father from the 2003 Trust would come to an end in November of 2018. Apart from the payments made to the father and sister from the 2003 Trust in 2017 and 2018, the evidence is that no distributions have been made from the 2003 Trust. No distributions have been made to the father from the 2015 Trust. Further, even if the father had some influence over the grandfather, pursuant to the terms of the trusts, the grandfather may not unilaterally make distributions from these trusts. In the case of the 2003 Trust, the grandfather would need to consult with his co-trustee and obtain her approval before any distribution could be made. In the case of the 2015 Trust, all decisions are required to be made by a majority vote of the trustees.
Tax Gross Up
[63] When a spouse has organized his or her finances so as to pay less tax than a salaried employee would pay, if the court proposes to add back business expenses to income for support purposes, the amounts added back must be grossed up for taxes to satisfy the consistent treatment objective of the Guidelines: Ludmer at para.154.
[64] The father’s failure to disclose financial information necessary to the proper determination of his income in compliance with the Family Law Rules is again relevant. The mother submits that the only viable approach to determining the father’s income is to add the total of the discretionary expenses he deducted from his business income to his annual personal spending and apply an income tax gross up to that total.
[65] As noted above, I find that the business expenses to be added back into the father’s income are $19,628 for 2016; $33,299 for 2017 and $7,716 for 2018. These amounts must be grossed up for income taxes. Using the weighted average tax rates set out in Ms. Bennett’s “Calculation of Mr. [B. F.’s] 2016, 2017 and Projected 2018 Income Pursuant to the Federal Child Support Guidelines Based on Spending Only” document, I find that these amounts would be grossed up to $35,922 for 2016, $63,645 for 2017 and $13,948 for 2018.
[66] The mother urges the court to gross up the personal spending amounts as well as the business expenses. To do so would impute to the father annual income in the $800,000 range. I have not been given any authority for the grossing up of the personal spending amount. In the circumstances of this case, as set out below, I am not satisfied that such a gross up would provide a fair standard of support for children or reduce conflict and tension between spouses as contemplated by the Guidelines.
Determination of Income Support
[67] For each of 2016, 2017 and 2018 (projected), the father’s discretionary expenses, grossed up for income taxes, plus his personal spending amount to $354,650 for 2016; $610,018 for 2017 and $426,920 (projected) for 2018. I find the father’s income to be each such amount in each respective year.
[68] There is considerable fluctuation in the father’s income over these three years. It is likely that this income fluctuation will continue into the future. The father’s future income is dependent on a number of factors including the type of employment he will find and how quickly, whether he will start another business, and whether the grandfather will continue to support him financially, despite his indications to the contrary. For this reason, I rely on s. 17 of the Guidelines, which permits the court to have regard to the spouse’s income over the last three years and to determine an amount that is fair and reasonable in light of income fluctuation. The average of these income amounts is $463,863. I therefore impute an income of $463,863 to the father for each of 2016, 2017 and 2018.
[69] The objectives of the Guidelines are to establish a fair standard of support for children, to reduce conflict and tension between spouses, to improve efficiency in the legal process and to ensure consistent treatment of parents and children.
[70] Given the high conflict between the father and the mother, and their long history of matrimonial litigation, both parties have asked the court to fix the father’s income for a period of time beyond 2016 and 2017. Both parties testified that a fixed amount would avoid conflict and would be in the best interests of the children.
[71] I must consider whether, in this case, the objectives of the Guidelines are best met by ordering a fixed amount of child support. In Swanson v. Swanson, 2004 CarswellOnt 5382 (S.C.), the court found that the husband’s behaviour, including a refusal to disclose financial information and a failure to find suitable employment was part of a strategy to punish the wife and children for the separation and therefore ordered a fixed amount of spousal support. Fixed amounts of spousal support have also been awarded when there has been insufficient financial disclosure and a risk that a payor will not comply with an order for support. In Mgrdichian v. Mgrdichian, 2006 CarswellOnt 2621 (S.C.), the court ordered a fixed monthly rate of support for over six years after finding that the husband refused to provide financial disclosure and had tried to divest himself of assets prior to the family law proceeding.
[72] The mother seeks a fixed monthly rate of child support until the older child graduates from high school. She submits that contrary to his obligation to pay child support pursuant to a court order, the father paid support based on his own determination of his income, which fluctuated month by month. As has already been noted, the father’s financial disclosure has been inadequate. The records for Chintamani were, even by the father’s own admission, replete with errors. The mother was at a loss to determine the father’s income without the assistance of Ms. Barrett, a Chartered Business Valuator, whose opinion changed twice leading up to trial as a consequence of the ever-evolving disclosure which continued throughout the trial. By contrast, the mother’s income was agreed prior to the trial. If the father’s past behavior is any predictor of the future, the mother will be put to considerable time and expense if she is required to determine the father’s income on an annual basis. This will only reduce the funds available to support the children.
[73] Because the father’s job prospects are uncertain, as is his ability to persuade his father to continue to make generous gifts to him, if his income is not fixed for a period of time, it is foreseeable that the parties will again be before the court in a year’s time. Unfortunately, the parties have shown themselves to be parents who cannot resolve issues affecting their children without the assistance of the court. Accordingly, I fix the father’s income at $463,863 per annum until September 30, 2023. The older child is expected to attain 18 years of age in 2023 and that would be a suitable time for child support to be re-evaluated. If the parties cannot agree on their respective incomes for support purposes, as of October 1, 2023, either may bring a motion to change the child support at that time.
[74] Based on the tables that form part of the Guidelines, the income imputed to the father results in table child support of $5,843.36 per month for 2017 and 2018. Child support in that amount shall be paid by the father for the period from July 1, 2017 to September 30, 2018. The father shall be entitled to a credit against child support owing to the mother for 2017 and 2018 for amounts paid to her for child support in those years. The father shall pay monthly child support in the table amount based on an annual income of $463,863 from September 30, 2018 to September 30, 2023, after which time either party may bring a motion to change the child support.
Issue 2: What are the s. 7 special or extraordinary expenses of the children, and how should these expenses be shared between the father and mother?
[75] Pursuant to s. 7(1) of the Guidelines, the court may provide for an amount to cover all or any portion of the following expenses, which may be estimated, taking into account the necessity of the expense in relation to the child’s best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family’s spending pattern prior to the separation:
(a) child care expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment;
(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;
(d) Extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs;
(f) Extraordinary expenses for extracurricular activities.
[76] To determine whether an amount of s. 7 expenses should be awarded in this case, I must: i) determine whether the claimed expenses are covered by one of the enumerated categories included in s. 7; ii) determine whether the expenses are necessary in relation to the child’s best interests; iii) determine if the expenses are reasonable in relation to the means of the spouses and to the family’s spending pattern prior to the separation; and iv) determine whether the expenses claimed under paragraphs 7(1)(d) or (f), (i.e., educational program or extracurricular activity expenses) are indeed extraordinary.
Analysis
Child Care Expenses
[77] Child care expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment do not need to be significant or extraordinary in order to be shared by the parties in proportion to their incomes. Nonetheless, they must be necessary and reasonable.
[78] The mother submits that if a camp in which the children participate simply replaces daycare or babysitting, it should be dealt with as a child care expense incurred as a result of her employment.
[79] The father submits that the camps attended by the children are not necessary for daycare. The older child is nearly 14 years of age and not in need of daycare. Further, the father submits that the mother works from home and that he has offered to look after the children while the mother works, as needed, because his daytime schedule is quite flexible.
[80] I find that the camps attended by the children do not qualify as daycare for the purposes of s. 7 expenses. I will reconsider them as extracurricular activities below. To the extent that the mother’s employment requires before and after school daycare for the younger child, that expense, which was $6,600 (including a mandatory summer camp if the child is to be enrolled in the daycare program for the following year) for the 2017/2018 school year, shall be included in the s. 7 expenses shared by the parents in proportion to their respective incomes.
Health-related Expenses
[81] Pursuant to the Guidelines, health-related expenses, which exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychiatrist, social worker, psychiatrist or any other person, do not need to be significant or extraordinary in order to be shared by the parties in proportion to their incomes, but they too must be necessary and reasonable.
[82] Both children are engaged in personal therapy with Dr. Radovanovic. Neither of the parties disputes that such counselling is necessary for each of the children at this time. Likewise, neither disputes that the costs of this counselling are reasonable. The evidence at trial was that the parties paid Dr. Radovanovic’s fees incurred prior to the trial in the amount of $8,200 on a 50/50 basis. I find that, going forward, the fees of Dr. Radovanovic or any other psychologist, social worker or psychiatrist providing similar counselling services to one or both of the children are s. 7 expenses to be shared by the parents in proportion to their respective incomes.
Extraordinary Expenses for Educational Programs that Meet the Particular Needs of the Children and for Extracurricular Activities
[83] The Guidelines provide at s. 7(1.1) that for the purposes of paragraphs (d) and (f), “extraordinary expenses”, are those the court considers extraordinary taking into account: i), the amount of the expense in relation to the income of the spouse requesting the amount, including the amount that the spouse would receive in table child support, ii) the nature and number of the educational programs and extracurricular activities, iii) any special needs and talents of the children, iv) the overall cost of the programs and activities, and v) any other similar factors that the court considers relevant.
[84] In this case, the mother’s income is not in dispute. The parties agree that she had an income of $262,118 in 2017. In addition to this income, she will receive monthly child support of $5,843 for that year and the same amount going forward until 2023.
[85] According to all relevant parenting orders, each parent is entitled to enrol the children in age-appropriate extracurricular activities during the period in which either or both children are in that parent’s care. Each of the father and mother has enrolled one or both of the children in programs. The mother has enrolled the children in a considerably greater number of programs. For the older child, these include numerous basketball programs and camps, debate camp, private swimming lessons, soccer camp, U of T Leadership Camp, UTS Camp (focused on Integrative Thinking), Power4Teens Leadership Camp and YMCA Summer Sports Camp. For the younger child, the programs include house league soccer, private swimming lessons, fight club Sistema lessons, guitar lessons, Pawsitively Pets summer camp, and YMCA Summer Nature Camp.
[86] The evidence shows that the total cost of these programs, as arranged by the mother for the children, amounted to $13,513.23 for the period from July 1, 2017 to the time of the trial. The father submits that he too paid for extracurricular activities in which he had enrolled the children. The mother admits that the camps and programs in which she has enrolled the children are more expensive than programs offered by the City of Toronto. However, she asserts that they are more enriching and specialized than the city programs. In particular, the younger child has a keen interest in animals and she testified that there are not many camps devoted to that interest. Those that are available are offered at a higher price than other types of camps.
[87] While the list of activities is long, I find no valid reason to interfere with this aspect of parenting. The mother submits that while the children do participate in a variety of extracurricular activities, she believes that the children enjoy the activities and the activities assist the children in their social development, allow them to connect with their peers and their community and alleviate stress. She further submits that that the programs are important for the children’s self-esteem, confidence, and academic development.
Determination of s. 7 Expenses
[88] To determine whether an amount of s. 7 expenses should be awarded, I must determine whether the expenses are covered by one of the enumerated categories included in s. 7. In this regard, I find that the fees for daycare for the younger child while the mother is working is a s. 7(1)(a) expense. The cost is reasonable and daycare at the school of the younger child is convenient for the younger child and in his best interests.
[89] I also find that the fees for each child to receive individual psychological counselling (a health related expense) are a s. 7 expense that is necessary and in the best interests of each of the children. The evidence is that the children have struggled with the separation and each of them, with the benefit of professional assistance from Dr. Radovanovic, is working at building a closer relationship with the father. Given the parents’ incomes and their spending pattern prior to the separation, this expense is reasonable and one that the parents have willingly shared prior to the trial. I find that this cost shall be shared by the mother and father in proportion to their respective incomes.
[90] I have imputed an income of $463,863 to the father for 2017 and 2018. The parties are agreed that the mother’s income for 2017 was $262,118. Based on these incomes, the father’s proportionate share of the s. 7 expenses is 64% and the mother’s is 36%.
[91] Regarding the educational programs and extracurricular activities, including the camps and other programs, the parties are agreed that some of them are necessary and in the best interests of the children. Taking into account the income I have imputed to the father and the mother’s income, I find that the parties can afford to contribute to the costs of the younger child’s daycare, the children’s counselling as well as educational programs and extracurricular activities. The father has agreed that he sees the merit in the children participating in a reasonable number of activities at a reasonable cost.
[92] Accordingly, I find that a reasonable contribution by the father to the children’s s. 7 special or extraordinary expenses for educational programs and extracurricular activities would be $2,500 per child per year (for a total of $5,000). I fix the father’s contribution to s. 7 expenses for educational programs and extracurricular activities at $2,500 per child per year until September 30, 2023, when it is expected that the older child will attain the age of majority. At that time, either party may bring a motion to change the child support including the s. 7 contribution by the father, if required.
[93] Given the high conflict between the parents, the mother asks that the father’s contribution to s. 7 expenses until the older child is expected to graduate from high school be paid to her in a lump sum. Because the duration of the psychological counselling for the children as well as their ongoing interest in participating in a variety of extracurricular activities is unknown and difficult to predict, I decline to make such a lump sum award of the whole of the s. 7 expenses for that period. However, to ease the conflict between the parents, the father shall be required to pay to the mother a lump sum of $35,000 on account of s. 7 special or extraordinary expenses for educational programs and extracurricular activities for the years 2017 to 2023 less any amount he has already paid as a contribution to each of the extracurricular activities as arranged by the mother in 2017, 2018 and 2019. This lump sum payment shall constitute special circumstances pursuant to the Guidelines.
[94] On December 31 of each year, commencing in 2019, the mother shall provide a summary of the extracurricular activities undertaken by each of the children in that calendar year and the cost of such programs. If the total cost of such activities in the year is less than $5,000, the mother shall be required to pay to the father the difference between $5,000 and the actual cost of the activities.
Order
[95] An Order shall issue on the following terms:
Paragraph 1 of the November 27, 2015 Order of Justice Harvison-Young shall be varied to provide that commencing October 1, 2018, based upon the Respondent’s imputed income at $463,863, the Respondent shall pay the Applicant child support for the children of the marriage, whose full names and dates of birth shall be set out in the final Order, in the amount of $5,843.36 per month, which shall be paid on the first day of each month.
Paragraph 2 of the November 27, 2015 Order shall be varied to provide that the Respondent shall pay 64% of the children’s daycare and counselling expenses, based on the Applicant’s income being $262,118 pursuant to the Child Support Guidelines and the Respondent’s income being $463,863 pursuant to the Child Support Guidelines. The Respondent shall also pay $2,500 per child per year for a total of $5,000 per year as a contribution toward the children’s s. 7 expenses for special or extraordinary educational programs and extracurricular activities until the older child attains the age of 18 years. The Respondent shall within 60 days of this Order provide the mother with a lump sum payment of $28,901.52 (being $35,000 - $6,098.48 already paid by the father in 2017 and 2018) towards the children’s special or extraordinary expenses for educational programs and extracurricular activities until June 30, 2023. Commencing December 31, 2019, on an annual basis, until June 30, 2023, the Applicant shall provide the Respondent with a summary of all the extracurricular activities undertaken by the children in that calendar year and the costs of each such activity. Such summary shall be delivered to the father not later than January 31 of the year following. If the total cost of such activities for that preceding year is less than $5,000, the Applicant shall pay to the Respondent the difference between $5,000 and the actual cost of such activities. Such payment shall be made on or before February 28 of that year.
Paragraph 4 of the November 27, 2015 Order shall be varied as follows. The amount of table child support payable by the Respondent pursuant to paragraph 1 above and the share of special or extraordinary expenses payable by the Respondent pursuant to paragraph 2 above shall be fixed and non-variable until June 30, 2023 (when the older child is expected to graduate from high school). Commencing July 1, 2023, the parties shall adjust the table amount of child support and special or extraordinary expenses paid each calendar year based on the parties’ incomes for that calendar year as determined in accordance with the Child Support Guidelines. By no later than May 1st (June 15th if either party is self-employed) of each calendar year, the parties shall exchange copies of their income tax returns filed in all jurisdictions for the prior calendar year, in addition to any other documentation required pursuant to s. 21 of the Child Support Guidelines. The parties shall then determine the appropriate amount of child support based on the prior calendar year’s incomes, in accordance with the Child Support Guidelines, and effective July 1st. If the parties cannot agree, they will use the section of the November 27, 2015 Order, entitled "Dispute Resolution" to resolve this issue.
Between July 1, 2017 and September 30, 2018, the children’s special or extraordinary expenses totalled $28,313.23, including:
Both Children: Counselling with Dr. Radovanovic $8,200.50
Younger Child: 3 Weeks of Pawsitively Pets Summer Camp $1,286.79
Younger Child: East York Soccer House League $235
Older Child: Basketball Academy Fall Development Program $255
Older Child: Elite Basketball March Break Camp $375
Older Child: Elite Basketball Summer Camp 2018 $372
Older Child: Fall CORE Basketball Development Program, Wednesday $508.50
Older Child: Fall CORE Basketball Development Program, Thursday $300
Older Child: Debate Camp Summer 2018 $559.09
Younger Child: Fight Club Sistema Lessons Oct to March $450
Older Child and Younger Child: Private Swim Lessons, Winter, Jack of Sports 2018 $600
Younger Child: Jackman Daycare, Summer Camp 2018 and 2017-2018 School Year Fees $6,600
Younger Child: Lippert Music Guitar Lessons July 1 2017 till Dec 31 2017 $550
Younger Child: Lippert Music Guitar Lessons Jan 1 2018 till Aug 31 2018 $727.50
Younger Child: Fight Club Sistema Lessons April to Oct $675
Older Child: Spring CORE Basketball Spring Development Program, Wednesday $378.55
Older Child: Elite Basketball Feb 2018 PA Day Camp $148.90
Older Child: TAC Basketball Jan 2018 PA Day Camp $84.75
Older Child: TAC Basketball June 2018 PA Day Camp $84.75
Older Child: U of T Leadership Summer Camp 2018 $256
Older Child: UTS Summer Camp 2018 - Week 1 $565
Older Child: UTS Summer Camp 2018 - Week 2 $565
Older Child: Winter CORE Basketball Development Program, Wednesday and Thursday $836.20
Older Child: Power4Teens Leadership Summer Camp 2018 $480.25
Older Child: Basketball Academy Summer Camp 2017 - Week 1 $235
Older Child: Power Soccer Summer Camp 2017 $333.35
Older Child: Harbourfront Basketball Summer Camp 2017 $330
Older Child and Younger Child: YMCA Summer Camp 2017 $415
Older Child: Basketball Academy Summer Camp 2017 - Week 2 $255
Older Child: Hoop Factory Summer Camp 2017 $282.50
Older Child: CORE Basketball Fall 2018 $800.00
Younger Child: Lippert Music Guitar Lessons Fall 2018 $567.50
- Between July 1, 2017 and September 30, 2018, the Respondent has paid a total of $24,336 in table child support and has made a contribution of $6,098.48 towards the children’s special or extraordinary expenses. As of September 30, 2018, the Respondent owes arrears of child support in the amount of $72,902.84, calculated as follows on the chart below.
| Support | Amount Owed | Amount Paid | Balance Owed |
|---|---|---|---|
| Table Child Support | $5,843 x 15 mos. = $87,645.00 | $24,336 | $63,309.00 |
| Section 7 Expenses | i) 64% of Dr. Radovanovic’s Fees = $5,218.32 ii) 64% of Jackman daycare fees = $4,224 iii) educational programs/extracurricular activities $416.66 x 15 mos. = $6,250 |
$6,098.48 | $9,593.84 |
| Total | $103,337.32 | $30,434.48 | $72,902.84 |
These arrears shall be paid within 45 days of the date of the Order.
Paragraphs 3 and 5 to 17 of the November 27, 2015 Order relating to child support shall remain unchanged.
Unless this Order is withdrawn from the Office of the Director of the Family Responsibility Office, it shall be enforced by the Director and amounts owing under the Order shall be paid to the Director, who shall pay them to the person to whom they are owed.
For as long as child support is to be paid, the payor and the recipient, if applicable, must provide updated income disclosure to the other party each year, within thirty (30) days of the anniversary date of this Order, in accordance with section 24.1 of the Child Support Guidelines.
The Order shall bear interest at the rate of 3 percent per annum on any payment or payments in respect to which there is a default, from the date of the default.
Costs
[96] The costs in this matter (being the proceedings bearing Court File No. FS-14-19258-0002 and Court File No. FS-14-19258-0001) include the costs of this trial relating to child support (including the motion regarding disclosure heard therein) as well as the costs relating to the parenting agreement made by the parties prior to the trial (and incorporated into the final Order of Justice Stevenson dated September10, 2018) in respect of which the Applicant mother has already provided, and the Respondent father may provide, affidavit evidence in support of a claim for costs (as set out in Justice Stevenson’s order dated September 17, 2018). If, by April 10, 2019, the parties have not agreed on costs, costs submissions may be made on the following schedule. The Applicant mother may make written submissions, not exceeding three pages in length plus a costs outline or bill of costs and offers to settle, if any, within two weeks of April 10, 2019. The Respondent father may make written submissions not exceeding three pages plus a costs outline or bill of costs and offers to settle, if any, not later than May 8, 2019. The Applicant mother may make reply submissions limited to one page in length not later than May 22, 2019.
Dietrich J.
Released: March 18, 2019
COURT FILE NO.: FS-14-19258-0002
DATE: 20190318
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
F.B.M
Applicant
– and –
B.F.
Respondent
REASONS FOR JUDGMENT
Dietrich J.
Released: March 18, 2019