Abitbol v. Abitbol, 2020 ONSC 4619

COURT FILE NO.: FS-16-16865 DATE: 20200730 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Emmanuel Abitbol Applicant – and – Carmela Annunziata Abitbol Respondent

Counsel: Emmanuel Abitbol, Acting in Person Daniel C. Sirois, for the Respondent

HEARD: September 18, 19 & 20, October 29 & 30, 2019, and January 6, 2020

REASONS FOR JUDGMENT

Hebner J.

[1] I will refer to the applicant throughout as either the applicant, the husband, or Mr. Abitbol. I will refer to the respondent throughout as either the respondent, the wife, or Mrs. Abitbol.

[2] The applicant and the respondent were married on August 8, 1991. They separated on February 4, 2015. The marriage lasted almost 24 years. The parties are parents to three children, namely: Julia, born May 27, 1992, Jordana, born March 22, 1994, and Isaac, born July 23, 1996. At the time the parties separated, Julia and Jordana had completed post-secondary education and were independent. Isaac was in the process of completing his post-secondary degree. He graduated in the fall of 2019. By the time of the trial, all of the children were adults and independent.

[3] The applicant commenced the application on September 14, 2016, seeking a divorce and an equalization of net family property along with other relief. In her answer, the respondent claimed a divorce, spousal support and an equalization of net family property, along with other relief.

[4] At the case conference on November 30, 2016, an interim order was made by Campbell J. on consent that the applicant husband pay child support to the respondent wife in the sum of $1,068 per month for Isaac based on an income of $124,000 per annum. The order provided that the applicant pay to the respondent spousal support in the sum of $800 per month based on the applicant’s annual income of $124,000 and the respondent’s annual income of $78,000. The order further provided that the parties share equally in the dividends of the numbered company (discussed below).

[5] By order of King J., dated March 15, 2019, the applicant’s obligation to pay child support for Isaac terminated as of April 30, 2019. The applicant’s obligation to pay spousal support to the respondent was increased to $1,543 per month commencing May 1, 2019. This support was based on the applicant’s income of $124,000 and the respondent’s income of $78,000.

[6] At the trial management conference, the parties agreed that the divorce was to be severed from the corollary relief and the divorce could be obtained by either party upon filing the required affidavit evidence. The parties further came to a resolution of the issue of spousal support on a final basis. They agreed that the applicant would pay mid-range spousal support to the respondent in the sum of $1,576 per month based on the applicant’s annual income of $124,000 and the respondent’s annual income of $78,000. They agreed that spousal support would be indexed pursuant to the consumer price index.

[7] At the trial, the only outstanding issue between the parties was that of the equalization of net family property. The trial proceeded before me on that issue. These are my reasons for judgment.

Background Facts

[8] Mr. Abitbol was born on April 5, 1967. He is currently 53 years of age. Mr. Abitbol resides in Leamington, Ontario. He is a licensed paralegal and owns his own practice. Mrs. Abitbol was born on March 25, 1962. She is currently 58 years of age. Mrs. Abitbol resides in Sudbury, Ontario. She is employed as a legal assistant. During the parties’ marriage, they lived in Sudbury. Just prior to the parties’ separation, the applicant purchased his current home in Leamington. The applicant divides his time between his present residence in Leamington and a property he owns in Florida.

[9] Mr. Abitbol’s paralegal practice is limited to the processing and maintenance of Workplace Safety and Insurance Board (“WSIB”) claims. Prior to 1994, Mr. Abitbol worked directly for WSIB. He left his employment and began his business in 1994. He became licensed by the Law Society of Ontario as soon as paralegals were required to be licensed.

[10] Mr. Abitbol described his paralegal practice as a one-man show within a professional corporation called Emmanuel Abitbol Professional Corporation (“Abitbol PC” or “the professional corporation”). He doesn’t have any employees. He currently works out of an office in his home. He said he has approximately 75 clients at any given point in time. Mr. Abitbol works on a contingency basis. If and when a client receives WSIB benefits, then Abitbol PC is paid the contingency fee from those benefits.

[11] A sample contingency agreement for Mr. Abitbol and his clients was marked Exhibit No. 7 at the trial. The contingency agreement is drafted such that Abitbol PC receives a fee equal to a percentage of all arrears monies received by the client. In addition, Abitbol PC receives a fee equal to a percentage of all future entitlements received by his clients. Accordingly, as Mr. Abitbol’s clients receive their monthly WSIB benefits, Abitbol PC continues to receive a percentage. This arrangement continues for so long as the client receives WSIB.

[12] As part of his retainer agreement, Mr. Abitbol requires clients to sign directions such that all communications from WSIB come to him. Once a client’s entitlement to monthly WSIB payments is determined, Mr. Abitbol continues to represent the client in order to manage the file and ensure that the client continues to get paid. He describes this work as his ongoing services.

Equalization Issues

[13] The parties have come to an agreement on many of the figures in the net family property calculation. Those figures are set out in the net family property statement attached hereto as Schedule ‘A’. The figures that were not agreed to are set out below. My ruling on each of the figures in dispute is included in the net family property statement in bold.

[14] Mr. Abitbol retained a certified business valuator to value his business for the purposes of equalization. That valuator was Michael Carnegie. Mrs. Abitbol retained her own certified business valuator for the same purpose. That valuator was Laura Sandblom. The valuation of Mr. Abitbol’s business was the significant issue on the trial. Other valuation issues include the following:

1. The treatment of Mr. Abitbol’s property located at 48 Sherwood Avenue, Leamington, Ontario and Mr. Abitbol’s claim of a related debt owing to his paralegal corporation.
2. Mr. Abitbol has a numbered company, 1085805 Ontario Limited. He owns two common shares. Mrs. Abitbol owns one preferred share. The value of the corporation was agreed upon. The tax liability was not.
3. Mr. Abitbol’s claim of a debt owing to his paralegal corporation for the Florida property.
4. The treatment of the 2014 Honda Odyssey and a vehicle debt.
5. The Sudbury property owned by the parties on the date of marriage.

Applicant’s Professional Corporation

[15] Mr. Abitbol completes WSIB claims forms for his clients. His relationships with his clients are governed by contingency agreements that he requires they sign. The contingency agreements provide that if, and when, the clients receive monies from WSIB, then Mr. Abitbol is paid a contingency fee. His contingency fee is between 12 and 15 percent.

[16] Once a client’s WSIB claim is accepted, Mr. Abitbol continues to maintain a professional relationship with that client in order to manage the claim. He said that he makes sure “they continue to get paid”. This involves the completion of certain documents such as work progress reports and physician progress reports. Mr. Abitbol said that he completes all the administrative functions for his clients. He has his clients sign directions so that all communications from WSIB are sent to Mr. Abitbol. Mr. Abitbol claims to spend time on conference calls and follow-up to ensure that his clients continued to receive their ongoing benefits.

[17] Mr. Abitbol said that his client base is long standing and he has an ongoing relationship with each of his clients. He said they trust him to manage their affairs. At the time the parties separated, Mr. Abitbol had approximately 80 clients. At the time of trial, Mr. Abitbol estimated that he had between 72 and 75 clients.

[18] Mr. Abitbol developed his business in Sudbury. He obtains his clients by way of referrals and word-of-mouth. The majority of his clients reside in Sudbury. Mr. Abitbol moved to the Leamington area in December of 2014 because housing was more affordable, and his children reside in London and Toronto. Notwithstanding his move, the location of Mr. Abitbol’s client base is still Sudbury.

Value for Equalization

[19] Mr. Abitbol retained Mr. Carnegie of Taylor Leibow to value his business as at the date of separation. Mr. Carnegie’s report is contained at Tab 11 of the applicant’s trial record.

[20] The professional corporation has three main assets identified by Mr. Carnegie. They are: a portfolio of marketable securities; property, plant and equipment comprised of vehicles, a building and furniture and fixtures; and the contracts Mr. Abitbol has with his clients and former clients. Mr. Carnegie started with the shareholders equity figure and adjusted for the current values and book values of these assets.

[21] Mr. Carnegie provided a value for the corporation assuming the present value of the contracts should be included as a corporate asset. That value is $1,397,000. He also provided a value for the corporation excluding the value of the contracts, on the assumption that they would not be included as a corporate asset. That value was $855,000.

[22] The respondent retained Ms. Sandblom to provide her valuation of the professional corporation. Her report appears at Tab 8 of the respondent’s trial record. She followed much the same process, namely starting with the shareholders equity and adjusting for current values and book values. However, Ms. Sandblom proceeded only on the basis that the contracts would be included in the valuation as a corporate asset. According to Ms. Sandblom’s valuation, the professional corporation ought to be valued at between $1,948,000 and $2,318,000, prior to distribution taxes, for equalization purposes.

Should the Value of the Contracts be Included in the Value?

[23] I start with the definition of property set out in the Family Law Act, R.S.O. 1990, c. F.3, s. 4(1):

“property” means any interest, present or future, vested or contingent, in real or personal property and includes,

(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,

(b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and

(c) in the case of a spouse’s rights under a pension plan, the imputed value, for family law purposes, of the spouse’s interest in the plan, as determined in accordance with section 10.1, for the period beginning with the date of the marriage and ending on the valuation date; (“bien”)

[24] The definition of “property” casts a wide net. It includes a tractor and construction equipment dealership business, as in Poirier v. Poirier, 2005 ONSC 38106, [2005] O.J. No. 4471 (S.C.), where Charbonneau J. said:

Here the dealership represents a real asset which continues not only to provide a lucrative income stream, it also continues to have a real value which can be sold, transferred or otherwise disposed. I fail to see any unfairness. Mrs. Poirier has her half of the value of the shares converted into a liquid asset earning interest and Mr. Poirier has his half of the value of the shares invested in a business earning business income. It is only the parties' respective incomes, not the divided asset, which are considered for the purpose of fixing spousal support.

[25] The definition of “property” includes a book of business of a self-employed financial advisor: see Mavis v. Mavis, 2005 CarswellOnt 1649 (S.C.).

[26] The definition of “property” includes a medical practice: see Forest v. Hill, 1991 CarswellOnt 272 (Gen. Div.).

[27] The definition of “property” includes a real estate commission, even though the transaction closed after the date of separation: see Cosentino v. Cosentino, 2015 ONSC 271.

[28] The Court of Appeal, in Lowe v. Lowe, 2006 ONCA 804, 206 O.A.C. 293, dealt with the question of whether workers compensation payments ought to be included as “property” in the equalization calculation. The parties were married in 1984 and separated in 2003. The husband was injured in 1985 and received a permanent disability pension from WSIB in the amount of $221.15 per month for life. The Court of Appeal began with a review of the proper way to interpret the definition of “property” in the Family Law Act. At paras. 12 – 15 the court said:

The definition of "property" in the FLA, s. 4 is admittedly broad. It includes, for example, a stream of income derived from a trust: see Brinkos v. Brinkos, 1989 ONCA 4266, 69 O.R. (2d) 225 (Ont. C.A.). However, the definition of property is not without limits. In Pallister v. Pallister, 1990 ONSC 12272, 29 R.F.L. (3d) 395 (Ont. Gen. Div.), at 404-405, Misener J. acknowledged the apparently “all-encompassing nature of the definition of ‘property’” but pointed out that as “property in law is simply a right or collection of rights” identified by “no single criterion or even a discrete number of criteria”, interpretation is required to contain the category of property within limits appropriate to achieve the purpose and object of the legislation as a whole:

It seems to me therefore that when the word appears in legislation defined in the broadest possible way, the limits are to be found through a consideration of the scope of that legislation, and the objects it seeks to accomplish. If the definition of the right or rights as property is consistent with the scheme of the legislation and advances its objects, then it should be so defined. If either of those attributes is absent, then, unless the right or rights under consideration fall within a category that has been legally recognized as property heretofore, it should not be so defined.

I agree with this approach. It is consistent with the “modern approach” to statutory interpretation, set out in R. Sullivan, Sullivan and Driedger on the Construction of Statutes, 4th ed. (Toronto: Butterworths, 2002) at p. 1 and adopted by the Supreme Court of Canada (see Bell ExpressVu Ltd. Partnership v. Rex, 2002 SCC 42 at para. 26):

the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

As Misener J. put it at 406, this purposive and contextual method of statutory interpretation allows “the courts to insure [sic] that the broad definition employed is kept within the bounds of the scope of the Act.” In keeping with the “modern” approach to statutory interpretation, s. 4 should not be read as including any and every interest, even those bearing no relationship to the marriage partnership, simply because that interest is not specifically excluded. While the scheme of the FLA is to give a broad definition to property and then exclude certain specific types of property, I agree with Misener J. that the definition of property itself must be given meaningful content and that meaningful content imposes limits on the definition of property limits apart from the specific exclusions. Misener J. held, at 405, that the wife's monthly benefits from an Armed Forces Disability Pension, found on the facts to amount to a permanent pension, were not “property” within the meaning of s. 4:

The Family Law Act purposely eschews any attempt to equalize all the assets owned at the date of separation. Rather it seeks only to equalize the assets the accumulation of which occurred during the marriage, and then only those assets that can fairly be said to bear some relationship to the partnership that the marriage is said to create. Accordingly, there is provision in Section 4(1) for the deduction of the value of property owned on the date of the marriage on the ground that that value was acquired prior to the marriage, and in Section 4(2) for the exclusion of property acquired by gift or inheritance after the date of the marriage and for the exclusion of the right to damages for personal injuries suffered after the date of the marriage, on the ground that the acquisition of that property bears no relationship to the marriage partnership.

The disability pension bore no relationship to the marriage partnership but rather arose because of a disability that impeded the recipient's capacity to earn a livelihood. It followed, reasoned Misener J., that the stream of benefits to be received post separation should not be capitalized and included as family property for purposes of equalization. The benefits would be taken into consideration with respect to spousal support, but they fell outside the category of “property” and could be distinguished from a pension earned as part of a spouse's remuneration during the marriage.

[29] The distinction in Lowe was between income and property. In this case, the income received by Abitbol PC is based on contracts between Mr. Abitbol and his clients. Although the amount payable is calculated as a percentage of WSIB benefits received by the clients, the character of the amount payable to Abitbol P.C. does not change. In this case, the contracts are akin to Accounts Receivable. They are payable under contract. They are not uncertain and they are not discretionary.

[30] The amount payable to Abitbol PC does not arise because of a disability that impeded Mr. Abitbol’s capacity to earn a livelihood, such as was the case in Lowe. It cannot be said that the acquisition of the contracts between Mr. Abitbol’s professional corporation and his clients was not acquired during the marriage or that it bears no relationship to the marriage partnership, as was the case in Lowe. The contracts were acquired by Mr. Abitbol in his business during the course of the marriage, indeed they were the entirety of Mr. Abitbol’s professional business. The monies receivable within the contracts is the business income. Given the distinction described above, although the WSIB benefits may not be “property” in the hands of Mr. Abitbol’s clients, the contingency fees owed to Mr. Abitbol are property in his hands.

[31] It seems to me that the real issue is one commonly referred to as double dipping. Mr. Abitbol takes the position that the income from the contracts is his entire income and has already been taken into account in the settlement of spousal support. The double dipping issue first arose in the context of a pension. The Supreme Court, in Boston v. Boston, 2001 SCC 43, said that, where possible, in determining spousal support the court should focus on the portion of the payor’s income and assets which have not been part of an equalization or division of matrimonial assets. In Boston, that meant when calculating spousal support the court ought to focus on that portion of the pension that was earned following the date of separation.

[32] Does the fact that these parties have reached a consent order on the quantum of spousal support payable have relevance to the question of whether the contracts need to be valued and included in the valuation of the professional corporation?

[33] In Greenglass v. Greenglass, 2010 ONCA 675, at trial the issues included spousal support as well as an equalization of net family property. The trial judge ordered Mr. Greenglass to pay to Ms. Greenglass an equalization payment of $668,323. She also awarded retroactive spousal support and ongoing monthly spousal support in the sum of $1416 per month. On appeal, Epstein J., speaking for the court, found that the trial judge had erred in determining the spousal support award prior to determining the equalization of net family property. At para. 44, Epstein J. said:

(T)he amount of the equalization payment and the impact of any potential income generating potential associated with the assets with which each party is left will almost invariably affect the support analysis. As a matter of law, therefore, the calculation of the division of assets and resulting equalization payment must always precede any support analysis (emphasis added).

[34] The process of determining an equalization of net family property prior to the quantum of spousal support is consistent with the Supreme Court’s comments in Boston referred to above. In Boston, it was that part of the pension income that had already been equalized that ought not to be taken into account in determining a spouse’s income for support purposes. In other words, the value of the pension was included in the property calculations first, before the payor’s income for spousal support purposes was calculated.

[35] In the case at hand, the parties came to an agreement on spousal support prior to the determination of the equalization of net family property. The parties agreed that the support would be paid based on incomes of $124,000 for the applicant and $78,000 for the respondent. The incomes and support were agreed upon at the parties’ trial management conference. The income numbers are the same numbers that were used at the case conference.

[36] Mr. Abitbol’s evidence was that those income numbers were not accurate. He said that Mrs. Abitbol’s income was higher than $78,000. He said that the number of $124,000 does not capture all of the income he receives generated by the contracts, and that that number is closer to $150,000. However, both parties were in agreement with using those income numbers, so they resolved the issue of spousal support on that basis. The applicant then took the position that his business ought to be valued by somehow excluding the income of $124,000 from the contracts in the analysis.

[37] To proceed in that fashion would run afoul of the principle set out by the Court of Appeal in Greenglass. The valuation of the applicant’s business, and the resulting equalization payment, must be determined prior to, and without regard to, spousal support payable. In my view, the spousal support settlement on a final basis ought not to have occurred until after the equalization of net family property was calculated. The applicant was representing himself and would not have known that. Counsel for the respondent ought to have been aware of the Court of Appeal decision. In any event, it seems to me that my determination of the value of the applicant’s business and the resulting equalization payment may very well be a material change in circumstances such that the quantum of spousal support could be reconsidered. The issue of spousal support is not before me and I must leave that issue for another day.

[38] For the reasons set out above, it is my view that the contracts must be included as an asset in the valuation of the business. Accordingly, I turn to the value of those contracts.

Mr. Carnegie’s Value

[39] Mr. Carnegie first listed all of the contracts that Mr. Abitbol had in his professional corporation on the date of separation. Some of those contracts are payable until age 65. Some of those contracts are payable for life. Each month when a payment is made, Mr. Abitbol receives his contingency fee. For those contracts that are payable for life, Mr. Carnegie used life expectancy tables for normal, healthy people. He was then able to calculate the remaining number of months, for each contract, as at the date of separation and, applying the monthly amount, the total payable. The total payable on all of the contracts calculated in this manner was $1,700,000.

[40] Next, Mr. Carnegie calculated the present value of those payments. To do so, he applied a discount rate, which he described as the theoretical equivalent of a return on investment if the lump sum amount was in hand on the date of valuation. He used his professional judgment and applied a rate of three percent. He then discounted the amount for each of the contracts which expire at age 65 for the possibility that the person might die before reaching that age. After these discounts, Mr. Carnegie came to a total figure of $1,347,000.

[41] Mr. Carnegie then applied a further discount, which he identified as a contingency, for the possibility that the customer might default on the required payment on the contract. In his report he said “based on our discussions with Mr. Abitbol, this occurs in approximately 15 percent of cases. While the company does have an option to pursue payment under the contract, historically doing so has not proved worthy”. After the 15 percent discount is applied, Mr. Carnegie comes to a figure of $1,144,925. To that figure, he applies income tax at the rate of 15.5 percent, concluding that the value of the contracts at the date of separation is $967,462.

[42] Mr. Carnegie then suggests that a further 15 percent reduction ought to be applied to account for the cost to provide ongoing customer service. That brings the value of the contracts to $822,342.70.

[43] Mr. Carnegie prepared a separate calculation based on a present value discount rate of 7.5 percent. In his report, Mr. Carnegie points out that the WSIB settles cases on a lump sum basis. When doing so, WSIB applies a discount rate as published in separate tables for amounts payable to age 65 and amounts payable for life. That discount rate is 7.5 percent, which would replace the three percent discount rate identified above. Mr. Carnegie is not aware as to how WSIB came to the 7.5 percent. When that rate is applied, and otherwise using the same methodology, the figure that Mr. Carnegie comes to is $710,000 prior to the 15 percent reduction for the cost to provide ongoing customer service. After applying that percentage, the number is $603,500.

Ms. Sandblom’s Value

[44] Ms. Sandblom embarked on a similar process in her valuation of the contracts. She started with the list of contracts contained in Mr. Carnegie’s report. She explained the contracts as akin to an annuity. In valuing the contracts, it is appropriate to use discount rates, life tables and present value factors because there is a risk to having these contracts come to fruition. She used the exact same death factor as Mr. Carnegie.

[45] The next step is the application of the present value factor, or the discount rate. Ms. Sandblom described that as a factor applied to calculate the value today of a future stream of payments. The rates are impacted by long-term bond rates at the date of separation. Ms. Sandblom used her professional judgment and came to a rate of 2.5 percent in her calculations. She said she did not disagree with the three percent rate used by Mr. Carnegie. She does, however disagree with the 7.5 percent rate. I will address that in greater detail below.

[46] In Mr. Carnegie’s next step, he applied a discount for default of payment under the contracts of 15 percent. Ms. Sandblom points out that Mr. Carnegie does not provide detail to support the calculation of the 15 percent discount. Without those details, at the time she prepared her report, she could not choose a percentage to apply. She suggested the discount ought to be somewhere between zero percent and 15 percent.

[47] Mr. Carnegie’s next step was to discount the number by a further 15 percent to account for ongoing work to maintain the contracts. This discount is meant to estimate the cost of the time Mr. Abitbol spends on an annual basis maintaining the contracts. Ms. Sandblom points out that Mr. Abitbol did not provide detail of the time spent. She provided a range of between zero percent and 15 percent in her report.

[48] Ms. Sandblom agrees with the income tax rate of 15.5 percent.

Differences between the Two Valuations

1) Discount Rate for Present Value

[49] I reject the discount rate of 7.5 percent. Ms. Sandblom explained that WSIB instituted this rate in 1991. In those years, interest rates were much higher than current rates and a seven percent discount rate would not reflect current interest rates. I accept this evidence. For whatever reason, WSIB has not updated its discount rate. Their failure to do so ought not affect the calculation of the present value of the contracts as at the date of separation. According to Ms. Sandblom, currently the discount rate used for civil procedure matters is 2.5 percent to three percent. Mr. Carnegie’s professional judgment lead him to use a three percent rate. Ms. Sandblom’s professional judgment lead her to use a 2.5 percent rate. Ms. Sandblom does not disagree with the three percent rate used by Mr. Carnegie. For the purpose of calculating the present value of the contracts, I will use the three percent rate.

2) Contingency Rate for Default

[50] When Mr. Carnegie prepared his report, there was no documentary evidence respecting the rate of default on the contracts. Mr. Abitbol’s evidence was that he had only one client default in 15 years. He said that for the most part, his clients are happy with his work. On that one occasion, Mr. Abitbol pursued the client for payment and the client went bankrupt. When presented with that evidence, Mr. Carnegie said that the 15 percent contingency also accounts for the possibility of WSIB amending or reassessing a client’s entitlement. Mr. Abitbol did not indicate in his evidence that any of his clients have been reassessed such that they lost their ongoing payments.

[51] There was no evidence to back up Mr. Carnegie’s discount rate of 15 percent for default. The evidence of Mr. Abitbol suggests otherwise. At the date of separation, Mr. Abitbol had approximately 80 clients. He said that he had one client default on his contract in over 15 years. I assess the risk at 1.5 percent.

3) Discount for Time to Maintain Contracts

[52] Mr. Abitbol’s evidence is that he manages his client’s claims on an ongoing basis to ensure that they continue to get paid. This requires time spent completing progress reports and attending on telephone calls. He estimates that he spends approximately 15 to 20 hours per week.

[53] In Mr. Abitbol’s evidence, he described his client base as persons with which he has a long, ongoing relationship. They trust him to manage their WSIB affairs on an ongoing basis. The clients are required to attend for physiotherapy appointments, counselling appointments and other such treatments. Physician progress reports have to be provided.

[54] I accept Mr. Abitbol’s evidence that there is considerable work required on his part to maintain the contracts. There must be some discount. Mr. Carnegie used 15 percent. Ms. Sandblom suggests that the discount would be somewhere between zero percent and 15 percent. Mr. Sirois, in his submissions, suggests that I use 7.5 percent.

[55] On this point, in my view, there is no reason not to use the discount rate suggested by Mr. Carnegie after his conversations with Mr. Abitbol. Mr. Abitbol’s evidence does support significant work on his part for the maintenance of the contracts. Accordingly, I choose to use 15 percent.

Value of the Contracts

[56] For my calculations, then, I start with the total payable under the contracts of $1,700,000. I then go through the following steps:

1. I apply the three percent discount rate ($51,000) which brings the number to $1,649,000.
2. I apply the 1.5 percent contingency rate for default ($24,735) which brings the number to $1,624,265.
3. I reduce the number by 15 percent to account for the work required to maintain the contracts ($243,640) which brings the number to $1,380,625.
4. I apply the tax rate of 15.5 percent ($213,997) which brings the number to $1,166,628.

[57] I assess the value of the contracts as at the date of separation at $1,166,628.

Value of the Professional Corporation and Tax

[58] Turning back, then, to the value of the corporation as a whole. The experts agree on the methodology. We start with the shareholders equity in the financial statement as at December 31, 2014 and make the necessary adjustments. I accept the capital assets figures of Ms. Sandblom as she obtained current values directly from Mr. Abitbol (see page 9 of Ms. Sandblom’s report, at page 174 of the Respondent’s trial record). I make the calculations thusly:

Retained earnings $ 906,191.00 Add fair market value of the contracts on hand 1,166,628.00 Add current value of the investments 493,488.00 Deduct book value of investments (448,083.00) Add the fair market value of capital assets 60,893.00 Deduct net book value of capital assets (25,644.00) TOTAL $2,153,473.00

[59] That is not the end of the matter. The value of the corporation is a before tax figure. If Mr. Abitbol were to pull the money out of the corporation, he would be required to pay income tax. The experts agree on the methodology. I therefore refer to Mr. Carnegie’s report. He deducted 50 percent of the tax shield lost by acquiring shares instead of assets ($1,000). He deducted 50 percent of the disposal costs and commissions ($5,000). He deducted 50 percent of taxes payable on asset disposals ($3,000). The total of these figures is $9,000.

[60] A further figure needs to be deducted for future income taxes. Mr. Carnegie suggests that 25 percent of the future income taxes the shareholders will incur on the eventual distribution of taxable dividends are to be applied. Only 25 percent of the amount is deducted because the shareholders have the ability and incentive to avoid income tax by deferring the payment of taxable dividends far into the future. Mr. Carnegie opines that a large discount is therefore inappropriate. Ms. Sandblom agrees. The tax rate is 40 percent, or $861,389 and 25 percent of that is $215,347.

[61] The total future disposition costs, then, is $224,347. I therefore find the value of the professional corporation for equalization purposes is $1,929,126 ($2,153,473 - $224,347).

Numbered Company

[62] The experts are agreed that the same tax calculation would apply to the numbered company. Namely, the tax rate of 40 percent would apply and 25 percent of the tax is appropriate for purposes of an equalization of net family property. The number is calculated thusly: ($918,630 x .4) x .25 = $91,863.

[63] Ms. Sandblom suggests that the tax rate not be applied to the numbered company for equalization purposes as Mrs. Abitbol requests an order that all of the shares of the numbered company be transferred to her with the current value (approximately $970,000) to be credited towards the equalization payment owing to her. Ms. Sandblom suggests that this is the most tax effective method of payment as the respondent would receive the shares and the taxes on the value of the numbered company would be deferred.

[64] I have a concern about proceeding in the manner suggested by the respondent. The Family Law Act is a debtor creditor statute when dealing with the equalization of net family property. The Act requires the court to value all of the property that the parties own on the date of separation, deduct the debts as at the date of separation and deduct the net worth on the date of marriage. The court then comes to a number representing equalization of net family property requiring a payment from one party to the other. In coming to that number, I am required to value all of the parties’ assets, including the numbered company. In my view, the expected disposition costs, with the calculation agreed upon by the experts, is an integral part of the valuation.

[65] The Family Law Act, s. 9(1) provides that the court may order a transfer of property from one spouse to another to satisfy the equalization payment. The section reads:

9 (1) In an application under section 7, the court may order,

(a) that one spouse pay to the other spouse the amount to which the court finds that spouse to be entitled under this Part;

(b) that security, including a charge on property, be given for the performance of an obligation imposed by the order;

(c) that, if necessary to avoid hardship, an amount referred to in clause (a) be paid in instalments during a period not exceeding ten years or that payment of all or part of the amount be delayed for a period not exceeding ten years; and

(d) that, if appropriate to satisfy an obligation imposed by the order,

(i) property be transferred to or in trust for or vested in a spouse, whether absolutely, for life or for a term of years, or

(ii) any property be partitioned or sold. R.S.O. 1990, c. F.3, s. 9 (1); 2009, c. 11, s. 25.

[66] I am not convinced that it would be appropriate to use this section to assist the parties with tax planning. It seems to me, that if the parties are inclined to come to an agreement on the transfer of assets for the purpose of delaying the payment of taxes, then that is their prerogative. However, the court ought not to become involved.

[67] In Thibodeau v. Thibodeau, 2011 ONCA 110, at paras. 39-42, the Court of Appeal said the following about the use of s. 9(1):

Given its powers under s. 9(1) of the Family Law Act, the court can impose a legal relationship between the spouses other than a debtor-creditor relationship pursuant to the equalization process, if the record justifies such exceptional and intrusive action. The court can order the transfer to or vesting of property in one of the spouses. It can order the creation of trusts of property or a charge against property in favour of one spouse with respect to the other spouse's property. But, as noted, the arbitrator took none of these steps in this action, and the record does not appear to have warranted such steps in any event.

It bears highlighting here that the enhanced remedies available under s. 9(1) of the Family Law Act give rise to proprietary rights in the spouse benefitting from the order. They are therefore exceptions in an equalization payment regime and give rights that may affect third parties of whom the trier may be unaware and who are not represented in the proceedings. It follows, in my view, that these remedies should not be imposed indiscriminately or routinely, and only if there is a real need and there are sound reasons on the record for doing so.

Indeed, lower courts have recognized the need for a principled approach to the application of an enhanced s. 9(1) remedy. Such orders are to be made only where there is a real need for them, after all relevant considerations have been taken into account, and not as a matter of course. As Whalen J. stressed, in Colquhoun v. Colquhoun, 2007 CarswellOnt 18 (Ont. S.C.J.), at para. 168, “[t]here must be a proven concern that payment [of an ordered equalization payment] will not be honoured” (emphasis added) before the court can order the transfer or partition and sale of property under s. 9(1).

The onus is on the party seeking such an order, and as a general rule the court's discretion will only be exercised in favour of a s. 9(1) order where it is established — based on the targeted spouse's previous actions and reasonably anticipated future behaviour — that the equalization payment order granted will not likely be complied with in the absence of additional, more intrusive provisions: Kennedy v. Sinclair, 2001 ONSC 28208, 18 R.F.L. (5th) 91 (Ont. S.C.J.), at para. 45; Lynch v. Segal, 2006 ONCA 42240, 82 O.R. (3d) 641 (Ont. C.A.), at para. 32; Raymond v. Raymond, 2008 ONSC 68138, 64 R.F.L. (6th) 160 (Ont. S.C.J.); Alldred v. Alldred, [1998] O.J. No. 3606 (Ont. Gen. Div.); McDonald v. McDonald, 1994 ONSC 7435, 5 R.F.L. (4th) 215 (Ont. Gen. Div.), aff'd 1997 ONCA 14551, 33 R.F.L. (4th) 425 (Ont. C.A.) (emphasis added).

[68] There was no evidence that the equalization payment would not be made in this case. Rather the request to transfer the numbered company was based only on tax planning reasons. I decline to grant the request. Accordingly, I include the notional disposition costs of the numbered company calculated as agreed by the experts as a debt in Mr. Abitbol’s net family property for equalization purposes.

[69] The parties have agreed that the entire value of the numbered company belongs to Mr. Abitbol and is to be included in his net family property. They have agreed that the one preferred share owned by Mrs. Abitbol is worth zero dollars. Accordingly, it follows that Mr. Abitbol is entitled to all of the income of the numbered company and the interim order of Campbell J. requiring a sharing of that income needs to be terminated.

Real Properties

48 Sherwood Ave, Leamington (“the Sherwood property”)

[70] Mr. Abitbol purchased the Sherwood property on December 5, 2014. The purchase price was $182,740 (see trust statement, trial record of the applicant, page 146). Title to the property was placed in Mr. Abitbol’s name. The Sherwood property became Mr. Abitbol’s residence and his office premises following the parties’ separation. Mr. Abitbol continues to use the property as his residence and his office for his paralegal practice.

[71] Abitbol PC has a calendar year end of December 31. Those financial statements were provided for 2012 through to and including 2018. The statements were prepared by Mr. Abitbol’s accountant in Sudbury. The accountant was not called to give evidence at the trial. It is clear from the financial statements that there is some blending of Mr. Abitbol’s personal assets and the assets of Abitbol PC. The Sherwood property is one of those assets.

[72] In the Abitbol PC 2013 financial statements, there is no real property listed. In the December 31, 2014 financial statements, a building is listed at a cost of $182,740, the exact cost of the Sherwood property. In addition, significantly, the marketable securities held by the professional corporation are reduced by $326,879 (from $774,962 to $448,083). I conclude that, although the Sherwood property was put into Mr. Abitbol’s name personally, it was paid for by his professional corporation and the value is included in the assets of his professional corporation.

[73] The total figure for property, plant and equipment in the December 31, 2014 Abitbol PC balance sheet is $208,384. This figure includes the Sherwood property (applicant’s trial record pp. 271 and 273). That figure is then carried into the business valuation of Mr. Carnegie (applicant’s trial record p. 332) and, eventually, into the business valuation of Ms. Sandblom. I therefore conclude that the value of the Sherwood property is included in the business valuation and to include it separately as an asset owned by Mr. Abitbol directly would result in a double counting of the property.

[74] For these reasons, I have not included the value of the Sherwood property in the net family property statement.

4710 Dundee Drive, Bradenton, Florida, and Debt

[75] The Florida property was purchased by Mr. Abitbol on January 24, 2014 for $176,912 USD. (Settlement statement, Exhibit No. 2). The parties agree on the value of the Florida property for equalization purposes, and agree that it is properly included as a personal asset in Mr. Abitbol’s net family property. Mr. Abitbol claims that he borrowed the monies to purchase the property from his professional corporation and that he owes his professional corporation the sum of $193,793.60 by way of a shareholder loan. It is the shareholder loan that is disputed by the respondent.

[76] Mr. Abitbol provided confirmation that, on January 17, 2014, he instructed TD Wealth to withdraw the sum of $193,793.60 CAD from an account in the name of the professional corporation. The funds were converted to $176,000 USD. The conversion rate was 1.1011. (Trial record of the applicant, p. 211). The balance sheet of Abitbol PC, dated December 31, 2014, discloses an increase in the asset item “due from related party” between December 31, 2013 and December 31, 2014 of exactly $193,794 (from $42,000 to $235,794) (applicant’s trial record p. 271). I am satisfied, by this evidence, that the monies Mr. Abitbol used to purchase the Florida property were withdrawn from his professional corporation and are accounted for in the financial statements by way of a shareholder loan from Mr. Abitbol.

[77] The receivable from Mr. Abitbol is included in the retained earnings of Abitbol PC as at December 31, 2014. The receivable is then included in the business valuation of Mr. Carnegie (applicant’s trial record p. 332) and eventually in the business valuation of Ms. Sandblom.

[78] Given the foregoing, it is appropriate to include a loan from Mr. Abitbol to his professional corporation in the liabilities section of his net family property statement as a deduction in the amount of $193,794.

Trust Property

[79] In approximately 2000 – 2001, the parties purchased a vacant lot and placed title in the name of the respondent in trust for the children. That lot has been sold and the parties are agreed that the net proceeds, after payment of all taxes, will be divided between the children. Accordingly, I have not included the value of the property or the taxes in the equalization calculation.

Line of Credit

[80] Mr. Abitbol claims a debt in the form of a joint home equity line of credit for the purchase of a 2014 Honda Odyssey. The joint debt totaled $30,116.36. Mr. Abitbol provided a line of credit statement confirming a joint debt in that amount in the names of he and the respondent (applicant’s trial record p. 214). Mr. Abitbol’s evidence is that, after the parties separated, he arranged for the entire debt to be paid by his professional corporation.

[81] Mr. Abitbol’s evidence is that he took responsibility for this debt. Mrs. Abitbol did not contribute anything towards that debt. Someone had to pay it and it appears that person was Mr. Abitbol. I accept Mr. Abitbol’s evidence in that regard. He is therefore entitled to a deduction in the sum of $30,116.

Vehicle

[82] Following the parties’ separation, Mr. Abitbol arranged for his professional corporation to transfer the Buick Enclave to the respondent. The agreed upon value is $21,368. The value of the vehicle is included in the respondent’s net family property for equalization purposes. The parties are agreed that Mr. Abitbol is entitled to a credit from his equalization payment for this post separation transfer, as the value of the vehicle was included in the value of the professional corporation.

Date of Marriage Sudbury Property

[83] Prior to the parties’ marriage, they purchased a home located at 661 St. Andrews Road in Sudbury. The purchase price was $109,000. The applicant contributed $5,000 towards the down payment and the respondent contributed $35,000. The parties obtained a mortgage for $75,000. The property was placed in their joint names.

[84] The parties used the home as their primary residence until 1998. By that time, the mortgage was paid in full. The parties sold the home in 1998 and purchased the matrimonial home. The entire proceeds from the sale of the St. Andrews home was used to purchase the matrimonial home.

[85] The respondent claims that she ought to receive a deduction of $35,000 and the applicant ought to receive a deduction of $5,000, representing their respective contributions to the property. I do not agree with that suggestion for the reasons that follow.

[86] The Family Law Act, s. 14(a) reads as follows:

14 presumptions – The rule of law applying a presumption of a resulting trust shall be applied in questions of the ownership of property between spouses, as if they were not married, except that,

(a) the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants.

[87] There was no evidence that the parties intended to hold the property as anything other than joint tenants. For the eight years that they owned the property, there is no evidence that either contributed more, or less, to the payment of the mortgage and the resulting increase in equity. Instead, they appeared to work as a team following the marriage to pay down the mortgage and use that equity for the purchase of the matrimonial home. In the absence of evidence to the contrary, I conclude that the parties intended to own the property as joint tenants with each to be entitled equally to the property and the equity in it. Accordingly, each party is entitled to a date of marriage deduction of $20,000.

Equalization

[88] My equalization calculation is set out in the net family property statement attached hereto as Schedule ‘A’. According to that calculation, I find that the applicant owes to the respondent an equalization payment in the amount of $986,819.

[89] Mrs. Abitbol has requested pre-judgment interest. I am of the view that the issue of pre-judgment interest ought to be dealt with after the equalization payment is determined. Indeed, I did not yet hear argument on that issue and pre-judgment interest is not a given in an equalization case. I note that the investment income in the numbered company has been shared between the parties since the date of separation and this, along with the interim support paid, may have an effect on the determination of interest. Accordingly, I invite the parties to provide argument on that issue.

Disposition

[90] I make the following orders:

1. The applicant, Mr. Abitbol, shall pay to the respondent, Mrs. Abitbol, an equalization payment of $965,451 ($986,819 less the credit of $21,368).
2. All interim orders are terminated, including the order of Campbell J. requiring the parties share equally the monthly dividends from the numbered company.
3. In the event the parties are unable to agree on the issue of costs and pre-judgment interest, they may provide written submissions, to include a costs outline, as follows: a) the respondent may provide submissions within 20 days; b) the applicant may provide responding submissions within 20 days thereafter; and c) the respondent may provide reply submissions within 10 days thereafter.

“original signed and released by Hebner J.”

Pamela L. Hebner Justice

Released: July 30, 2020