COURT FILE NO.: FC-08-FS000095-0000
DATE: December 19, 2019
ONTARIO
SUPERIOR COURT OF JUSTICE, FAMILY COURT
BETWEEN:
KIMBERLY LEPOIDEVIN
Applicant
William P.H. Proctor, for the Applicant Mother
- and -
RICHARD EDWIN LEPOIDEVIN
Respondent
John Mastorakos, for the Respondent Father
HEARD: September 27, 2019
Nicole Tellier J.
RULING ON MOTION TO CHANGE
OVERVIEW AND PARTIES’ POSITIONS
[1] The applicant, Richard Lepoidevin, (“Rick”) brings a Motion to Change his spousal support obligation under the parties’ final consent order of Scott J., dated January 12, 2010. Rick asks that the court terminate his monthly payments of $800, and, additionally, that he be relieved of the companion obligation to maintain life insurance naming his former spouse Kimberly (“Kim”) as the beneficiary. He is voluntarily retiring at age 60. He argues this constitutes a material change in circumstances, which warrants a review of the spousal support provisions, as contemplated by paragraph 3 of that order. He also submits that he has satisfied his support obligation because he paid an unspecified amount of spousal support, voluntarily, post-separation from January 2006, followed by the formal support regime which commenced in January 2010, for a total of approximately 13 years.
[2] Kim, now aged 59, resists the motion. She argues that the language in the order regarding Rick’s retirement is not a material change in circumstances that would permit a variation review under section 17 of the Divorce Act, since he is retiring earlier than the normal retirement age of 65.
[3] Kim submits that even if he satisfies the threshold test of a material change, income ought to be imputed to him because he has not yet fulfilled his spousal support obligation, having regard to her entitlement. She asserts her support entitlement is compensatory in nature, she has continued need and therefore his obligation should continue until she is 65 years old. Based on Rick’s 2018 employment income of $61,704 and conceding an income imputation to her of $30,000 annually, Kim seeks an order for continued spousal support, fixed at the mid-range of the Spousal Support Advisory Guidelines, (“SAGG “). The parties agree this is the same range as in the original order. That results in a monthly payment of $1063, using current incomes. Alternatively, she asks that it continue at the current amount. She also asks that this obligation continue to be secured through life insurance.
ANALYSIS
Material Change in Circumstances under the [Divorce Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-3-2nd-supp/latest/rsc-1985-c-3-2nd-supp.html)
[4] L.M.P. v. L.S., 2011 SCC 64, [2011] 3 SCR 775 remains the leading authority for the correct approach to determine whether there has been a change in circumstances which warrants a review of a spousal support order under section 17(1) the Divorce Act, R.S.C. 1985, c.3 (2nd Supp.), (“the Act “). The long established definition of a change in circumstances refers to a “material” change that “if known at the time would likely have resulted in different terms.” This definition, first found in Willick v. Willick, 1994 28 (SCC), [1994] 3 S.C.R. 670, a child support variation, was adopted for variations of spousal support in G. (L.) v, B. (G), 1995 65 (SCC), [1995] 3 S.C.R. 370. (See L.M.P. at para. 30).
[5] The two sets of reasons in L.M.P., which concur in the result, diverge on the question of how the principles enunciated in Miglin v. Miglin, 2003 SCC 24, [2003] 1 S.C.R. 303 factor into the analysis. The approach in the majority opinion hones in on the differences between the legislative provisions applicable to initial applications for support, such as in Miglin, and those at play in the variation context. The majority conclude that the Miglin analysis, conducted under section 15(2) of the Act should not be imported into the analysis for variations under section 17. (See L.M.P. at paras. 22 to 28).
[6] A section 17 variation inquiry begins with the presumption that the existing order’s terms complied with the objectives of the Act when it was made. (See L.M.P. at para. 33). This means the initial focus is on the nature and sufficiency of the change to determine whether the threshold test for a variation consideration has been satisfied by the moving party. The change must be enduring. (See L.M.P. at para. 35) If the moving party discharges this threshold onus, then the context and magnitude of the change will shape the scope of the inquiry, as well as the remedy. In this sense, L.M.P. guides us away from a rigid approach, which describes the hearing as either de novo or not, towards a more fluid approach regarding the proper scope of the hearing, driven by the unique facts of each case. (See L.M.P. at para. 47).
[7] Kim argues that the principles in Hickey v. Prince, 2015 ONSC 5596 (Div. Ct.) apply to bar this review on the basis that early retirement is not material change in circumstances. In Hickey, the Divisional Court allowed an appeal where the motion judge erred in finding that the husband’s voluntary early retirement on a full pension constituted a material change in his income. The court held that the motion judge failed to consider the husband’s income earning capacity and his overall wealth in determining whether there was a material change in his condition, means, and other circumstances. The court concluded he was in good health and had the ability to continue to earn more than enough for the continuation of the wife’s existing support. In short, the Divisional Court concluded there was no material change in income earning capacity. The facts here are different as they relate to the threshold question.
[8] As noted by the court in L.M.P., a parties’ agreement is not ignored under section 15(2) or section 17 but its treatment will be different because of the different purposes for each provision. (See L.M.P. at para. 27). Here the parties’ Minutes of Settlement were incorporated into a final order, subjecting their terms to the narrower scope of review under section 17. Paragraph 3 of the final consent order reads as follows: “The spousal support payable by the Respondent is subject to review in the event of a material change in circumstance, and a material change in circumstance may [emphasis added] include but not be limited to the retirement of the husband.”
[9] The plain meaning of this provision is that the parties contemplated that Rick’s retirement might entitle him to trigger a review of the support obligation. Notably there is no reference to Kim’s retirement even though she was working full-time when the Minutes were formulated. It matters that the order has language which specifically contemplates Rick’s retirement. Given that there is no stipulated age of retirement in this provision and that Rick has, in fact, retired and is moving permanently to Mexico, I find that his circumstances have changed in a material way within the meaning of section 17. His new place of residence alone constitutes a material change in circumstances since he is moving to a jurisdiction which has no reciprocal support enforcement mechanism with Canada. This effectively deprives Kim of the benefit of an operative term in their current order, namely the ability to enforce it through the Family Responsibility Office.
[10] That said, an affirmative answer to the question of whether the moving party has met the threshold test does not necessarily translate into an increase, decrease, suspension or termination of the obligation. It merely opens the door to further inquiry and a consideration of what order is required now, having regard to the objectives of section 17(7) of the Act.
The Spousal Support Obligation
The Parties’ Circumstances
[11] After 23 years of marriage Rick and Kim separated in December 2005. It was not until April 1, 2009, that they settled on a monthly obligation, payable for an indefinite period. The parties’ Joint Book of Documents reveals the quantum was generated using SAAG, on the basis that Rick, aged 47, had an annual employment income of approximately $49,000 and Kim, then aged 45, had an income deemed at $25,000. The agreed obligation was set using the mid-range, employing the Adult Child Formula. This results in the payment of $800 per month, (rounded down by $5.00), leaving Rick with 51.5 % of the parties’ total NDI (net disposable income) and Kim with the remaining 48.5% NDI.
[12] At the time of separation, both parties were working full-time. Their three children were independent adults. Rick was employed as a lineman at Bell Solutions Technologies Inc. Kim ran a home daycare, offering round the clock services, including to infants. From the date of separation to the date of the order, a period of 5 years, Rick did not pay regular monthly spousal support. He initially paid some of Kimberley’s living expenses, including the mortgage, mortgage insurance, utilities and car insurance. From October 2007 to and including March 2009, a period of 18 months, Rick paid a total of $3750. Since paragraph 2 of the order specifically acknowledges spousal support paid and received in the sum of $750 for each of the months of January, February and March, 2009, I assume Rick sought and received tax deductible treatment for these 3 payments in that year. In April 2009, the final monthly obligation was set at $800, on consent. Throughout this time, Kim enjoyed the benefit of exclusive use of the matrimonial home. This made economic sense given that she was self-employed as a licensed childcare provider, operating her business out of this dwelling.
[13] After the consent order was made, a supplementary consent order provided for a mutual annual obligation to exchange financial disclosure. The parties complied with its requirements. Neither party sought a variation of support.
[14] As part of the post-equalization scheme, Rick retained his one third interest in 3 income properties. This gave him dividend and rental income in addition to pay increases. When Rick decided to liquidate his shares in these properties in 2017 and 2018, he appears to have deferred some, or all, this of the taxes owing on the related capital gains by making significant RRSP contributions.
[15] In February 2017, Rick gave Kim notice of his intention to retire in December 2018. In September 2018, Rick informed Kim he was requesting a termination of his spousal support obligation as he would be retiring effective January 2019 and would be in receipt of 9 months’ severance from January to September, 2019.
Entitlement
[16] The language in the final consent order does not denote whether Kim’s support entitlement was compensatory, or needs based in nature, or perhaps some hybrid of these two grounds for entitlement. This is relevant to the court’s determination of the overall obligation. Here, the parties chose the mid-range which brought them close to sharing their joint incomes almost equally at the time the order was made. The order was indefinite; it did not contain a defined termination date. This signals that the ongoing obligation was not intended to or likely to end in the foreseeable future. And, as is the case in many of these motions to change involving indefinite orders, the question of whether the spousal support obligation is variable or terminates at actual retirement or some other notional reasonable retirement age like 65, or paid until death, is left open.
[17] I heard oral evidence from both parties regarding their respective roles in the marriage and their employment histories. This assisted in determining the foundation for the support entitlement. The parties met when they were both employed at Bell Canada which afforded opportunities for advancement and securing seniority. Kim interrupted and then changed her employment to allow her to fulfil her domestic responsibilities. She was the primary parent for their 3 children. Rick testified he helped parent and even gave occasional hands on help in caring for the daycare children. I recognize he also assisted with the daycare operation by sharing the family home. The somewhat limited evidence before me suggests a traditional marriage in the sense that mother’s employment choices allowed her to put the children’s needs and her other domestic duties first and left her earning less, with less economic security. The length of the parties’ marriage, and the wife’s heightened dependency, plus the significant disparity in their incomes, collectively give rise to a substantial obligation. I conclude Kim’s entitlement is compensatory in nature, supporting a more generous quantum for a longer duration, unless otherwise re-structed.
[18] Even on a strict needs-based analysis, it must be recognized that need has long been defined as a relative term such that former spouses are entitled to a standard of living resembling that during marriage, to the extent possible in their circumstances.
[19] Both parties worked very hard during marriage. They both worked long hours and engaged in demanding physical work. The crux of Rick’s argument is that at age 60, after working hard for so many years, he ought to be able to stop and enjoy the rest of his life. He says after almost 13 years of paying spousal support, he has fully satisfied his obligation and is therefore seeking an order terminating it.
[20] There is considerable jurisprudence on the question of when early retirement, that is prior to age 65, may entitle a payor spouse to a reduction or termination of an existing spousal support obligation. Where the retirement is involuntary, due to health reasons, cogent medical evidence is required. See for example: Cosette v.Cosette, 2014 ONSC 4667, 2014ONSC 4667, aff’d 2015 ONSC 2678 (Div Ct.); Hesketh v. Brooker, 2013 ONSC 1122, 2013 ONSC1122; and Walts v. Walts, 2013 ONSC 6787. Where the retirement is involuntary because the employer demands it, the court must consider the payor’s alternative income earning capacity and overall wealth in determining whether there is a material change in the conditions, means and other circumstances which justifies a reduction or termination.
[21] There are many cases which are factually similar to this one; the early retirement is strictly voluntary. In Bullock v Bullock, 2004 16949 (ONSC), Corbett. J. at paras 9 and 10 expresses the issue as follows:
Many people dream of retiring “early”, although there is not a set age at which people today expect to cease working. Many successful people find they can afford to stop work before they reach the age of 65. Others continue on well into their seventies and even longer. The legal question for this case, then, is not whether Ronald should retire at age 62, but whether this personal choice should be viewed as a quote material change of circumstances quote for the purposes of payment of spousal support.
[22] I have already determined that, in this case, the language in the consent order meets the threshold for a review but the general principles in Bullock, Cosette and Hickey v. Princ regarding early retirement do apply here. A payor spouse cannot side-step support obligations by unilaterally leaving the workforce early. As stated by the Divisional Court in Cosstte, at para. 13 citing Bullock, also at para 13: “The support payor cannot choose to be voluntarily underemployed whether by retirement or otherwise and thereby avoid his or her spousal support payment obligations.”
[23] It became apparent that Rick has been planning for an early retirement for a while. He has purchased a condominium in Mexico which he owns jointly and equally with his new partner. He has been and continues to be a source of support to her, as she is unemployed. His financial statement included in the Trial Record was sworn December 3, 2018 and is therefore out-of-date. It depicts a net worth of $380,000. Since that financial statement was sworn, he has liquidated the remaining rental property owned by JAR Properties Inc. and has likely made the final payments towards the purchase of the Mexico condominium, since he planned on leaving the jurisdiction days after the hearing. He also owns a trailer in Ontario and, for the first couple of years, he intends to split his time between Canada and Mexico. It is his plan to eventually give up Canadian residency altogether.
[24] Rick testified that he could continue to work until the age of 65. He has no medical impediment to doing so, although his outdoor work no doubt takes its toll. He did not advance any medical evidence to suggest his health status necessitated early retirement. He testified that his receipt of the severance pay does not preclude him from returning to work for the same employer at a later time. He may well be employable elsewhere, with less strain, based on his technical and administrative skills, acquired during marriage.
[25] Kim works hard for long hours caring for infants and children. She caters to an established and relatively stable base clientele of nurses working shifts. She provides round the clock childcare, in her home. At the time of separation, she agreed to a deemed income of $25,000. This is higher than what she had ever earned on a gross basis, before deducting reasonable business expenses. Like Rick, she has remained in the same occupation throughout most of the marriage.
[26] There is ample authority regarding the duty of a dependent spouse to use settlement proceeds wisely, including for the purposes of generating investment income. Any income attribution analysis undertaken as part of the support claim takes into account whether the settlement proceeds received were liquid and therefore capable of generating investment or interest income or whether the settlement included the transfer of an asset, such as the matrimonial home, which may offer housing at a reduced cost in comparison to rental accommodation.
[27] As articulated in Boston v. Boston, 2001 SCC 43 and other cases which have applied it, income may be attributed to a spouse as if an asset, such as a home, were liquid and available to create a capital fund, which generates investment income and is available to drawn upon to meet living expenses.
[28] Counsel for Rick questioned Kim about how she managed her funds post-separation. She testified that since receiving Rick’s half-interest in the former matrimonial home as part of their property settlement, she has increased her mortgage. She incurred this debt to finance necessary repairs and improvements to her home, which is also her business premises. She has prudently put some of her income into an RRSP, thereby reducing her income tax liability now, while slowly building up a modest fund to help support herself, post-retirement. Her current net worth is approximately $220,000.
[29] A dependent spouse certainly has a duty to generate as much income as possible from any settlement to discharge his or her statutory obligation to promote or achieve self-sufficiency. Income may be attributed to a spouse who is underemployed or otherwise not maximizing his or her income earning potential. But this does not require the dependent spouse to liquidate or encroach on capital to meet reasonable needs, relieving the payor or of the appropriate support obligation based on all of the circumstances. See Chutter v Chutter, 2008 Carswell BC 2661, BCCA.
[30] Applying these principles to the facts here, it is premature to suggest that Kim at age 59, rather than on her projected retirement at age 65, should have income attributed to her on the basis of a notional liquidation of this asset, especially after receiving less than 13 years of support, following 23 years of marriage. In fact, Kim has used the former matrimonial home she received in the settlement as an income generating asset, by continuing to use it to operate the daycare. In any event, the parties’ Agreed Statement of Facts stipulates that her income is deemed to be $30,000 per annum, for the purposes of this motion.
[31] I find that Kim continues to have an entitlement to spousal support and Rick continues to have the means to pay it. Therefore, his request to terminate his support in the face of his voluntary, early retirement is denied.
Quantum and Duration
[32] Kim has made reasonable concessions. She has agreed to an income imputation of $30,000 per annum, which represents an increase in her previously deemed earned income of 20% over the 9 years since the original order was made. This remains higher than any year of actual gross earnings before reasonable business expenses are deducted. Rick’s employment income increased by 18% over the same time-frame.
[33] Kim does not seek to impute income to Rick based on his total income prior to his retirement plan which included additional rental and dividend income, sources of income that were never tapped in calculating Rick’s obligation. She only asks that income be imputed based on his most recent employment income.
[34] In determining quantum, I am mindful of the fact that for the first five years following separation Kim’s spousal support was uncertain, low and variable. While I am directed to accept the order met the objectives of the Divorce Act, a determination of what, if anything, is left to fulfil the support obligation necessarily entails the long view. Kim did not receive any increases to keep pace with inflation. She did not receive any increases to align with increases in Rick’s total income, to which she might have been entitled.
[35] Based on these facts, and the parties’ agreement that the original order was calculated using the mid-SAAG range, I conclude it is fairest to calculate the remainder of the support obligation also using the mid-SAAG range, rather than the lower amount in the existing order, which no longer represents mid- SAAG on current incomes. I recognize that the SAAG User Guide reminds us that the SAAG were not intended by its drafters to be used for variations. The are nonetheless a most useful guide when crafting a remedy in the variation context.
[37] Quantum and duration are always intertwined in the assessment of the appropriate obligation. Kim asks that the obligation continue until she reaches age 65. She is one year younger than Rick, so this would require the order to continue to when Rick reaches age 66. By the time Rick reaches age 65, he will have satisfied his support obligation and, therefore, it is appropriate to terminate the monthly support payments.
[38] Even if Kim has an ongoing need when Rick reaches age 65, by then, it would be appropriate to invoke the principles in Boston to require her to devise a financial plan that entails liquidating her assets and drawing down on capital. There other options for her, such as arranging for a reverse mortgage or bringing a tenant into her home to secure passive income which would partially replace earned income. By granting this prospective termination date now, the parties are better able to plan for their respective financial futures.
Lump Sum Support
[39] During the hearing, I canvassed the parties’ willingness and ability to fashion a lump sum support remedy, if I determined the support obligation continued. This was borne out of my concern that the recipient will no longer have any enforcement remedy. I acknowledge Rick has to date met his monthly obligations but there is no guarantee he will continue to do so once his entire life, including all of his assets, has moved to Mexico. It also provides the parties with financial autonomy and certainty, recognized objectives under the Divorce Act.
[40] Periodic support provides Kim with an added financial benefit because she can minimize her tax exposure and make modest contributions to RRSPs for use following retirement. Therefore, I leave it to her, whether to elect to continue to receive periodic support in the new sum of $1063 monthly, so she can continue to build her RRSP on a larger income. In so doing, she must accept the significant enforcement risk.
[41] Alternatively, Kim may elect to receive a lump sum payment. In that event, the parties should try to agree on how to calculate the lump sum payment which accurately corresponds to the periodic obligation. They may opt to use the somewhat blunt calculations offered through divorcemate software or they may elect to hire a chartered professional accountant or chartered business valuator to undertake that calculation. Whatever the method, the cost of preparing this calculation should be borne solely by Rick, since it is his relocation to Mexico that gives rise to the need to consider a lump sum for ease of enforcement. Kim’s lump sum must fully compensate her for the equivalent periodic sums payable.
[42] During this discussion, Rick informed the court that he had already anticipated the possibility of having to make a lump sum payment and indicated an ability to do so. There was also some discussion about making such a payment through an RRSP rollover. This latter method of discharging the remaining support obligation would require more sets of calculations, first to make the necessary adjustments for the tax treatment and full receipt now. Next the lump sum would need to be grossed up for further future tax considerations, based on imprecise assumptions about when Kim might need to access the money and what, if any, other income she may have at that time, to estimate the correct tax rate, on some projected liquidation date.
[43] Given this added complexity, Rick must satisfy the lump sum payment in full now, rather than by way of RRSP rollover, with its attendant imprecision, complexity and delay. Rick said he had $30, 000 in cash to satisfy a lump sum. If this is insufficient to cover the obligation, he can cash in some of his RRSPs to make up any balance under the lump sum calculation.
[44] I will hear oral submissions regarding the lump sum payment and make any necessary rulings, should Kim elect to receive her remaining support in that manner. If this option is selected by Kim, I shall defer commencement of the increased quantum until February 1, 2020 to allow the parties time to do these calculations. In the meantime the current periodic amount of $800 monthly shall continue.
Life Insurance
[45] If Kim elects to continue to receive periodic support, then Rick’s obligation to maintain life insurance continues. The parties shall present fresh life insurance calculations to cover the new quantum for the remaining duration for my consideration when costs are argued.
[46] If Kim elects to receive lump sum support, Rick’s obligation to maintain life insurance ceases upon receipt of that lump sum payment.
FUTURE VARIATIONS
[47] Since I have concluded that Kim continues to have a support entitlement and need and therefore Rick has not yet discharged his support obligation, it follows that Kim may bring a variation seeking an increase in support should her own income be reduced as a result of involuntary circumstances, such as illness, prior to her own projected retirement. In other words, her right to vary this order under section 17 of the Divorce Act should there be a change in her circumstances remains until Rick reaches the age of 65, the stipulated termination date for the support. To ensure this remedy is real, Rick must keep Kim apprised of his address, including his email address. She may serve any motion to change by email.
[48] If Rick wishes to receive an absolute termination upon receipt of the lump sum payment, the parties may wish to consider a lump sum payment based on Kim’s retirement at 65, when Rick is 66. I am prepared to hear submissions on this issue as well.
CONCLUSION
[49] Based on the foregoing, I make the following order:
(1) Commencing October 1, 2019 Richard Lepoidevin shall pay Kimberly Lepoidevin periodic spousal support in the sum of $1063 per month. This obligation is based on the payor’s imputed annual income of $61,704.00 and the recipient’s agreed deemed income of $30,000 annually, calculated using the mid-range SAAG.
(2) This sum shall be tax deductible to the payor and taxable to the recipient.
(3) The support obligation shall terminate in January 2024, following the last payment in December 2023, the month Richard Lepoidevin turns 65.
(4) At Kimberly Lepoidevin’s election, she may receive the aforementioned support in a lump sum. In that event, the cost for calculating the appropriate lump sum shall be borne by Richard Lepoidevin. The lump sum amount, if any, shall be determined at a further hearing before me.
(5) If the support is payable periodically, then Richard Lepoidevin’s obligation to maintain life insurance naming Kimberly Lepoidevin as beneficiary in an amount sufficient to cover the remaining obligation continues. This amount, if any, shall be determined at a further hearing before me.
(6) If the support is paid in a lump sum, Richard Lepoidevin’s obligation to provide his former spouse with any life insurance proceeds terminates.
(7) Kimberly Leopodevin’s variation rights under section 17 of the Divorce Act remain in effect should she need to pursue them in the future, unless the parties agree on a lump sum payment with a companion final termination. If there is a variation in the future, Richard Leopodevin’s deemed income remains the same and mid-SAAG shall be used.
NEXT STEPS
[50] This matter shall come back before me on a date to be fixed through trial coordination, sometime in early January 2020, if possible. At that time, I will hear submissions regarding the lump sum and life insurance calculations, whichever pertain, as well as costs. Should Rick wish to participate by phone, he should provide his counsel with contact information.
[51] The following documents may be sent electronically through trial co-ordination in advance of the hearing, for my review:
(1) any divorcemate or other calculations in relation to a lump sum payment;
(2) any calculations in relation to life insurance, if necessary; and
(3) Cost Briefs to include Bills of Costs and any Rule 18 Offers to Settle or other documents in relation to costs.
Justice N. Tellier
Date: December 19, 2019
COURT FILE NO.: FC-08-FS000095-000
DATE: December 19, 2019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Kimberly Lepoidevin
- and -
Richard Edwin Lepoidevin
RULING ON MOTION TO CHANGE
Nicole Tellier J.
Released: December 19, 2019