ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOANNE ELAINE VAN BOEKEL
Applicant
– and –
ERIC W. VAN BOEKEL
Respondent
Michael Nyhof, for the Applicant
Karon Bales and Katie Morris, for the Respondent
HEARD: December 9, 10, 11 & 12, 2019, March 10, 11, and 13, 2020 at Woodstock; written argument completed May 21, 2020
1This is the trial of a Motion to Change, brought by the respondent, and a Cross-motion to Change brought by the applicant. The respondent asks that child support be reduced, and that spousal support be terminated or reduced, on the basis that his income has decreased since the final order was made, on consent, on September 24, 2010. The applicant asks that child support and spousal support be increased, on the basis that both the income and net worth of the respondent have increased substantially since the final order was made. Both parties are seeking retroactive relief.
2The situation is complicated by reason of the fact that the original order was based upon the agreement of the parties that the respondent was deemed to have annual income of $250,000 per year. This raises the question as to how the parties can prove that there has been a material change in circumstances from those prevailing when the original order was made, when it was based on imputed income instead of actual income.
Background:
3I should state at the outset that the parties made this case far more complicated that it needed to be. During the course of seven days of evidence and the filing of 71 exhibits, much testimony was heard and many documents were filed that have little, if any, relevance to the issues that I must decide. I have no intention of referring to all of the evidence and all of the issues raised by counsel, but will confine myself to the evidence and the issues which are necessary to arrive at a decision.
4The respondent has been a hog farmer since he was 19 years of age, when he bought his first farm. He runs a “farrow to finish” operation, where baby pigs are bred from sows, raised in nurseries, then transferred to a finishing barn and finally shipped to market.
5The parties were engaged in November, 1995 and married on June 22, 1996. In the months leading up to the wedding, a Cohabitation Agreement (“Domestic Contract”) was negotiated. The respondent signed it on June 18, 1996. The applicant signed it on June 21, 1996, the day before the wedding. It is not necessary to review the evidence of the applicant relating to the surrounding circumstances under which she signed the document. The contract listed, in Schedule “A”, the “significant assets” owned by each party at the date of the marriage. The respondent’s list included all of his common shares in the solely-owned corporation which owned and operated the hog farming operation, known as Van Boekel Hog Farms Inc. (“Hog Farms”), which he valued at $996,486, along with other property worth $4,525. He also listed liabilities totalling $170,891. The applicant’s list showed personal property valued at $10,600.
6Paragraph 7 of the Domestic Contract provided that, on termination of the marriage, any of that listed property which is still owned by the spouse will be excluded from his or her Net Family Property, as would any income produced by the property and any property into which such income could be traced. The contract also provided for the payment of spousal support to the applicant, in the event that the marriage broke down, provided that she had surrendered her employment to raise the children during the marriage, or worked for the respondent without pay.
7The parties had five children together: MacKenna, born November 13, 1996, Peyton, born February 19, 1998, Quinn, born November 22, 2000, Lane, born April 2, 2002 and Tarynn, born December 13, 2004.
8The applicant had been working for GE Capital Technology Services for 4 years at the time of the marriage. She had started off as a receptionist, then became an administrative assistant, and was then promoted to an inside sales associate. She testified that there was lots of room to move up in the company, and they were sending her for training at the Mississauga head office.
9The applicant left that job shortly following the marriage, and became a stay-at-home mother. She also did some work in the hog farm operation, such as helping with some of the accounting work, which included work with another corporation that the parties incorporated, Jo and E Enterprises. That company was focussed on expanding their hog operation into the U.S. market. After the separation, the corporate name was changed by the respondent to “Just E Enterprises”.
10It was a busy, active family. Their recreational activities included raising and riding “cutting horses”, starting in the early 2000’s. I understand that a cutting horse is trained to separate one specific cow from a herd, and prevent that cow from rejoining the herd. Competitions are held where the horses and riders display their proficiency in doing so, and this family, including several of the children, participated in those competitions.
11A barn and an indoor arena were built for the horses at a cost of $304,000. The applicant testified that they had barbeques, team pennings and horse shows at their place. She and the respondent travelled throughout Ontario and the USA, sometimes with the children, sometimes without, buying horses. She maintained that it was always a hobby, and was never a business, although it was run through their corporations. It consistently lost money from the outset. She testified that the respondent always said “the best way to become a millionaire in the horse business is to start with two million”.
12The respondent maintains that, while this activity started out as a hobby, it later changed into a business, with a view to making a profit. Much more will be said about the cutting horse issue throughout these reasons.
13The parties separated in the spring of 2008, and legal proceedings were commenced. In her pleadings, the applicant sought to set aside the Domestic Contract, while the respondent sought to have it enforced. A motion by the applicant for interim support came before Justice Grant Campbell on January 10, 2010. In his endorsement of January 29, 2010, Campbell J. noted that the respondent was paying $4,166 per month to the applicant pursuant to the Domestic Contract, which the respondent classified as spousal support. Because of that, and because the validity of the Domestic Contract had yet to be resolved, he declined to deal with that issue.
14The respondent argued on the motion that interim child support should be based upon the management fee of $50,000 per year that he received from Hog Farms, grossed up to $70,000. Campbell J. noted that the corporation had a declared loss of $1.5 million in 2007 and an anticipated loss of $4.4 million in 2009, but had also had a profit of $2.8 million in 2008. He also noted that the projected income before taxes for the next two years was $1.5 million and $4 million respectively.
15In the end, Campbell J. accepted the submissions of then-counsel for the applicant that the respondent’s income, on a going forward basis, would be at least $250,000 per year. He rejected the respondent’s submission that support should be based on $70,000 per year, and in so doing he made critical comments concerning the amounts that the respondent was spending on his “cutting horse hobby”, which amounted to $400,000 since 2001.
16Campbell J. therefore ordered interim child support in the amount of $5,446 per month, which is the table amount for five children under the Child Support Guidelines, based on the respondent having attributed annual income of $250,000. He noted that the applicant had annual income of $16,000.
17The matter came back before Campbell J. again because the respondent had refused to continue paying the spousal support provided for under the Domestic Contract. In his endorsement of April 9, 2010, Campbell J. said this:
Mr. Van Boekel is a highly successful pork producing entrepreneur. This enterprise generates millions in sales each year and as a result, he has been able to indulge himself in his hobby of riding in rodeos and attending cutting-horse competitions all across North America. That hobby cost him $120,000 in 2009 alone. However, rather than maintaining his pre-marriage contractual obligation to his spouse, he argues that he should keep his hobby intact but breach his contract to his wife. I disagree. Mr. Van Boekel’s cutting-horse-cowboy dream needs to be postponed until after he resolves his dispute with the Applicant.
People trump horses. Mr. Van Boekel cannot, in the face of overwhelming evidence to the contrary, plead impecuniosity towards a member of his family in order that his own image as some kind of cowboy may remain undisturbed.
I have previously rejected Mr. Van Boekel's ludicrous proposition that his income for 2009 was "in the range of $56,000 per year (grossed up to $70,000)." I do so again.
By refusing to pay his monthly spousal support per the terms of his contract, Mr. Van Boekel has breached his pre-nuptial agreement and the court is therefore not bound by that document or by any support amount agreed upon therein.
Therefore, based upon the income already attributed to him, I find that a reasonable temporary spousal support amount shall be $5,000 per month, commencing January l, 2010.
18The litigation between the parties was ultimately settled, and Minutes of Settlement were entered into. A copy of those Minutes has not been filed as an exhibit, but the final order of Rady J. dated September 24, 2010, which was made pursuant to those Minutes, is in the applicant’s Trial Record. The order provided for a divorce. It provided for joint custody of the children to both parties, with residential care to be agreed upon between them.
19In para. 7, the respondent was ordered to pay child support to the applicant in the amount of $5,444 per month. While the annual income of the respondent, which formed the basis for the table amount ordered, was not explicitly specified in the Order as required by s. 13(b) of the Guidelines, it is common ground that it was based on the respondent having imputed income of $250,000 per year, and indeed $5,444 per month matches (within $2) the table amount payable for 5 children based on income of $250,000. The order also provided that the respondent pay 75% of s. 7 expenses, with the applicant paying 25%.
20In para. 6 the respondent was ordered to pay spousal support in the amount of $3,000 per month.
21In para. 4, the respondent was ordered to pay to the applicant the sum of $175,000. According to the evidence of the respondent, which I accept, this payment was intended to cover the applicant’s property claim for equalization of net family property, spousal support arrears and child support arrears. I am given to understand that the equalization payment largely represented equalization of the value of the matrimonial home.
22Paragraph 10 provided that “[a]ll of the remaining claims of the parties shall be dismissed, and in particular any claims, rights duties or obligations under the parties’ Domestic Contracts, save and except as amended hereby shall be deemed to have been satisfied or discharged.” The effect of this provision was that the applicant’s claim that the Domestic Contract should be set aside was dismissed.
23Finally, the order provided, in para. 9, for updated annual income disclosure, within 30 days of the anniversary date of the order, in accordance with s. 24.1 of the Guidelines.
24Initially the parties got along well, and cared for the children in something resembling a shared parenting arrangement. However, that changed, and the children began spending less and less time with the respondent. The reasons for this change are in dispute, but it is not necessary to resolve that conflict for purposes of this proceeding. It is acknowledged that the childcare duties changed such that the applicant became the primary caregiver. The respondent and his new spouse Katherine spent a lot of time on the cutting horse activity, and were away from home for a week each month in some years.
25The applicant says that it was very difficult for her to handle the conflicting schedules of five children with little assistance from the respondent. She ran around non-stop, doing laundry 24 hours a day, cooking, cleaning, driving, organizing drives, and organizing others to help with the kids. She also began to experience financial hardship because her expenses were higher than she anticipated, given the additional time the children were spending with her.
26The respondent states that he continued to be involved with the children, coaching every one of them except Tarynn in hockey, and attending countless games, as well as paying their registration fees. He says that he got no request from the applicant for financial assistance in meeting expenses until this litigation started in 2017.
27The respondent did not comply with the automatic disclosure requirements in para. 9 of the final order. In 2012 the applicant wrote to him requesting disclosure but did not receive it. She retained counsel, Mark Coulston, and he wrote to the respondent on March 28, 2013 requesting disclosure.
28In response, the respondent produced 446 pages of documentation, which have been filed collectively as Ex. 57. An index to that disclosure is Ex. 54. The applicant complains that much of this documentation was irrelevant and confusing, and was missing several important documents, such as the financial statements for Hog Farms for 2010, 2011 and 2012, and the respondent’s personal tax return for 2012.
29I have reviewed this material, and do not agree with the applicant. While formal financial statements from Hog Farms were not provided, the complete 2011 corporate tax return was, which contained financial statements for 2011 and comparative statements for the four preceding years, including 2010, albeit in a different format than traditional financial statements received from an accountant. As to 2012, the corporate return and the respondent’s personal return were not yet due at the time of the request, although it is worth noting that the respondent did not forward them in the months that followed when they did become due and were prepared. The respondent argues that the applicant did not submit a follow-up request, but such a request is not needed. The order speaks for itself, and must be complied with proactively.
30There were other disputes between the parties in the years between the final order and the commencement of this litigation, notably regarding the allocation of the child tax benefit, but it is not necessary to review that evidence.
31The oldest child MacKenna finished high school in 2015 but went back for another semester, finishing in January or February, 2016, by which time she was 19 years of age. Thereafter she worked at various jobs for several years, until returning to school in the fall of 2018. Peyton turned 18 in February, 2016, and finished high school in June, 2016, when he began working for Hog Farms. The applicant agreed in cross-examination that the respondent continued to pay child support for 5 children thereafter, notwithstanding the change in status of these two children. However, she said that when the support cheque came in on October 1, 2016, child support was 3/5 of the amount provided under the final order. She said she received no notice from the respondent that he intended to make this change.
32She sought legal advice, and was told (correctly) that child support for 3 children at $250,000 in income would be considerably higher than 3/5 of the amount payable for 5 children. She messaged the respondent to tell him what she had learned, and gave him until December 1 to make it the right amount under the Guidelines. When he did not do so, she filed the final order with the Family Responsibility Office for enforcement.
33The respondent retained counsel, Carey Speirs, who wrote to the applicant on March 20, 2017 to ask her to agree to a variation of the order. She retained counsel, Selin Hankali, who wrote to the Mr. Speirs on April 10, 2017, advising that she had been consulted with regard to his letter. She wrote “Before I can adequately advise my client, I would be required to obtain Mr. Van Boekel’s complete financial disclosure for the last three years. Please advise when you would be able to provide my office with same.”
34The respondent did not provide financial disclosure as requested. Instead, he commenced this Motion to Change, on June 6, 2017. The applicant’s Cross-motion was commenced August 4, 2017.
Applicable Legal Principles:
35Since the final order in question was made pursuant to the Divorce Act, the governing section is s. 17. The relevant part reads as follows:
17(1) Order for variation, rescission or suspension
A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively,
(a) a support order or any provision thereof on application by either or both former spouses;
36Sub-sections 17(4) and (4.1) set out the threshold that must be met before a court will vary a child support order or a spousal support order:
17(4) Factors for child support order
Before the court makes a variation order in respect of a child support order, the court shall satisfy itself that a change of circumstances as provided for in the applicable guidelines has occurred since the making of the child support order or the last variation order made in respect of that order.
17(4.1) Factors for spousal support order
Before the court makes a variation order in respect of a spousal support order, the court shall satisfy itself that a change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order or the last variation order made in respect of that order, and, in making the variation order, the court shall take that change into consideration.
37If the threshold of a “change in the condition, means, needs or other circumstances of either former spouse” has been met in a motion to change spousal support, s. 17(7) comes into play:
17(7) Objectives of variation order varying spousal support order
A variation order varying a spousal support order should
(a) recognize any economic advantages or disadvantages to the former spouses arising from the marriage or its breakdown;
(b) apportion between the former spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;
(c) relieve any economic hardship of the former spouses arising from the breakdown of the marriage; and
(d) in so far as practicable, promote the economic self-sufficiency of each former spouse within a reasonable period of time.
38Child support is driven by the income of the payor, and is a specified amount in the Guidelines tables corresponding to the number of children and the payor’s income. Accordingly, on the facts of this case the changes in circumstances that must be proven in order to vary a child support order are either a change in the income of the payor or a change in the number of the children for whom support is to be paid, or both. Both potentially come into play here. The number of children to be supported has decreased from time to time since the final order, and support for the independent children was eventually terminated on a consent basis. That issue is not controversial. The real question is whether a change in the income of the respondent has been proven.
39With respect to variation of spousal support, the change must be “material”, even though that word does not appear in s. 17(4.1). In Favero v. Favero, 2013 ONSC 4216, at paras. 68-9, Chappel J. succinctly summarized the law defining that term (footnotes omitted):
In Droit de la famille - 091889, the Supreme Court of Canada confirmed the principle established in Willick and B. (G.) that a change in a spouse’s condition, means, needs or other circumstances must be “material” to justify a variation of an existing spousal support order under section 17 of the Act. The term “material” has been interpreted as having both a quantitative and qualitative connotation. On a quantitative level, the Supreme Court of Canada has stated that trivial, insignificant or short-lived changes will not justify a variation. However, the sufficiency of the change must always be evaluated in light of the particular facts of each case. The Ontario Court of Appeal has emphasized that a change in circumstances for the purposes of support variation proceedings must be something that has a measure of continuity.
On a qualitative level, in order to be material, the change must be one that was not foreseen at the time, and must be such that if it had been known at the time, it would likely have resulted in different terms. If the matter which is relied upon as constituting a change was known or contemplated by the parties at the relevant time, it cannot form the basis for a variation of the existing order. The fact that a change was objectively foreseeable does not necessarily mean that it was contemplated by the parties. The material change can be based on an unexpected change in either or both of the parties’ circumstances, or on evidence that an anticipated set of specified circumstances failed to materialize. The onus is on the party seeking to vary the order to establish that such a change has occurred. The analysis of whether there has been a change in circumstances involves a careful review of the basis upon which the existing order was made. The importance of leading evidence respecting the parties’ circumstances when the existing order was made was clearly highlighted in the decision of the Supreme Court of Canada in R.P.
40In determining whether there has been a material change in the “condition, means, needs or other circumstances of either former spouse”, the court does not look only at the income of the spouses at the time of the order and at present, but can take into account changes in the capital position of the parties as well, so long as “double dipping” is avoided. In Leskun v. Leskun, 2006 SCC 25, Binnie J., speaking for the court, said this, at paras. 29-31:
There is no support in the case law or in logic for the proposition that the Chambers judge was wrong to take into account the appellant’s capital assets acquired after the marital break-up. In Strang v. Strang, 1992 CanLII 55 (SCC), [1992] 2 S.C.R. 112 (S.C.C.), the Court stated that the traditional understanding of the word “means” includes, “all pecuniary resources, capital assets, income from employment or earning capacity, and other sources from which the person receives gains or benefits” (p. 119). J. Payne and M. Payne elaborate as follows:
The word means includes all pecuniary resources, capital assets, income from employment or earning capacity, and any other source from which gains or benefits are received, together with, in certain circumstances, money that a person does not have in possession but that is available to such person. (Canadian Family Law (2001), at p. 195)
The appellant says that there was a division of capital by Collver J. at the original trial and that it is unfair that his after-acquired capital should now be tapped to pay the respondent continuing support. The present case does not raise the “double dipping” issue mentioned in Strang and dealt with at length in relation to pension benefits in Boston v. Boston, 2001 SCC 43 (S.C.C.). In that case, Major J. described the problem in this way:
...upon marriage dissolution the payee spouse (here the wife) receives assets and an equalization payment that take into account the capital value of the husband’s future pension income. If she later shares in the pension income as spousal support when the pension is in pay after the husband has retired, the wife can be said to be recovering twice from the pension: first at the time of the equalization of assets and again as support from the pension income. [para. 34]
The appellant’s capital assets at issue here did not exist at the time of the initial division by Collver J. and no issue of “double dipping” arises. As Major J. put it in Boston, at para. 64 “the court should ... focus on that portion of the payor’s income and assets that have not been part of the equalization or division of matrimonial assets when the payee spouse’s continuing need for support is shown” (emphasis added).
41The main asset that is alleged by the applicant to have greatly increased the respondent’s net worth since the final order is his interest in Hog Farms. That asset was not equalized in the final order because it was expressly excluded from the equalization of net family property pursuant to the Domestic Contract. Accordingly, the issue of double dipping does not arise.
Financial Circumstances of the Parties at the Time of the Final Order:
42Bearing in mind the statutory framework outlined above, as interpreted by caselaw, I will now examine the evidence as to the means, needs and other circumstances of the parties in 2010, when the final order was made. I will start with the respondent.
43His 2010 Income Tax Return was included in the bundle of documents that comprise Ex. 57. It shows Line 150 income of $60,000, consisting of the taxable amount of dividends received from Hog Farms. While the respondent acknowledges that his Line 150 income does not fairly represent the income available to him for support, it is a useful starting point.
44The respondent filed a Financial Statement in the divorce proceedings, sworn July 8, 2009, marked as Ex. 28. I was not advised of any updated statement having been filed between that date and the date of the final order. Ex. 28 shows monthly income of $5,875, which amounts to $70,500 per year. It shows the valuation date value for his holdings in Hog Farms to be $5,090,324.
45The respondent filed an affidavit sworn July 8, 2009, for purposes of interim support proceedings, and he was cross-examined on that affidavit at trial, and confirmed its accuracy. It is filed as Ex. 29. In it, he discussed the cutting horse operation, and said that while it was originally started more as a hobby than a business, it was now a business conducted with a view to making a profit. In Appendix D attached to the affidavit, he summarized his income and expenses from 2001 to 2008 in this endeavour. It shows that he received $131,901 in winnings and sponsorships, while spending $370,063.
46He painted a bleak picture of the financial state of Hog Farms, largely due to the worldwide Swine Flu pandemic, and a steep rise in the cost of hog feed. He predicted an operating deficit in 2009 of between $2,500,000 and $3,500,000. He swore that his true income for support purposes was $70,500 per year.
47Another affidavit was filed by the respondent, more proximate to the date of the final order, sworn June 22, 2010. It is filed as Ex. 30, and he was also cross-examined on it. He confirmed that he swore it and assumed it was true.
48In this affidavit he paints an even bleaker picture of his financial situation. Key points are as follows:
Hog Farms suffered actual losses in 2009 of approximately $5,900,000;
An interim Financial Statement for Hog Farms for the first quarter of 2010 showed a loss of $725,000, while an interim Financial Statement for Just E Farms showed a profit of US$415,000, for a net loss of $310,000;
As a result of a business review requested by CIBC, he was obliged to undertake refinancing with CIBC and Farm Credit Corporation (“FCC”) in January, 2010, subject to a new Forbearance Agreement;
His equity in Hog Farms has effectively disappeared over the preceding year because of North American conditions endemic to all hog farmers, such that his December 2008 book value/equity of $6,013,000 dropped to a December 2009 figure of $22,000.
49He discussed the cutting horse operation in the affidavit, and stated that his expenses exceeded his revenue by $69,000 in 2008 and $160,000 in 2009. He said “I have endeavoured to cut VBHF’s losses from the cutting horse operation but I do not consider it reasonably possible to conduct an immediate fire sale of all existing horses.” He then stated that he had reduced the size of his herd from 15 to 10 over the preceding year.
50He also filed an affidavit from his accountant, Brent VanParys, sworn June 29, 2010, upon which he was also cross-examined at trial. It is filed as Ex. 32. He confirmed in his testimony that he had no reason to disbelieve its contents. Of note in that affidavit is a comment that under Generally Accepted Accounting Principles they were required to include a “Going Concern” note to the 2009 Financial Statements, because “there is some doubt about the company’s ability to continue operations”. The reader is put on notice that “if the company is unable to continue operations, it may not be able to realize the carrying value of its assets nor meet its liabilities.”
51That is the evidence, such as it is, as to the respondent’s financial situation and that of his corporation Hog Farms that was known to the parties immediately prior to the consent order of September 24, 2010. It is noteworthy that the 2011 Corporate Tax Return shows that the net profit of Hog Farms for 2010 turned out to be $1,544,105, and for 2011 it was $1,197,752. Clearly, the respondent’s projections for losses in 2010 in his affidavits were unduly pessimistic and inaccurate. However, financial statements for 2010 would not have been prepared until well into 2011, many months after the consent order, and these were not disclosed to the applicant until April, 2013. I consider, therefore, that they have no relevance to the perceived state of the respondent’s financial affairs upon which the final order was based. For purposes of establishing a financial baseline for the respondent for 2010, I will consider his finances and those of his company to be as he said they were in his affidavits.
52As to the applicant’s financial situation at the time of the consent order, it was virtually ignored in her examination-in-chief and cross-examination. While a brief of income tax returns was filed as Ex. 60, it covers the years 2014 forward. No Financial Statement from 2009 or 2010 was filed as evidence, although one presumes that she had filed one in the original divorce proceedings. My bench notes record exactly one statement that she made during her testimony relevant to this, where she said that her only income at the time of settlement was from her support. Since that is essentially the only evidence on the point, I will accept it as a proven fact.
53As to her net worth, that again received very little attention. She indicates that it was $175,000 after she received the settlement proceeds, but she paid $100,000 to her lawyer, and the rest went to pay credit card debts, buy furnishings and build a fence for her house, and pay down her mortgage. She testified that her current net worth is negative $97,000.
Financial Circumstances of the Respondent Currently:
54Once again, I will deal with the respondent’s situation first.
55Before doing so, I should digress for a moment to note that we are dealing with how the respondent’s income should be calculated for purposes of both child support and spousal support. The Guidelines have regulatory provisions in s. 15 to s. 20 that provide specific rules as to how to calculate the income of a payor of child support. Those rules do not apply in determining spousal support, but rather it is left in the discretion of the court to determine what the appropriate income is, in crafting an order that “the court things reasonable”. However, I find the rules in the Guidelines to be a very reasonable way of adjusting the income of a payor in order to arrive at an order that reflects the payor’s true ability to pay. Thus, while the Guidelines are not binding on me with respect to spousal support, I intend to be guided by them unless I specifically indicate to the contrary.
56I should also clarify at the outset that the bulk of the evidence provided by counsel regarding the respondent’s current financial circumstances covers the period from 2014 to 2018 inclusive, as opposed to 2019, the year the trial began. While this may seem odd, it is acceptable in this situation, for three reasons. First, it is clear that the hog business is highly cyclical, where a farmer can earn several million dollars in profit one year and lose several million another. To get a true picture of the earnings being generated by this business, it is necessary to look at its performance over a period of several years. I am cognizant that s. 17(1) of the Guidelines provides for income averaging over a period of only three years, not four. However, that applies when fixing the quantum of support to be ordered. I am at present considering the threshold question as to whether a material change has occurred. If it has not, it will not be necessary to calculate the respondent’s income for purposes of determining the table amount.
57The second reason is that there is almost no evidence as to the respondent’s income and that of Hog Farms for 2019, with the exception of some evidence from the accountant Jessie Goossens relating to 2019, which I will refer to in due course. This is largely because this trial began in 2019, before year end, and by the time the evidence was concluded in March, 2020, the respondent’s Income Tax Return was not yet due, nor was the Corporate Tax Return for Hog Farms. No financial statements for 2019 were entered into evidence. Furthermore, insurance claims for the fire loss in 2018 are still being processed, and those proceeds will have an impact on the bottom line. In addition, the hog farm operation receives government support under two separate programs which serve to ameliorate some of the losses in bad years, called AgriStability and the Risk Management Program. It was not made clear to me at trial how long it takes to determine whether Hog Farms qualifies for a subsidy, but presumably it is some time after year end, when the financial statements and applications have been completed.
58The third reason why it is appropriate to look at the period from 2014 to 2018 is that both parties are seeking retroactive relief: the respondent to 2014 and the applicant to 2013. If a material change is proven, it will be necessary to look back prior to the date of trial to determine whether the variation should be made retroactive.
59The respondent claims that he has experienced a significant and consistent decline in his income since July 1, 2014, for the following reasons:
market factors beyond his control: changes in the prices of hogs and input costs, for corn and soya beans (prices in 2014, were exceptional, but have been declining since);
the 2014 and 2015 Porcine Epidemic Diarrhea ("P.E.D.") outbreaks;
the 2016 roof collapse;
Hog Farms' contract grower fire in 2015;
Hog Farms’ contract grower fire in 2016;
the loss of 2,000 market hogs in 2016 from suffocation due to ventilation failure;
Farm Credit's imposition of a financial covenant in 2016 which restricts his annual income to $150,000; and,
the 2018 barn fire which destroyed 3,500 sows, 4,500 early weaners and 6,000 weaners.
60Fortunately, we have the benefit of expert evidence from both sides to assist in painting a relatively clear picture of the respondent’s financial situation. The respondent’s expert is James Hoare, and the applicant’s expert is Ron Martindale. Both are highly qualified Chartered Accountants and business valuators, with expertise in calculating income available for support purposes, and their qualifications to give expert evidence were conceded by the opposing party in each case. They were both engaged to provide an expert opinion as to the “available income” from Hog Farms that could be attributed to the respondent for the purposes of paying child and spousal support.
61These experts exchanged their reports and supporting documents, shared information and spoke together on the telephone concerning areas of disagreement. Each of them amended their opinions from time to time as information became available and outstanding questions were answered. It was a form of virtual “hot tubbing”. For example, Mr. Martindale originally suspected that there was undisclosed income from Just E Farms, because the feed costs per hog were far out of line. That concern was answered with information from Mr. Hoare that the feed supplier, Kalmbach Feeds, was in fact a creditor of Just E, and the payments to them largely represented payments on that indebtedness. As a result, that issue was resolved.
62The fact that opinions were changed is not, in my view, a sign of weakness in their testimony, but is instead quite the opposite. It is a sign of impartiality and professionalism when experts are prepared to reconsider their opinions in light of new information. In short, I found both experts to be excellent witnesses.
63In the end, there is much on which the two experts agree, and the areas where they disagree are clearly defined.
64In his report of June 4, 2019, marked as Ex. 43, Mr. Hoare calculated the income that was available to the respondent from Hog Farms for purposes of support. This included Line 150 income from dividends and salary, but also included other income from the corporation that was available to him. I need not go into his methodology, since it is not disputed. He arrived at the following numbers:
2014: $176,938;
2015: $75,821;
2016: $114,793;
2017: $73,358;
2018: $100,689.
65Mr. Martindale accepts those numbers as the starting point. However, it is his opinion that additional income should be attributed to the respondent. His testimony and reports raise the following questions:
Is the cutting horse activity a “hobby”, as opposed to a business, such that the excess of expenses over income should be attributed to the respondent?
If so, what is the “available income” of the respondent for 2015-2018 after attribution?
Should those excess cutting horse expenses be grossed-up for income tax, since they amount to the payment of a personal expense by the corporation?
Should the bank covenants apply so as to “cap” attributed income at $150,000 per year?
Should there be attribution of 95% of travelling expenses, which are alleged to be personal, plus a gross-up for income tax?
Should there be attribution of legal and accounting fees paid by the company, which are alleged to be personal, plus a gross-up for income tax?
Should the Capital Dividend Account constitute attributed income to the respondent, in draw-downs over 5 or 10 years, plus a gross-up for income tax?
Should income be attributed to the respondent for managing, without pay, the corporation solely owned by the respondent’s mother, Yvonne Van Boekel, known as Van Boekel Holdings Inc. (“Holdings”)?
66I will deal with each of these questions in the order listed. Afterward, I will consider the evidence that specifically relates to the respondent’s financial situation in the year 2019 up to the commencement of the trial. Finally, I will consider the evidence as to what the respondent’s net worth is at the present time, since that forms part of his overall means, for spousal support purposes.
1. Cutting Horse Activity: Is it a business or a hobby?
67In Proulx v. Proulx, 2009 CanLII 19938 (ON SC), 2009 CarswellOnt 2189 (S.C.J.), a case upon which both parties rely, Taliano J. disallowed $79,000 in losses claimed by the payor spouse relating to a karate studio he opened following the separation. He did so under s. 19(1)(g) of the Guidelines, on the basis that the payor was “unreasonably” deducting expenses from income. He found that the business was “little more than a device to deduct expenses, split income with his current partner and artificially lower his income to minimize his child support obligations”. He noted that s. 19(2) of the Guidelines provides as follows:
For the purpose of paragraph (1)(g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act.
68He said the following, at paras. 42-5:
Where losses are sustained by a payor from a “subordinate or sideline” business, courts frequently disallow such losses in calculating the payor’s annual income for child support purposes. In Nichol v. Johnson, 2003 SKQB 486, [2003] S.J. No. 736 (Sask. Q.B.) at para. 22, the court stated:
In the present case, the evidence before me is that for the last three years the farming operation has lost money. There is no question that the respondent employs his farming operations as a means to deduct personal expenses and income split with his new spouse. While that may be perfectly acceptable from the perspective of the CCRA, the Guidelines preclude such artificial deduction to operate as a detriment to the child.
Similarly in Botha v. Botha, [2000] A.J. No. 1533 (Alta. Q.B.), the payor was a doctor who wrote off farming losses against his income. The court stated at para. 24:
The issue is whether or not the full deduction of expenses which may be permitted by the Income Tax Act results in a fair recognition of the actual income that is available to that spouse from that source of income. The objective in determining income for the purposes of the Guidelines is to determine the monies available to a payor from the sources of income in the T1 General for the support of the payor’s children. The payor’s disposable income can be considerably more than his taxable income. If the payor’s children remained part of the payor’s household they would have the advantage of and would benefit from that disposable income and not just from the payor’s taxable income: Wilson v. Wilson (1998), 1998 CanLII 14060 (SK KB), 165 Sask. R. 241 (Q.B.) (paras. 34-38).
In rejecting the hobby farm/race horse losses, Justice Coutu stated the investment should “not operate to the present detriment of the children,” and that when choosing to spend money for child support or for horses “the child support ought to have higher priority”.
Applying the foregoing principles, I have concluded that the karate losses must be totally ignored in the calculation of the respondent’s income for child support purposes.
69In their Memorandum of Law on Imputing Business Losses, counsel for the respondent came to the following conclusion: “If the court finds the cutting horse business operated by Hog Farms to be a "hobby," the business losses sustained by the cutting horse farm should be ignored by the court in their determination of Eric's total income for support purposes.” I agree, because deducting from income expenses incurred in pursuing a hobby is, on its face, unreasonable. It is the unreasonableness of the expense that is the basis for disallowing it.
70The evidence is clear that the cutting horse activity started out as a family hobby, and I have made reference to that above. The applicant maintains that it remained a hobby at all times. The respondent maintains that it transformed itself from a hobby into a business, with a view to making a profit.
71If that was the purpose, it failed miserably. It has never made money since the activity began in 2001. I have already mentioned the losses that were incurred prior to the final order. According to the respondent’s affidavits marked as Exhibits 29 and 30, his expenses exceeded his revenues by $238,162 for the period 2001 to 2008. He incurred a further loss of $160,000 in 2009.
72In the November 22, 2019 report of Mr. Martindale, marked as Ex. 69, Schedule 6 outlines the losses incurred for the years 2010 to 2015, as taken from Ex. 2, the “AgriCorp AgriStability – 2015 Calculation of Program Benefits”. These relate to the U.S. side of the cutting horse activity only, because AgriCorp was disallowing those losses from their subsidy calculations. I was not provided with figures for the Canadian side for those years. The excess of expenses over revenue for that period is as follows:
2010: $90,771;
2011: $255,916;
2012: $288,086;
2013: $322,398;
2014: $375,617;
2015: $429,407.
73Mr. Hoare’s initial report did not address the issue of cutting horses. The applicant did a search of the General Ledger with specific key words associated with cutting horses, to arrive at cutting horse expenses for the years 2015 and forward. Those expenses were sent to Mr. Hoare, vetted by the respondent, some adjustments were made, and the revised cutting horse expenses in excess of revenues for 2015 to 2018 were summarized at p. 4 of Mr. Hoare’s Limited Critique Report of November 14, 2019, marked as Ex. 47. Those adjusted excess expenses are as follows:
2015: $456,749;
2016: $711,128;
2017: $638,993;
2018: $382,094.
74I have added up these losses from 2001 to 2018, using Mr. Hoare’s figure for 2015 and ignoring that year in Mr. Martindale’s report so as to avoid double counting. This results in the astonishing figure of $3,919,914 in total losses.
75I have absolutely no hesitation in concluding that this cutting horse activity is a hobby, not a business. It is acknowledged by the respondent that it started out as a hobby, but transformed into a business with a view to making a profit. But having lost money in every year in the 17 years it had been operating up to and including 2018, it is clear that there is not, and never was, a reasonable expectation of profit. Since the final order, the respondent has continued to squander money on this hobby despite Justice Campbell’s warnings in 2010 that he could not do so in priority to his support obligations.
76I am satisfied on the evidence that the respondent and his wife have a keen interest in horses and are pursuing this venture for their own personal pleasure, which is what hobbies are all about. They are clearly not doing it to make money, which is what businesses are all about.
77The income and expenses generated by the cutting horse venture are reported in Hog Farms' financial statements. The respondent argued that both Mr. Goossens and Mr. Vanden Hengel from FCC gave evidence that these numbers represent about 2 per cent of Hog Farms’ activities, and had no material effect on Hog Farms’ losses. That may well be, but it speaks more to the size of the respondent’s hog operation than it does to the magnitude of these expenditures. The fact is that they dwarf the amounts he has been called upon to pay for the support of his 5 children and their mother. For him to complain that he can’t afford to pay support, and ask the court that it be discontinued or reduced, while at the same time throwing away hundreds of thousands of dollars year after year to indulge in his dream of being a cowboy, is nothing short of preposterous.
78I agree with Campbell J. that “people trump horses”. The respondent’s obligations to pay support for his children and his former spouse take priority over his cutting horse hobby.
79I find the cutting horse expenses to be unreasonable, and they will be disregarded. The excess of those expenses over income will be attributed as income to the respondent.
2. What is the Available Income of the Respondent After Attribution of the Cutting Horse Losses?
80The next question to be determined is what is the available income for support purposes after attributing these excess expenses to the respondent?
81Taking the adjusted cutting horse expenses into account as attributed income, Mr. Hoare, at para. 26 of Ex. 47, estimated the income available to the respondent for support to be as follows:
| Year | Assume Bank Covenants Ignored | Assume Bank Covenants Considered |
|---|---|---|
| 2015 | $75,821 | $75,821 |
| 2016 | $825,921 | $150,000 |
| 2017 | $712,350 | $150,000 |
| 2018 | $100,689 | $100,689 |
82At this point in the analysis, I will be considering the numbers in the “Assume Bank Covenants Ignored” column only. The numbers in the other column will be considered when I discuss the impact of bank covenants.
83While all but one of the numbers in the “Assume Bank Covenants Ignored” column are accepted by Mr. Martindale, he did take issue with the 2016 figure. He mentioned in his November 21, 2019 report, Ex. 70 at paras. 21-2, that in Schedule 2 of Mr. Hoare’s report Ex. 47 he calculated the “Adjusted Income after ignoring cutting horse activities” for 2016 to be $1,123,424. However, he then reduced that by $412,296, in an entry that reflects “income not available due to bank covenants”. That number happens to correspond to the entire adjusted income for that year, before adding back cutting horse expenses. Mr. Martindale’s evidence was that this deduction should not have been made, since an adjustment for bank covenants is made in the “Assume Bank Covenants Considered” column above. He suggests that the correct amount to be attributed to the respondent from corporate income for 2016, before a consideration of bank covenants, should be $1,123,424.
84This issue was not canvassed in either examination-in-chief or cross-examination of Mr. Hoare, so I do not have the benefit of his explanation for the discrepancy, if there is one. As a practical matter, given the approach that I will be taking below, it is not necessary to reconcile this conflict. I am content to accept Mr. Hoare’s calculations as the starting point for a consideration of the remaining issues.
85The first question that arises on comparing these “available income” calculations to the adjusted excess cutting horse expenses outlined at para. [73] above relates to the years 2015 and 2018. Excess expenses for 2015 were $456,749, and for 2018 they were $382,094, yet nothing was attributed to the respondent by Mr. Hoare. The respondent’s available income for those years reflects Line 150 income only.
86Mr. Hoare’s explanation is that in 2015 and 2018 Hog Farms did not generate a profit, even if the cutting horse expenses were ignored. Thus, the cutting horse losses were effectively financed by a drawdown from retained earnings or an increase in third party debt, but not from net income. Since there was no net income in those years even after ignoring those expenses, there was no available income which could be attributed to the respondent.
87Mr. Martindale’s approach was that these cutting horse expenses were personal expenses paid by the company to pursue the respondent’s hobby, and should therefore be added to his income irrespective of whether they were being paid from net profits or an increase in debt.
88While there is some logic to Mr. Martindale’s view, the Ontario Court of Appeal took a position in line with Mr. Hoare’s approach in Mason v. Mason, 2016 ONCA 725. Speaking for the court, Simmons J.A. was examining the income determination rules in sections 15 to 20 of the Guidelines, and said the following, at paras. 161-3:
The purpose of ss. 15 to 20 is to arrive at a number that fairly and fully reflects the payor’s income. The default is that this number will simply be determined using line 150 income. Where, however, the court determines that this default determination would be unfair, the Guidelines permit an expanded view of income.
For the purposes of this appeal, I see the highlights of the income determination provisions of the Guidelines as being:
s. 15 provides that a spouse’s annual income is determined in accordance with ss. 16 to 20;
s. 16 provides that, subject to ss. 17 to 20, a spouse’s annual income is the spouse’s line 150 income;
under s. 17, if a court determines that s. 16 produces an amount that would not be the fairest determination of annual income, the court may have regard to the spouse’s income over the last three years to determine a fair and reasonable amount in light of, among other things, any pattern of, or fluctuations in, income;
under s. 18, if the spouse is a shareholder, director or officer of a corporation and the court determines that s. 16 produces an amount of annual income that does not fairly reflect all the money available to the spouse to pay support, the court may determine the spouse’s annual income to include all or part of the pre-tax income of the corporation for the most recent taxation year; and
s. 19 sets out a non-exhaustive list of circumstances in which a court may impute income to a spouse.
In my view, the scheme of these provisions is that s. 18 permits a court to take an annual snapshot of a spouse’s income — and include in it pre-tax corporate income from the most recent taxation year. If the corporation suffered a loss in the most recent taxation year, no amount of pre-tax corporate income may be included. Under s. 17 however, the court may determine an amount that is fair and reasonable having regard to the spouse’s income over the last three years in light of, among other things, any pattern of, or fluctuations in, income over the three-year period. And “income” for that purpose may include amounts of pre-tax corporate income added to line 150 income under s. 18 for each of those years. [emphasis added]
89Accordingly, no corporate income may be attributed to the respondent in years when the corporation suffers a loss. While this ruling is conclusive with respect to determining the respondent’s income under the Guidelines for purposes of child support, I consider it binding upon me with respect to the spousal support issue as well. It must be remembered that the exercise that the experts were engaged in was determining what income from Hog Farms was “available” to the respondent with which to pay support. If Hog Farms suffered a loss in a given year, it follows that no income at all was available to attribute to the respondent, and this would be so irrespective of whether Hog Farms increased its losses further by paying the cutting horse expenses.
3. Should the Cutting Horse Expenses Attributed to the Respondent Be Grossed Up for Income Tax?
90The two experts disagree on whether the cutting horse expenses that are attributed to the respondent as available income should be grossed up for income tax. Mr. Martindale takes the position that this is a personal expense, paid for by the company, similar to the company paying $10,000 for a family vacation. In such situations, the court should gross-up that figure by the income tax that the payor would have to pay in order to end up with the after-tax amount of $10,000 needed to pay that personal expense himself.
91Mr. Hoare agreed that in a clear case where a corporation pays a personal expense, it is appropriate to gross-up the amount of that expense for income tax and add it to the payor’s income. In this case, however, he simply followed the methodology in Proulx, which was to disregard the cutting horse expenses in calculating the available corporate income for support purposes, with no gross-up for income tax.
92I am inclined to follow Proulx and the other authorities referred to therein, where the unreasonable expense is simply ignored, and no gross-up is applied. No authorities were cited by the applicant in support of Mr. Martindale’s approach of applying a gross-up. I was not provided with a cogent argument for following one approach or the other by either the experts or by counsel. I will, however, endeavour to explain why I have chosen not to apply a gross-up, while acknowledging that the question is a difficult one.
93To begin with, there is a difference between disregarding a corporate expense under s. 19(1)(g) of the Guidelines because it is unreasonable, on the one hand, and grossing up a personal expense paid by the corporation, on the other. Although there is a personal aspect to the cutting horse hobby, I am not discounting those expenses because they are personal expenses of the respondent paid for by the company. Instead, I am discounting them because they are unreasonable corporate expenses which, had they not been incurred, would have left more corporate income available for support purposes.
94Ignoring an unreasonable expense, in the circumstances of this case, simply increases the amount of available corporate income to be attributed to the payor. Significantly, such available income is imputed as gross income for support purposes, with no gross-up, because gross income is the basis for calculating support using the Federal Child Support Tables. Indeed, s. 18(1)(a) of the Guidelines, which is the section that provides for the attribution of corporate income, specifies that it is “the pre-tax income” of the corporation that is to be attributed. It is conceptually wrong to gross up pre-tax income. And if that pre-tax income happens to be higher because certain expenses claimed by the corporation were found to be unreasonable, it should, as a matter of logic, still be handled in the same way, without a gross-up.
95Spousal support is also calculated based upon gross income, in the Spousal Support Advisory Guidelines (“SSAGs”). While the SSAGs do not have the force of law, they have become firmly entrenched as an extremely useful tool for calculating the appropriate range of spousal support. Misleading results would be obtained if pre-tax corporate income that is attributed to the payor were to be grossed up before being added to the payor’s gross income.
96I can illustrate with an example. Suppose the payor had Line 150 income of $100,000, but also had sole ownership and control of a corporation that generated another $100,000 in available pre-tax income. If that corporate income was attributed to the payor under s. 18(1)(a), he would pay child support under the Guidelines based upon $200,000 in gross income. He would then have to pay income tax on his $100,000 in Line 150 income, and also would have had to pay income tax on the $100,000 in pre-tax corporate income if it had actually been distributed to him as dividends or salary.
97However, if the $100,000 in corporate income is grossed up for income tax by, say, 1/3, it becomes $133,000. The payor would then pay the table amount of child support based on $233,000 in total annual income, not $200,000. This is unfair to the payor because the $100,000 in corporate income, had it been actually paid to him and made available for support purposes, would have been paid as pre-tax income, on which he would have to pay income tax. The corporation would not have paid him $133,000, since it only had available income of $100,000 to pay over, so it is not appropriate to attribute that amount to him as income for support purposes.
98In my view, the principle that corporate income imputed to the payor for support purposes should not be grossed up should apply irrespective of whether all or part of that corporate income became available from having discounted unreasonable corporate expenses.
99By contrast, the payment of a personal expense focusses on the individual payor, not on the corporation. It is not considering whether corporate income is available to be attributed to the payor as pre-tax income for the purpose of calculating support under s. 18(1), and the rules governing such attribution, as outlined in Mason, do not apply. Instead, it considers the valuation of a personal benefit paid by the employer, and actually received by the employee, which would normally be paid by him out of net income. To return to the example used, where the corporation pays $10,000 for a family vacation, such an expense is normally paid out of after-tax income (unlike support, which is calculated based on gross income). It is, therefore, appropriate to gross it up to the equivalent in gross income that would have left the employee with $10,000 in after-tax income with which to pay that personal expense.
100Accordingly, I conclude that it is not appropriate to gross up the excess cutting horse expenses that are being added to the respondent’s income for support purposes. Having also accepted that attributing these cutting horse expenses should not occur in years when the corporation suffers a loss, it follows that I accept Mr. Hoare’s figures in the “Assume Bank Covenants Ignored” column at para. [81] above.
4. What is the Impact of the Bank Covenants?
101Banking restrictions, or covenants, are one of a multitude of considerations that the court takes into account in determining whether to attribute corporate income to a payor under s. 18 of the Guidelines: see Thompson v. Thompson, 2013 ONSC 5500, at para. 92. In the case at bar, it is not necessary to undertake the entire analysis contemplated by that case, because it has been conceded by the respondent that Hog Farms is his corporate alter ego, and that available income from that corporation should be attributed to him. In so doing, he impliedly conceded that determination of his annual income under s. 16 would not be the fairest determination of that income, and I find that as a fact. It was also conceded by the respondent’s expert, Mr. Hoare, that if I found the cutting horse activity to be a hobby, then it would be appropriate to ignore the expenses of that activity that exceed revenue, with the result that the income available to the respondent for support purposes would be as he calculated in the table at para. [81] above.
102The remaining issue, though, is whether bank covenants should operate so as to “cap” the amount of income to be attributed to the respondent at $150,000 for 2016 and 2017, instead of the amounts otherwise calculated for those two years of $825,921 and $712,350 respectively.
103FCC has been Hog Farms’ primary lender since it took over from CIBC in or about 2010. Hog Farms signed a Credit Agreement with FCC on March 25, 2013. It contained covenants relating to the current ratio and debt service coverage ratio and put a $100,000 cap on net capital expenditures. In general, it required FCC’s permission to take money out of the company by way of dividends or other distributions other than in the normal course of business.
104This agreement was replaced with a new one dated March 11, 2016. It contained similar covenants regarding debt service coverage ratio and current ratio, as well as a cap on net capital expenditures of $100,000 without FCC’s prior written consent. It also provided that annual remuneration for all officers, directors and shareholders shall not exceed the budgeted amount of $150,000.
105It is this latter covenant that Mr. Hoare relies upon to cap the available corporate income in 2016 and 2017. Simply put, he argues that if the respondent can’t withdraw that money out of the corporation, it is not really available to him.
106However, Hog Farms has breached their banking covenants on several occasions without any adverse consequences. Mr. Vanden Hengel from FCC testified there were covenant breaches, “but not a lot”. He said: “There are all sorts of little breaches we see all the time” but they don’t pay much attention to covenants because “they don’t get us paid, cash flow does”. When FCC put the $150,000 covenant in, they were aware the respondent was paying about $100,000 per year in support. When asked by counsel for the respondent how he could survive on the remaining $50,000, Mr. Vanden Hengel responded that it is a matter of lifestyle. He pointed out that that the respondent lives in a house supplied by the corporation, with all of his living expenses being put through the company. He commented that there are many farmers who live on a lot less than $50,000.
107Mr. Hoare testified as to covenant breaches, from his review of the financial statements. He said that if you include advances to the respondent from the shareholder loan, the $150,000 covenant was breached by roughly $18,000 in 2018, by about $30,000 in 2017, and by about $50,000 to $60,000 in 2016. There were other breaches as well. The current ratio covenant was breached in 2016 and 2015; the debt service ratio was breached in 2018, 2016 and 2015; the net capital expenditure covenant was breached in 2016 and 2015; and the covenant at article 3.1.1, which is engaged when the EBITDA exceeds debt servicing requirements by more than $200,000, was breached in 2016, 2015 and 2014.
108It also appears that the respondent breached the covenant prohibiting net capital expenditures exceeding $100,000 without FCC’s written consent when he purchased a Featherlight horse trailer in 2018. As reflected in Ex. 35, the respondent purchased the new trailer for $160,687, while receiving $52,154 for the trade-in, for a net cost of $108,533. The respondent said in evidence that he didn’t need to get permission because with the trade-in there was no breach, but his math is clearly in error.
109Despite these breaches, loans were not called and FCC continues to be the primary banker for Hog Farms.
110While the existence of banking covenants must be considered by the court in determining whether and how much corporate income to attribute, I conclude that in this case they are not an impediment to making a periodic support order that is no more than the one that was agreed to in 2010.
111To begin with, Mr. Vanden Hengel testified that FCC would have been aware of the respondent’s obligations to pay support pursuant to the final order. That order required him to pay $101,328 per year in child and spousal support, and he did so until he unilaterally changed the amount he was paying in October 2016. Despite the covenant of March 25, 2013 that required FCC’s permission to take money out of the company, the respondent was able to meet his legal obligations to pay support without any adverse consequences flowing from his covenant. The respondent was still paying $101,328 in annual support when he signed the new Credit Agreement on March 11, 2016, which included the $150,000 cap on remuneration. It is inconceivable that FCC would have required him to sign such a covenant if they considered that he would have immediately been in breach of it. The only rational conclusion available is that the FCC was content to continue financing his operations on the basis that he had an annual support obligation of $101,328.
112The flaw in Mr. Hoare’s analysis in reducing $825,921 and $712,350 of available income in 2016 and 2017 to $150,000 in each year is this: nobody is suggesting that the respondent should pay annual support in amounts that come anywhere close to those figures. They are indicators of the available income of the respondent in those years, and can be used by the court to calculate the amount of support he should be paying, but so long as that support is in line with what he has been paying all along, the covenants, in my view, do not come into play.
113I postulated to Mr. Hoare, during his examination-in-chief, that if you just use the available income figures for the purpose of calculating support, but the respondent leaves that money in the corporation for another day instead of withdrawing it, he would not be breaching the covenant. His response was that in order to put the parties on an equal footing, the respondent has to draw the money out. I reject that answer. The available income figures reflect the income that the corporation has generated in that year, for the sole benefit of the respondent. It is non-sensical to suggest that the respondent has to take all of that money out of the corporation, instead of leaving it invested in the company, in order for it to be taken into consideration in determining his income for support purposes. The whole point of the attribution exercise in s. 18(1) of the Guidelines is to impute corporate income to the payor that was never actually taken out of the corporation.
114Indeed, following Mr. Hoare’s reasoning, if his analysis had showed that the income available to the respondent for support was $250,000 per year, the court would nevertheless be required to cap it at $150,000 even though $250,000 is the precise amount the respondent agreed to in 2010, and was the basis for the support payments made for many years thereafter, without any consequences arising from covenant breaches. That is an absurd result.
115Accordingly, I find that the income available to the respondent for support purposes, after adding back the cutting horse losses, for the years 2015 to 2018 inclusive, is as Mr. Hoare calculated in the “Assume Bank Covenants Ignored” column at para. [81] above. This means that the average income available to the respondent during those four years was $428,695 per year.
5. Should Travelling Expenses Be Attributed?
116Mr. Martindale testified that 95% of the travelling expenses claimed by the corporation were personal expenses of the respondent, and should be attributed to him, together with a gross-up for income tax. The underlying assumptions in that opinion came from the applicant. She reviewed the General Ledger, and specifically the travelling expenses claimed, and concluded that 95% of those expenses were personal to the respondent.
117There are three problems with this opinion. The first is that Mr. Martindale never examined the GL entries himself, but just assumed that the applicant was correct and took her word for it. The second problem is that the applicant herself never testified about this when she gave her evidence, nor were copies of the suspect entries entered into evidence. Finally, the respondent was not confronted with any suspect GL entries during cross-examination so that he would have an opportunity to respond.
118The evidentiary basis for this claim is non-existent, and it will be rejected.
6. Should Legal and Accounting Fees Be Attributed?
119In 2018, Hog Farms paid a total of $173,482 in professional fees to Hoare-Dalton and two legal firms. Of that amount, $26,901 was considered by the respondent’s accountants to be personal, and was allocated to his shareholder loan account. Mr. Martindale is of the view that all of those fees relate to work done on this lawsuit, to which Hog Farms is not a party, and should be imputed to the respondent, plus a gross-up for income tax.
120It is unnecessary for me to resolve this difference of opinion, because the corporate expense was incurred in 2018, a year when Hog Farms lost money. Even if this expense were to be discounted as being unreasonable, it still would have lost money. I have previously ruled that corporate income cannot be imputed to the respondent in years where the corporation suffers a loss. Accordingly, even if a greater share of these fees should have been allocated to the respondent as a personal expense, it will not result in the attribution of any more income to him.
7. Should Income Be Attributed from the Capital Dividend Account?
121In 2012 and 2013 Hog Farms sold two farm properties, and leased them back for 21 years. The proceeds of sale were primarily used to pay off CIBC and other debt.
122These sales generated capital gains, of which 50% were taxable, and those taxes were paid by the corporation. The other non-taxable 50% of the capital gains went into a Capital Dividend Account.
123In 2017, Hog Farms redeemed 1,200,000 Special Shares that had been owned by the respondent since before the separation, at $1 each, and “paid” for them out of the tax-free Capital Dividend Account by declaring a Capital Dividend. The respondent immediately “loaned” this money back to Hog Farms in exchange for a non-interest-bearing promissory note. I use quotation marks around the words “paid” and “loaned” because this was entirely a paper transaction. This debt owing to the respondent is reflected in his shareholder loan account on Hog Farms’ Balance Sheet. It was in deficit at the beginning of 2017, meaning that the respondent then owed money to Hog Farms. After declaration of the Capital Dividend, Hog Farms owed $996,277 to the respondent as at the end of 2017. Because this money came from the tax-free half of the capital gains earned in 2012 and 2013, it can be drawn out by the respondent whenever money is available to do so, free of income tax.
124Mr. Martindale examined the financial statements of Hog Farms and calculated that the respondent had drawn down his shareholder account by an average of $100,000 per year from 2015 to 2018. He was of the opinion that the capital dividend was available to the respondent since 2013 and could have been declared well before 2017. He calculated the respondent’s available income for 2014 to 2018, using as an assumption that the respondent had drawn down $100,000 per year in tax-free capital dividends in each of those years, in accordance with his actual average drawdown. He then grossed those funds up for notional income tax, in accordance with s. 19(1)(h) of the Guidelines, to adjust for the fact that they are free of tax, and added the total amount to the income that he calculated was available to the respondent for support purposes during those years.
125If the respondent continued to draw down his shareholder account by $100,000 per year in the years to come, income could be attributed to him in this fashion for a total of 10 years before exhausting this source of tax-free money. Alternatively, Mr. Martindale proposed a scenario whereby the capital dividends in the shareholder loan account would be drawn down over 5 years, which would result in the attribution of $186,000 per year from 2014 to 2019, plus a tax gross-up.
126I have some difficulty with this approach, given that the Capital Dividend was not declared until 2017, so as a matter of tax law the respondent could not draw out any of the tax-free income Mr. Martindale has attributed to him from 2014 to 2016. Whatever the reason was for delaying the declaration of the Capital Dividend until 2017, that is the reality we are dealing with, and it is unfair to the respondent to calculate his available income as if it had been declared earlier.
127A more relevant question is whether there should be attribution of this tax-free money to the respondent, plus a gross-up for income tax, from 2017 forward.
128The respondent argues that the Capital Dividend resulted from a “non-recurring” capital gain and, pursuant s. 17(1) of the Guidelines, should not be included in income. Even though the Capital Dividend was not declared until 2017, it is argued that the source of those dividends were non-recurring events that occurred in 2012 and 2013, which militates in favour of excluding them from the calculation of the respondent’s income for support purposes.
129In Pollitt v. Pollitt, 2010 ONSC 1617, Czutrin J. was considering non-recurring income from the sale of shares, and described the general approach to be taken:
However, where a court is of the view that the nature of the non-recurring gains to a party’s income are not “in line with the historical pattern of the father’s income,” and therefore a s. 16 Guidelines calculation is not the fairest method to determine income, a court has the discretion to choose the fairest method. One way in which this can be done is to average three years’ income, including the year applied for, pursuant to s. 17(1) of the Guidelines: Ewing v. Ewing, 2009 ABCA 227 (Alta. C.A.) at paras. 36 and 37.
130The shares in question in that case originated as a result of the sale of stock exchange seats. At para. 183, Czutrin J. focussed on the genesis of the shares, even though their ultimate sale took place over several years:
I am satisfied that this was clearly a one off and extremely exceptional event in that the seats were converted into shares and its sale generated a unique windfall. While the sale of the shares may have taken place over several years, its entire genesis emanated from seat conversions that will not be repeated. There was no deliberate deferral of the sale to defeat income for support purposes.
131An analogy can be drawn with the case at bar, where the genesis of the Capital Dividend Account was the sale of farm properties in 2012 and 2013, but the Capital Dividend was not declared until 2017, whereby the respondent then became able to withdraw that money on a tax-free basis.
132In the result, the bulk of the income generated from the sale of shares was excluded from the payor’s income. Czutrin J. relied on Ewing v. Ewing, 2009 ABCA 277 in arriving at his decision. Conrad J.A., speaking for the Alberta Court of Appeal in that case, gave the following guidance in how to approach an issue of this nature, at paras. 35-7:
While the courts have the discretion to determine whether the section 16 income calculation is fair, having regard to non-recurring gains and patterns of income, the following, although not an exhaustive list, outlines some of the matters a court might consider:
Is the non-recurring gain or fluctuation actually in the nature of a bonus or other incentive payment akin to income for work done for that year?
Is the non-recurring gain a sale of assets that formed the basis of the payor’s income?
Will the capital generated from a sale provide a source of income for the future?
Are the non-recurring gains received at an age when they constitute the payor’s retirement fund, or partial retirement fund, such that it may not be fair to consider the whole amount, or any of it, as income for child support purposes?
Is the payor in the business of buying and selling capital assets year after year such that those amounts, while the sale of capital, are in actuality more in the nature of income?
Is inclusion of the amount necessary to provide proper child support in all the circumstances?
Is the increase in income due to the sale of assets which have already been divided between the spouses, so that including them as income might be akin to redistributing what has already been shared?
Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate business reasons?
Does the inclusion of the amount result in wealth distribution as opposed to proper support for the children?
In this case, the chambers judge carefully considered the nature of the non-recurring gains, and the fact that they were not “in line with the historical pattern of the father’s income,” and concluded a section 16 calculation was not the fairest method of determining income. I see no reason to interfere with his conclusion. In coming to his decision the chambers judge considered expert reports from both sides that documented the source of the father’s income for 2005 and 2006. Here the exceptional income for these years was due, primarily, to the sale of business assets which had been the source of the father’s income in previous years. These fluctuations in income were non-recurring and the gains were not extra employment income. In fact, the father’s income was projected to decrease substantially after the sale. This is a case where including the proceeds of the sale of Prime’s assets in income would amount to “killing the goose that laid the golden egg” - in the sense described by the British Columbia Court of Appeal in Kowalewich. The chambers judge did not err in his determination that section 16 was not the fairest method for calculating income.
Having found that a section 16 calculation was not fair, the chambers judge chose to determine fair income by averaging three years’ income, including the year applied for. This court upheld a decision to average a payor’s income over the previous three years in English v. Steeves, 2004 ABCA 195, 6 R.F.L. (6th) 125 (Alta. C.A.). The father does not take issue with the averaging in this case and so it is unnecessary for us to consider whether the election to average was appropriate. But we would point out, for future cases, that section 17 does not suggest that the way to establish a fair income is to average. It merely directs the court to set a fair and reasonable amount taking into consideration the past three years’ income and any patterns of income, fluctuations in income and non-recurring gains. The court has the discretion to elect the fairest method, and that could be done by averaging the three years prior to the gain, or a court could remove part, or all, of the non-recurring gains, or take whatever steps it determines are appropriate to arrive at an income figure that is fair for the purposes of support.
133Ewing was also followed in Fournier v. Labranch, 2019 ONSC 4651, where Engelking J. excluded the mother’s capital gain from the sale of her dental clinics because it was a non-recurring gain. She also relied on McNeil v. McNeil, 2013 NBCA 65, where Robertson J.A. upheld a decision to exclude the capital gains realized from the sale of stock options. Robertson J.A. said this, in part, at para. 14:
… the facts of the present case support the common sense understanding that the inclusion of the capital gain in calculating the father’s 2005 income must surely exceed the needs of the children. Correlatively, the inclusion would surely result in a transfer of wealth to the mother or provide her with additional lump sum spousal support. In any event, it is readily apparent that the inclusion of the $1.3 million capital gain in the father’s income for 2005 would not be the fairest way of fixing his annual income in accordance with s. 17. The gain is a non-recurring amount that did not generate disposable income from which child support could be paid.
134The comment that the gain did not generate disposable income from which child support could be paid is relevant to the case at bar. This factor was also mentioned in Ewing as one of the factors to be taken into account:
Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate business reasons?
135On the evidence, the monies generated from the sale of the farms in 2012 and 2013 went to pay debts, primarily to CIBC. While the net result of those gains is the declaration of a Capital Dividend which will allow the respondent to draw down almost $1 million from his shareholder loan account on a tax-free basis, it was a paper transaction only. It did not create any available cash or disposable income, it simply provided the respondent with a means to withdraw cash out of the corporation on a tax-free basis when and if it is available.
136Neither the respondent nor Hog Farms is in the business of buying and selling real estate. It is in the business of raising hogs for market, and farms are purchased for that purpose. Although there is evidence that farms have been sold in the past, not a great deal of detail emerged as to those transactions, because they predated the final order in 2010 and therefore had little relevance on a motion to change. From the evidence that was heard, it appears that the sales involved sales of farms from the respondent, or from both the respondent and the applicant, to Hog Farms, for the purpose of realizing their personal capital gains tax exemptions. It was, therefore, largely a tax planning device, as opposed to engaging in the business of land speculation.
137The sales in 2012 and 2013 were, I am satisfied, one-off transactions, and there is no immediate prospect of the sale of any additional farms. I find that these were non-recurring transactions, and that the fairest way to determine the respondent’s income for support purposes is to exclude the Capital Dividends that have their genesis in those transactions.
8. Attribution of Income from Holdings:
138The final issue that requires determination, relevant to the respondent’s current available income, is whether income should be attributed to him for the management services he provides to Holdings, a company that is wholly owned by his mother, Yvonne Van Boekel. Holdings is also involved in the hog business and other related activities. The evidence is that the respondent will inherit all of the shares in this corporation when his mother passes away. His father is already deceased, and his siblings will be provided for through insurance.
139The respondent is the general manager of Holdings, but draws no compensation from that company for his services. The applicant argues that providing free services to Holdings improves the profitability and retained earnings of that corporation, which will ultimately enure to the benefit of the respondent when he inherits that company. Accordingly, the applicant submits that income should be attributed to the respondent, corresponding to the value of his services to Holdings.
140Section 18(1)(b) of the Guidelines allows for the imputation of income from a corporation to a “shareholder, director or officer”, to include “an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income”. The first problem with the applicant’s argument is that, while the respondent is the general manager of Holdings, he is not, on the evidence, a shareholder, officer or director.
141Even if he were, any amount attributed cannot exceed the pre-tax income of the corporation. In this case, the evidence of Mr. Hoare, substantiated by the financial statements of Holdings filed as Ex. 7, is that while Holdings did earn a profit in 2014, it lost money in each of 2015, 2016, 2017 and 2018. Thus, attributing any amount of income to the respondent for those latter years would, by definition, exceed the corporation’s pre-tax income, and would not be permitted under s. 18. I am also mindful of the comments of Simmons J.A. in Mason, quoted above, dealing with the rules that apply regarding attribution of corporate income:
If the corporation suffered a loss in the most recent taxation year, no amount of pre-tax corporate income may be included.
142The applicant’s argument suffers from further problems, such as the lack of any evidence as to what an appropriate management fee would be.
143While I agree that providing management services free of charge to a corporation that the respondent will ultimately inherit will ultimately enure to the financial benefit of the respondent, I see no basis at law for imputing income to him from Holdings.
9. What is the Respondent’s Financial Situation in 2019?
144That completes my discussion regarding the issues in dispute as between the two experts regarding the respondent’s available income for support purposes. As already noted, the evidence from the experts relates to the period from 2015 to 2018, which I found to be reasonable in the circumstances. While there is very little evidence as to the respondent’s financial situation in 2019 up to the date of trial, there is some, and I will review it now.
145The respondent’s Financial Statement sworn November 28, 2019 says that he currently has annual income of $90,999.96 but, as with past Financial Statements, that appears to relate to Line 150 income as opposed to the real income available to him. I give no weight to this figure, absent expert evidence.
146The respondent’s accountant Jessie Goossens gave some evidence as to Hog Farms’ performance in 2019 to date. He said they do quarterly statements for FCC, and submitted them for the first two quarters of 2019 and are currently working on the third quarter. He said that up to the 6 month mark the consolidated entity of Hog Farms and Holdings had lost money, because of the loss of the sow barn. It was a key operational component of the business, and required piglets to be sourced elsewhere, which drives the bottom line down. The respondent is busy building his new barn and dealing with the insurance company, which can make it difficult to run his business. So things are not progressing positively in 2019. However, he has done projections for the next 18 months and things look a little more in line with where it should be.
147Significantly, no quarterly financial statements were entered into evidence, nor were the 18-month projections that Mr. Goossens referred to. His evidence is, I find, at odds with the evidence of the respondent, who tried to paint a picture of a business “hanging on by a thread”. As a matter of credibility, I am skeptical whenever the respondent describes the financial condition of Hog Farms. We have already seen how his descriptions of doom and gloom in 2010 turned out to be grossly pessimistic and inaccurate. Furthermore, he is recorded in the FCC interaction log, Ex. 65, as having told Kurt Makey from FCC on June 19, 2017 the following: “He is motivated to use the risk management system as the rules are written, and also expressed an interest in not showing a large profit as support to his ex-wife is based upon the financial results.” I am satisfied that he has a similar interest in the testimony he gave at this trial.
148Much was made by the respondent of two letters from FCC dated February 22, 2019 and March 27, 2019 stating that they were not going to renew two loans when they come due on Oct. 15, 2020 and January 8, 2024. That sounds ominous for the future of the company. However, on a closer reading, it is clear that FCC no longer wanted to support these loans on an interest only basis, and wanted “to move these loans to blended repayment”. This is confirmed in the interaction note of March 29, 2019, where it says “FCC will not renew the interest only loans and will require Eric to submit repayment plans for those loans.”
149As to the respondent’s general financial condition and outlook for the future, Mr Vanden Hengel’s comments in the interaction note of October 17, 2019 are instructive. It says:
Hog barn is being built as planned. Size was increased from the original 3,500 sow barn that was burnt to a new 5,000 sow barn. He thinks this might be the largest sow barn in Ontario. Cost over insurance payout will be around 3MM, he is hoping to have this paid out of cashflow. He understands we are not going to finance this.
150When the applicant, in closing submissions, relied on this admission as a reflection of the financial health of Hog Farms, the respondent, in his Reply, said that it was contradicted by the respondent in his evidence. I have read the transcripts referenced in the footnote to those comments. On p. 1 of the December 10, 2019 transcript, Ms. Bales directly asked the respondent how he was going to finance the cost of the barn over and above insurance proceeds. This was the question and answer:
Q. …first of all you mentioned yesterday that the insurance for rebuilding the hog barn which burned in May 2018 and the other insurance coverage was less than the full cost of the loss, can you explain to His Honour how Van Boekel Hog Farms has been able to pay for the construction of a larger barn given the company’s financial circumstances?
A. Even though it’s a larger barn its not as expensive to build as the previous barn because there’s dry sows and space which take more space versus the early weans and the weaner facilities that make the previous barn more expensive per square foot.
151Counsel then said “Alright, thank you”, and moved on to something else. The question was not answered, and certainly not in a way that contradicted what was recorded in FCC’s interaction notes.
152In my view, it is not just the admission that a $3 million cost shortfall over insurance proceeds might hopefully be covered by cash flow that is significant. It is also the fact that the barn is being expanded to what might be the largest sow barn in Ontario. While I appreciate that it will result in operational efficiencies because of its size, it speaks to an optimistic view of the future when the outcome of the barn fire, described by the respondent as a “catastrophe”, is that it will be rebuilt bigger and better than ever.
153As to the credit-worthiness of Hog Farms in general, there is another comment in the October 17, 2019 FCC interaction note of Mr. Vanden Hengel that is instructive:
I did mention that he he [sic] wants to get a letter of credit he can request financing from another bank and they can go in second position to us behind our mortgages. He does have lots of equity. This could be completed as long as they do not have a lot of conditions attached to the financing request.
154In his testimony, Mr. Vanden Hengel expanded upon that to say that FCC used to be the lender of last resort for farmers, but that has changed, and many lenders are more aggressive than FCC now.
10. What is the Respondent’s Current Net Worth?
155To this point, I have been examining the evidence to determine what the respondent’s available income is for purposes of support, as part of the fact-finding process necessary to determine whether there has been a material change in that income since the final order. As I have already indicated, though, insofar as spousal support is concerned, the inquiry as to his “condition, means, needs or other circumstances” is much broader than simply looking at his income. It includes his capital assets as well and, more specifically, his equity in Hog Farms.
156I have already observed that there is no risk of “double dipping” in considering the growth in the respondent’s equity in Hog Farms, because that property was excluded from equalization by virtue of the Domestic Contract and has not, therefore, ever been equalized. The respondent argues that it is inappropriate to consider his equity in Hog Farms for purposes of support because that property was excluded. It is suggested that the applicant now seeks to do indirectly what she cannot do directly.
157There might, at first, appear to be some support for that argument in Knight v. Knight, 2018 ONSC 3294. In that case, Nelson J. was considering whether to exclude from the payor’s income, as a non-recurring gain, a capital dividend arising from the sale of some of his land. That property had been excluded from equalization by virtue of the terms of a marriage contract. At para. 172 he said this:
I find that the fairest way of determining David’s annual income is to exclude the capital dividend he received in 2017 as a one-time payment. It resulted from the sale of land in 2015. That sale converted land for cash. It had very little to do with David’s ongoing business, which is the growing, packaging and distribution of apples. His business is not in land sales. If it was, given the length of time his companies have owned the orchards he grows his crops on, he would likely be able to sell his land for millions of dollars in profit. That, however, is not what this issue is about. David and Christine signed a valid, subsisting marriage contract that excludes assets of this nature. To allow Christine to successfully argue that the one-time declaration of a capital dividend arising from the sale of land be taken into income, would be getting through the back door what she could not get through the front door.
158That decision is distinguishable from the case at bar, because we are not considering here whether a dividend arising from the sale of excluded property should be added to the income of the payor for support purposes. Rather, we are considering whether a growth in the payor’s net worth, which stems almost entirely from excluded assets, should be taken into account in assessing whether a material change in his financial circumstances has occurred since the final order was made.
159I reject the suggestion that the applicant is trying to do indirectly what she cannot do directly, and is effectively doing an “end run” around the Domestic Contract. Support and equalization are two completely different things, involving completely separate and distinct sets of legal rights and obligations. The applicant did, in the Domestic Contract, agree that the respondent’s interest in Hog Farms was excluded from equalization, and thereby agreed that she was not entitled to the equalization payment that the v-day value of Hog Farms would have generated. However, nowhere did she agree that the wealth that the respondent had accumulated, and would continue to accumulate, through Hog Farms could not be considered in assessing his ability to pay support.
160The Domestic Contract only precluded her from seeking equalization of Hog Farms. A claim for support is not a claim for equalization. The respondent’s net worth is, at law, clearly a factor to be considered in assessing the respondent’s ability to pay support, and there is nothing to preclude the applicant from relying on it. In giving up her right to equalization of these assets, she gave up a right that is automatically granted to every married person in this province, absent a domestic contract that excludes it. There is no justification for going beyond the strict words of the Domestic Contract, and interpreting her concession on the equalization issue as some kind of a concession on the support issue as well.
161Indeed, there is every reason not to exclude a consideration of the respondent’s equity in Hog Farms in dealing with the support issue, precisely because that asset was excluded from equalization. A portion of the comments of Binnie J. in Leskun, quoted above, bear repeating:
As Major J. put it in Boston, at para. 64 “the court should ... focus on that portion of the payor’s income and assets that have not been part of the equalization or division of matrimonial assets when the payee spouse’s continuing need for support is shown”.
162I find, therefore, that a consideration of the respondent’s current net worth is highly relevant to the spousal support issue, both with respect to whether the threshold of a material change has been met and, if it has, with respect to quantum.
163On March 15, 2016, the respondent signed a “Net Worth Statement As Of: 2015/09/30”, marked as Ex. 66. This was done at the request of FCC, and was an internal document that they prepared. The document states, at the bottom above the signature line, “I certify that all information about me in the Net Worth Worksheet is accurate and is a true representation of my financial position.”
164It shows that the Net Worth of the respondent personally and Van Boekel Hog Farms is $23,787,016, and the Adjusted Net Worth is $23,803,987. Mr. Vanden Hengel testified that FCC satisfied itself that these numbers were accurate.
165In Reply submissions, the respondent argued that Ex. 66 was, according to the testimony of Mr. Vanden Hengel a combined net worth statement of the respondent and “the companies”, which included Holdings. I reject that submission. I have listened to the DRD recording of Mr. Vanden Hengel’s evidence. In his examination-in-chief on March 11, 2020 by counsel for the applicant, the following question and answer regarding Ex. 66 were given:
Q. This indicates a net worth … he has a net worth of $23,787,000, he and Van Boekel Hog Farms?
A. That would, yeah it’s a joint net worth between him and his company, yes.
166This statement was not explored or contradicted by counsel for the respondent in cross-examination. Furthermore, the respondent’s submission contradicts the express wording of the document, which states at the top: “Comments: Van Boekel Hog Farms and Eric Van Boekel personally Before Loan”. If the net worth of Holdings was intended to be included in that document, it would have said so. The respondent is not a shareholder in Holdings, and it is not, in any sense of the word, “his” company. He describes himself as the general manager only.
167In my view, if FCC, Hog Farms’ primary lender, was satisfied that these numbers in the Net Worth Statement were accurate, I am prepared to accept them. But they relate to 2015. What is the respondent’s net worth at the time of trial?
168In an attempt to answer that question, Templeton J., on August 12, 2019, ordered the respondent to provide, within 45 days, “Proof of the market value of all assets owned by any corporation or entity in which the respondent is the sole shareholder, investor or owner.” The phrase “proof of the market value” implies, in my view, evidence from someone qualified to provide it, of the fair market value of the principal assets owned by Hog Farms. Instead of doing so, the respondent provided his own summary, which is attached to his Financial Statement Ex. 20, sworn November 28, 2019. It shows a “Net Equity Value” of $12,068,011.
169Beside most of the assets in his summary, he states “Book value approximates FMV”, although he clearly has no expertise qualifying him to say that. Beside the item “Land and house” he states “FMV from Town of Norwich Final Tax Bills (July, 2019)”. He admitted on cross-examination that these values were based upon MPAC assessments. Such assessments represent “assessed value”, not fair market value.
170In his Financial Statement itself, he swore that his net worth was $13,137,356. However, he said in cross-examination that he made an error in that document because he included separate entries for buildings, which would have been included in the MPAC assessments. The net result, he says, is double counting.
171I draw an adverse inference against the respondent for failing to comply with the order of Templeton J. and provide reliable evidence as to the fair market value of those assets. Since this is not an exercise in equalization of net family property, the true value of his net worth is not critical, since it represents only one factor in assessing his financial means. Given the notorious rise in the value of real estate over the past few years, I would be inclined to think that his net worth has probably risen from the amount of roughly $23 million in 2015. For present purposes, though, and in the absence of better evidence that was the respondent’s responsibility to provide, I accept the 2015 numbers as the best evidence of his current net worth.
What are the Current Financial Circumstances of the Applicant?
172The applicant testified that as the children spent more time with her and less time with the respondent, she and the children began to suffer financial stress. Eventually, in 2015, she completed a program and became certified as an eyelash extension technician, and hoped to develop a business in the form of a spa operating out of her home. However, there is a limited market in her hometown of Norwich, along with the absence of a "spa-like" environment at her home, mainly due to the presence of children, of whom there were 5 at the time living with her. This made the home-based business untenable.
173She accepted part-time contract work with "Lash Queen", a London-based lash extension facility owned by a friend, but it took an hour and some considerable expense to commute from her home to London. Winter driving issues and extended childcare responsibilities further compromised her ability to be gainfully employed in that city.
174She looked into opening a small salon in Woodstock, but the rent and start-up costs were prohibitive.
175Her Income Tax Returns for 2014 to 2018 were filed as Ex. 60. Her income (loss), excluding support payments and the Universal Child Care Tax Benefit, for each year was as follows:
2014: ($721.53);
2015: ($3,295.68);
2016: $3,354;
2017: nil (gross income of $30,927 offset by expenses);
2018: nil (gross income of $31,748 offset by expenses).
176In her Financial Statement sworn March 4, 2020, filed as Ex. 53, she shows self-employment income of $1,200. Her monthly income before expenses is stated to be $2,750.
177In their closing submissions, counsel for the respondent pointed out that the applicant’s evidence was that she could earn $45,000 per year doing lash extensions. However, to earn that, there would be business expenses incurred, including rental for a shop in Woodstock. In the alternative, the respondent proposed that annual income of $25,200, based on the minimum wage, a 35-hour work week and 4 weeks of vacation, is reasonable to impute to the applicant. The applicant, in closing submissions, agreed to impute that amount to her. I accede to that joint position, and fix her annual income at $25,200 at the present time.
178As already mentioned, her Financial Statement shows her Net Worth to be a negative figure: ($97,597).
Has the Respondent Proven a Material Change in his Financial Position?
179The respondent submitted that both his income and his net worth have decreased since the final order was made, and relies on that material change in circumstances to argue that child support should be reduced, and spousal support reduced or terminated.
180As to his income, if we assume that it was $250,000 in 2010, which was his deemed income as agreed to by the parties, his Motion to Change in this regard must be dismissed. I have found his current annual income which is available for support purposes to be $428,695 per year. This represents his average available income for the years 2015 to 2018. It is entirely reasonable and necessary to average his income over several years, given the clear evidence of the cyclical nature of the hog business, where there can be millions of dollars in net income one year and millions in losses in another.
181With respect to spousal support, we consider that same income figure but also examine his overall financial picture, including his net worth. According to the respondent’s evidence, his net worth in 2010 was $22,000. I have found that it has increased to roughly $23 million. He has become extremely wealthy during the 10 years that have elapsed since the final order. It is ludicrous for him to claim, as he did in his closing submissions, that his net worth has actually gone down since the final order. Even on his own figures it has grown to over $12 million.
182The respondent argues that all of his money is tied up in the value of his farms, and he can’t realize it in order to pay support without selling his property, which would “kill the goose that laid the golden egg”. Two observations undermine that argument. The first is the gross waste of money he incurs each year pursuing his cutting horse hobby. As itemized at para. [73] above, he has incurred expenses exceeding revenues of $2,188,964 from 2015 to 2018, which is an average of $547,241 per year. If he is able to find the money to squander on a hobby in that manner without selling real estate, he can surely find the money to pay support amounting to less than 1/5 of that.
183The second observation relates to his purchase of the Featherlight trailer. Recall that the barn fire occurred on May 25, 2018, and was described by the respondent as a “catastrophe”. It was only the latest in a series of financial blows and setbacks that he claimed to be the victim of, such that he and his hog farming operation were hanging on by a thread. Later that same year, on October 2, 2018, he purchased a new Featherlight horse trailer at a purchase price of $160,687. He received $52,154 for the trade-in, so I presume his old trailer must have been in very good shape. This resulted in a net cost of $108,533. It is absurd for him to claim that he was then, in the year of the barn fire, and is now, unable to afford to pay support, when he could somehow find that sum of money – equivalent to more than one year’s worth of child and spousal support – so that he and his wife will have comfortable accommodation as they travel around to horse shows and breeding farms.
184The purchase of a luxury like that at a time like that leads to the inevitable conclusion that things are nowhere near as bad as the respondent makes out. It says that, despite this major fire and the other setbacks summarized in para. [59] above, he could actually afford to spend over $100,000 on a luxury, whether from profits or borrowed money, knowing that in the long run his operation is profitable, and his equity will continue to grow. If he can afford that, he can afford to continue paying the support he agreed to.
185The comments of Nelson J. in Knight (supra at paras. 167-9) are relevant here:
This case presented two very different ways of determining David’s income for support purposes. One method would be driven off a calculation of corporate profits. A second method, which I have chosen to adopt, is driven off spending. The income David has available to him has little to do with corporate profit or loss in any given year (or years). His income is based on his spending habits. He is able to rely on profits (to a point), but even in years in which the companies have losses, he is able to spend what he wants with the aid of the bank’s long-term debt. It is important to remember that David’s companies have historically weathered many storms. They have suffered through periods of losses and periods of profits. Although David’s accountant testified about the fact that the companies had been through recent periods of losses and the fact that the bank’s covenants have been breached, his more important evidence was that David and his companies are “credit worthy” clients. That is precisely why David’s bank has not forced him to close down and pay off debt, notwithstanding the fact that from time-to-time the bank’s covenants are breached.
David stresses that he finances his lifestyle by debt. That might be so in the short term, but to this court, it does not seem so in the long term. Nor, as pointed out above, does it seem so to David’s banker, who is more than satisfied to have David and his companies continue as a customer.
If David spends more than he prudently should in a year, his dependents should also be able to rely on his pattern of spending.
186The respondent here has suffered through periods of losses and covenant breaches, and enjoyed periods of profits, and through it all continues to spend what he wants on his cutting horse hobby and associated luxuries. While he finances his lifestyle at times with debt, his long term outlook, as evidenced by his extraordinary growth in net worth, is solid. While Mr. Vanden Hengel did testify that FCC would be happy if some other lender would pay them out, they do continue to provide funding to the respondent despite his spending habits and the setbacks he has experienced, and are not worried about being repaid, because “he does have lots of equity”, so they are “well secured”.
187If the respondent spends more than he prudently should in a year, his dependents should be able to rely on that pattern of spending as a barometer of what he can actually afford to pay in support.
188As already mentioned, the respondent was telling a similar tale of doom and gloom in 2009 and 2010 when the original divorce case was before the courts. It turns out that Hog Farms ended up making a net profit of $1,544,105 in 2010, $1,197,752 in 2011 and $1,944,062 in 2012. I simply do not believe the respondent’s pessimistic assessment of the present and future financial health of his business.
189While the above analysis is sufficient to dispose of the respondent’s Motion to Change, insofar as it is grounded on an alleged but unproven deterioration in his financial circumstances, there is another fatal flaw in his case, arising from the fact that the final order was based on imputed income.
190Trang v. Trang, 2013 ONSC 1980, is the leading case in Ontario dealing with how one proves a material change in circumstances when the original order was based upon imputed income. In that case, a final order was made which imputed income to the payor of $59,000 per year. Support was increased two years later, based on the same imputed income. The payor did not respond to, or participate in, either proceeding. He then brought a motion to change both orders, on the basis that he does not earn $59,000 per year, nor did he when the orders were made.
191Pazaratz J. framed the issue before him at para. 3: “Does ‘imputed income’ mean anything if, on a motion to change, a payor can simply rely on his current line 150 income?”
192He set out the approach to be followed, at paras. 45-6:
If support was initially calculated based on the court’s acceptance of a payor’s “declared” income, then changes in declared income in subsequent years may be persuasive. If the court was prepared to rely on things like T4 slips and tax returns when it made the original order, T4 slips and tax returns for subsequent years may be sufficient evidence of changed circumstances. This of course would be subject to other considerations, such as the possibility that employment levels or income were deliberately manipulated by the payor.
But if the original support order was based upon “imputed” income, a more comprehensive analysis is required on a motion to change. The court must consider:
a. Why did income have to be imputed in the first instance? Have those circumstances changed? Is it still appropriate or necessary to impute income, to achieve a fair result?
b. How exactly did the court quantify the imputed income? What were the calculations, and are they still applicable?
193He expands upon this reasoning at paras. 52-60:
A party who argues that an imputed income level is no longer appropriate must go beyond establishing their subsequent “declared” income. They must address why income had to be imputed in the first place. They must present evidence of changed circumstances which establish that either:
a. It is no longer necessary or appropriate to impute income. The payor’s representations as to income should now be accepted, even if they weren’t accepted before.
Or,
b. Even if income should still be imputed, changed circumstances suggest a different amount is more appropriate.
If “declared income” automatically prevailed on a motion to change support, it would defeat the purpose of imputing income in the first place. It might even be a disincentive for payors to participate in the initial court process. They could simply ignore support Applications — as they often do. They could wait to see if the court imputes income, and how much. If dissatisfied with the amount, the payor could later return to court waving their tax returns, to suggest that the original judge got it wrong.
Support claimants should not be forced to go through this two-step process. Our family court system certainly can’t afford it.
Similarly, the onus should not fall on the support recipient to establish why income should still be imputed on a motion to change. That determination has already been made. The onus is on the support payor to establish that there should be a change in the way their income is to be calculated.
If for example the original support order imputed income because the court concluded an unemployed payor should have been working, it would be illogical to allow the payor to extinguish that determination by returning on a motion to change, with proof that he wasn’t working. That wouldn’t constitute a change in circumstances.
If a trial judge imputed income to a self-employed person on the basis that their tax return didn’t reflect cash sales and excessive write-offs, there should be a presumption that so long as the payor maintains the same business activities and accounting practices, subsequent tax returns will be equally unreliable.
Imputed income matters. The reason why income had to be imputed matters.
If an aggrieved party feels income was wrongly imputed, they can take timely steps to correct the original determination. They can appeal. They can bring a motion to set aside the order based on mistake or misrepresentation.
But if a payor proceeds by way of motion to change, they must face the presumption that the original order was correct — and the original imputation of income was correct. If they want to rely on their declared income, they must establish why this time their representations should be accepted by the court. [emphasis in the original]
194In their closing written submissions, counsel for the respondent accepted that the respondent’s income in 2010 was the imputed amount of $250,000 per year that the parties agreed to. They now argue that his income has decreased, Mr. Hoare having testified that he has now, in reality, only $108,000 of available income per year (the 2014-2018 average, without the imputation of the cutting horse expenses). However, that is not what the respondent said in the witness stand.
195Far from agreeing that his income was $250,000 in 2010, the respondent testified that when he settled on an income figure of $250,000, he knew that his actual income was a lot lower, but he wanted to settle the case. He testified that his income “has always been less than we settled for”, both at the time of the final order and since. That is precisely what the payor said in Favero (supra). As in the case at bar, that case also involved a consent order, where the payor agreed to impute income of $100,000 per year, despite filing Income Tax Returns for several prior years showing much less income than that. Chappel J. concluded that the approach in Trang applied equally to a situation where income was imputed on consent as it did to one where income was imputed by the court. As to the argument that the payor never actually earned that amount of money, Chappel J. emphasized the finality of consent orders, at para. 113:
I conclude that it is not appropriate on a Motion to Change support for a payor to resile from a previous agreement respecting their income that was filed with the court pursuant to section 15(2) of the Guidelines by suggesting to the court that their actual income was other than as specified in the agreement. To allow payors to do so would be to defeat the purpose of section 15(2), would be prejudicial to the other party who has relied upon the income determination being final as part of their decision-making in the previous proceeding, and would create a burden on the judicial system by encouraging parties to re-open issues regarding income determination which the court has previously decided. Consent orders are binding and final, subject to any legal basis to set them aside. The Respondent did not bring a Motion to set aside Milanetti, J.’s determination regarding his income. As the Ontario Court of Appeal has stated respecting the finality of consent orders:
Finality is important in litigation. This is so for the sake of the parties who reached their bargain on the premises of an allocation of risk, and with an implicit understanding that they will accept the consequences of their settlement. Finality is also important for society at large, which recognizes the need to limit the burdens placed on justice resources by re-litigation...”: [Mohammed v. York Fire & Casualty Insurance Co., 2006 CarswellOnt 829 (Ont. C.A.) at para. 34]
196In the case at bar, it is important to recognize what was at stake in the original proceeding, in order to appreciate the importance of holding the parties to their bargain. When the parties agreed on the imputation of $250,000 in annual income to the respondent and based support on that income, they were not just settling child and spousal support, but were settling all issues, including equalization of net family property and the dismissal of the applicant’s claim to set aside the Domestic Contract. In abandoning her attack on the Domestic Contract, the applicant gave up any claim to the equalization of the respondent’s interest in Hog Farms. According to the respondent’s own estimates, Hog Farms had a valuation date value of $5,090,324, and a date-of-marriage value of around $840,000. Equalizing that one asset alone would have generated an equalization payment of more than $2 million.
197I must emphasize that I have no opinion one way or the other as to the merits of the applicant’s attack on the Domestic Contract. When the applicant sought to give evidence as to the circumstances surrounding execution of the Domestic Contract, I ruled that it was inadmissible. She had agreed in the 2010 final order to the dismissal of all claims relating to the Domestic Contract. When she brought the present Cross-motion to Change, she again initially attacked the validity of the Domestic Contract, and the final order that was based upon it, but once again later consented to a final order dismissing that claim without costs.
198However, the fact that she abandoned her attack on the Domestic Contract in 2010, regardless of the merits of that attack, and agreed that the Hog Farms assets be excluded from equalization, is itself a relevant and material fact. It provides context for her evidence that, when she agreed to an imputed income figure of $250,000 for purposes of support, it was in settlement of all of the issues in the litigation.
199It also provides context for the respondent’s evidence that he agreed on that figure simply to settle the case, even though it was more than he was actually earning as income. Objectively speaking, it could provide a quid pro quo for his concession on the income issue, since the settlement avoided the risk that he might have to pay an equalization payment in the neighbourhood of $2 million.
200There is, therefore, a very good reason to hold the parties to their bargain, because it resolved a case where the issues of support and property division were inextricably intertwined. Having agreed to an income figure of $250,000 as the price of settling the case, the respondent cannot now resile from that agreement by arguing that his real income, both then and now, is less than $250,000.
201The final order that flowed from that bargain should not be varied unless the party with the onus of proof proves the basis for the original order, and then proves that there has been a material change from those circumstances. As Pazaratz J. asked in Trang, why was income imputed, and how was it quantified? In testifying that the $250,000 figure was simply a number he agreed to in order to settle the case, the respondent might as well have said that the number had been plucked out of the air. Without knowing where the number came from, and how it was calculated, it is impossible to prove a material change in circumstances.
202Both experts gave opinion evidence as to the current “available income” of the respondent with which he could pay support. However, that would only have relevance on this Motion to Change if the original order in 2010 was also based on the respondent’s available income. Only then could one determine whether there had been a material change, because there would be an “apples to apples” comparison. But that is clearly not the case. The income figure was just the number that they both agreed upon to settle the case. In such circumstances, the expert evidence as to the current available income of the respondent is just as unhelpful in proving a material change as reliance upon the respondent’s current Line 150 income would have been. It is comparing “apples to oranges”.
203That is not to say that the expert evidence tendered is of no value whatsoever. If it showed that the respondent is now in abject poverty, and that it is simply impossible for him to continue to pay what he agreed to pay, that might justify a reduction in support. That was the end result in Trang, because the payor had been rendered unable to pay support due to injuries sustained in a car accident. But on the evidence that I accept, the respondent has average income of $428,695 per year available to him with which to pay support. He has also amassed a fortune in equity in his farm properties, making it ludicrous for him to suggest that he cannot afford to pay the comparatively modest amount of support he is required to pay.
204I have already referred to Favero, at para. [39] above, which summarized the principles that have emerged from the caselaw, principally from the Supreme Court of Canada. That summary includes the following point:
The onus is on the party seeking to vary the order to establish that such a change has occurred. The analysis of whether there has been a change in circumstances involves a careful review of the basis upon which the existing order was made.
205Having failed to prove why income of $250,000 was imputed to him in 2010 and how it was calculated, the respondent has failed to prove the basis for the existing order that is necessary to establish that a material change in circumstances has occurred. It follows that his Motion to Change based on a material and negative change in his financial circumstances must be dismissed. His Motion to Change based on a change in the number of dependent children having occurred from time to time is a separate matter, and will be dealt with below.
Has the Applicant Proven a Material Change in the Respondent’s Financial Position?
206Each party bears the onus of proof on their respective Motions to Change. The deficiencies in proof as to the manner in which the respondent’s 2010 attributed income was arrived at, for purposes of establishing the basis for the final order, apply equally to the applicant.
207I have already ruled that, having agreed to imputed income of $250,000 for support purposes in 2010, the respondent cannot resile from that agreement and now claim that his actual, available income is less than $250,000. By the same logic, the applicant cannot resile from her agreement and now claim that his actual, available income is more than $250,000. It is incumbent on both sides to prove the basis for the 2010 order, and then demonstrate that a change has occurred. Both have failed to do so, since there is no evidence as to how that the $250,000 figure was calculated nor, specifically, is there any evidence that it was based on the respondent’s available income at the time. Absent such proof, there is no reason to interfere with the original agreement of the parties. Absent such proof, a deal is a deal.
208To return to some of the points to be considered as set out in Trang, I am satisfied that it is still necessary and appropriate to impute income to the respondent. I have already commented on the cyclical nature of the hog business, with feast and famine following each other in a random pattern of uncertainty. To calculate the respondent’s precise income from year to year would involve the parties in endless litigation and would be prohibitively expensive. In such circumstances, it is entirely sensible to establish an income figure that both parties can live with, and base support on it, regardless of the year-to-year ebbs and flows of actual income. That is, I find, what the parties, in effect, did in 2010, modulated by the additional factor that the settlement figure also included the price of settlement for the property issues.
209I also see no basis for concluding that the quantum that was agreed to in 2010 is no longer appropriate. It was an objectively generous figure to base support upon in 2010, given the information that the parties had at the time, and it remains reasonable today. While I have found as a fact that the respondent’s average available income is considerably higher now than $250,000, it must be acknowledged that there was conflicting expert evidence on the point, and that the arguable range of available income started at a low end of about $100,000. There is a considerable benefit to the applicant in being able to rely upon an imputed income figure that provides her with a substantial level of support that will meet her needs, and provide her with compensation for the fact that she gave up her career of four years to raise five children during cohabitation, made indirect contributions to the family business that were not compensated for by way of an equalization payment, and continued to suffer the financial consequences of the separation by reason of her assumption of the primary care of the children since the final order was made. Since the order is presumed to be correct, it must be presumed that the order, in its totality, represented fair compensation.
210Accordingly, the applicant’s Cross-Motion to Change, based upon a material improvement in the respondent’s financial position, must be dismissed. A material change based upon the children losing their status as dependents is another issue, to be discussed below. As will be seen, it has implications not only for child support, but for spousal support as well.
Material Change in the Number of Dependent Children:
211Section 14 of the Guidelines provides that “any one of the following constitutes a change in circumstances that gives rise to the making of a variation order”. The one that is relevant here is subsection (a):
In the case where the amount of child support includes a determination made in accordance with the applicable table, any change in circumstances that would result in a different child support order or any provision thereof;
212In a case such as the one at bar, where the recipient parent is the primary caregiver of the children, the amount of child support is determined by two variables: the income of the payor and the number of children.
213I have already ruled that no change in the income of the payor has been proven. There have, however, been several changes in the number of children for whom support was payable.
214It is not disputed that the child Peyton ceased being a dependent in 2016 and Quinn did so in 2018. Justice Scott Campbell made an order on December 13, 2018, on consent, that Peyton shall no longer be considered a dependent for child support as of June 30, 2016, and that the respondent’s obligation to pay support for him terminated on that date. The order also provided that Quinn was no longer a dependent as of November 30, 2018, and the respondent’s obligation to pay support for him terminated on that date. My final order will incorporate those changes.
215The applicant has conceded in her closing submissions that the child Lane will cease to be dependent as of June 30, 2020, and the respondent agrees with this. The child Tarynn, born December 13, 2004, remains a dependent in the primary care of the applicant.
216The support issue regarding the child MacKenna, born November 13, 1996, is more confusing. It was conceded by the applicant in her evidence that MacKenna ceased attending school on a full-time basis in January or February, 2016, and started working at various jobs. She returned to school at Algonquin College in Pembroke, Ontario, as a full-time student in September 2018. Her program finished this past spring. During her summer break in 2019, she worked in Alberta, returning home only for Christmas holidays. MacKenna already has a job as a firefighter following graduation, but is considering going to the University of British Columbia to complete a university degree.
217I was under the impression that a child support claim was being advanced regarding MacKenna, and so was counsel for the respondent, since they specifically addressed that issue in their closing submissions. The applicant made no comment on this issue in her responding submissions. Counsel for the respondent therefore took the position in their Reply submissions that the issue had been conceded.
218I arrive at the same conclusion, although I do not agree with the termination date proposed by the respondent. In preparing his breakdown of child support paid, the respondent assumed a termination date for support for MacKenna of July 1, 2015. In so doing, he said: “that is date I think MacKenna became independent”. His evidence was clearly uncertain, which is not surprising since MacKenna was not living with him and, according to the applicant, had not even had any overnight visits with him since 2011. This issue was specifically addressed with the applicant in cross-examination, and she testified that, while MacKenna technically finished high school in 2015, she returned to school for a “victory lap” in September of 2015. She agreed that MacKenna was finished school and independent as of February, 2016. I accept her evidence, since she was in the best position to know what MacKenna was doing.
219I find, therefore, that MacKenna ceased to be dependent as of January 31, 2016.
220The applicant agrees that child support should be varied in accordance with the various termination dates, but submits that I should leave it to counsel to calculate what arrears or overpayment results therefrom. I agree with that suggestion.
221A final order will go varying the order of Rady J. dated September 24, 2010 as follows:
a) The support obligation for the child MacKenna shall terminate on January 31, 2016. The Respondent shall pay child support for the remaining four children in the amount of $4,882 per month, commencing February 1, 2016. This is the table amount of support for four children based on the Respondent having imputed income of $250,000 per year;
b) The support obligation for the child Peyton shall terminate on June 30, 2016. The Respondent shall pay child support for the remaining three children in the amount of $4,051 per month, commencing July 1, 2016. This is the table amount of support for three children based on the Respondent having imputed income of $250,000 per year;
c) The support obligation for the child Quinn shall terminate on November 30, 2018. The Respondent shall pay child support for the remaining two children in the amount of $3,277 per month, commencing December 1, 2018. This is the table amount of support for two children based on the Respondent having imputed income of $250,000 per year;
d) The support obligation for the child Lane shall terminate on June 30, 2020. The Respondent shall pay child support for the remaining child Tarynn, born December 13, 2004, in the amount of $2,019 per month, commencing July 1, 2020. This is the table amount of support for one child based on the Respondent having imputed income of $250,000 per year.
222These final orders replace and supersede any interim orders varying child support that were made, and in particular the interim interim without prejudice order of Templeton J. dated February 22, 2018.
223The remaining issue relates to variation of spousal support.
224The Ontario Court of Appeal, in Gray v. Gray, 2014 ONCA 659 at para. 55, recognized the “financial synergy” between child support and spousal support orders, such that it may be appropriate to increase spousal support when a child support order is terminated or reduced. In my view, this recognizes the obvious fact that there are fixed costs to running a household, which do not diminish proportionately as children grow up and cease to be dependent. It also recognizes the fact that child support, pursuant to s. 15.3(1) of the Divorce Act, takes priority over spousal support. For that reason, where there are a number of dependent children, spousal support is invariably less than it would otherwise have been, had there been fewer children to support and, therefore, less child support payable. This will be seen below, when I examine the ranges of spousal support suggested by the SSAGs, as the number of dependent children steadily decreases.
225At para. 44 of Gray, Lauwers J.A., speaking for the court said this:
The approach taken by Cohen J. in Abernethy v. Peacock, 2012 ONCJ 145, [2012] O.J. No. 1203 (Ont. C.J.) is appropriate in the current case. As in Abernethy, Ms. Gray is entitled to support on a need and compensatory basis. The 1998 support order was deliberately lower than it ought to have been in recognition of her receipt of child support, as permitted by s.15.3 of the Divorce Act. In such circumstances, the SSAG offer a valuable tool in assessing a reasonable amount of spousal support, and should be routinely consulted.
226Both the synergy of child and spousal support and the usefulness of the SSAGs were reaffirmed by the same court in Holman v. Holman, 2015 ONCA 552. In that case, Tulloch J.A. said this, at para. 31:
Having found that spousal support was still payable post child-support obligations, I would, however, agree with Ms. Holman that the motion judge erred in principle in failing to increase spousal support after May 1, 2013. The SSAGs specify at ss. 8.11 and 14.5 that a so-called “crossover” to the without child formula is appropriate after child support obligations cease.
227Spousal support here was clearly lower than it would have been due to the substantial amount of child support that was payable for the 5 children of the marriage. If there had been no children, the “without child support” formula in the SSAGs suggests a range of $3,750 to $5,000 per month for spousal support, based on the respondent having income of $250,000. The award of $3,000 that was agreed to is well below the lowest suggested amount. Given that the applicant has, in my view, a strong claim to compensatory support, her award should have been at or above the top end of the range.
228An award at the top end of the range is also consistent with the Spousal Support Advisory Guidelines, July, 2008. At section 9.6, the authors state:
Underpinning the Advisory Guidelines is a basic assumption that the parties have accumulated the typical family or matrimonial property for couples of their age, incomes and obligations, and that their property is divided equally under the matrimonial property laws…
An absence of property to be divided might suggest an award at the higher end of the range.
229Given that the most valuable asset, the respondent’s holdings in Hog Farms, was excluded from equalization, and was therefore not divided equally, an award at the higher end of the scale is appropriate.
230The applicant’s need for support continues. She is almost 50 years of age and has been unable to become self-sufficient despite what I find to be reasonable efforts to do so. Raising 5 children as a single parent is an enormous task, and constitutes a full-time job on its own. It wasn’t until 2016 that first one child, then another, became independent, but even at that point she still had 3 children to take care of, do laundry for, drive to their various activities, and so on. She had 2 children in her care up until the end of June this year, and will continue to have the youngest child, currently 15 years of age, in her full-time care for the next several years. Her efforts to retrain as a lash extension specialist are laudable, but unfortunately have yet to provide her with anything approaching self-sufficiency, particularly as measured against the lifestyle she enjoyed during the marriage.
231I accept her evidence that she has suffered financial hardship in recent years, and has had to remortgage her house several times in order to pay accumulating debts. She finances her standard of living through a combination of child and spousal support. She requires adjustments in the amount of spousal support payable to her to partially offset reductions in child support, so as to enable her to continue to maintain the standard of living enjoyed during cohabitation.
232She continues to be entitled to compensatory support, both for her direct and indirect contributions to the marital partnership before the separation and final order, as well as for her efforts thereafter in being the primary custodian of the five children of the marriage, and raising four of them to adulthood. She continues to be disadvantaged by the separation, and is entitled to the lifestyle that she enjoyed during the marriage, as part of a household running a hog operation with revenues running into the tens of millions of dollars.
233The parties agreed on a final order whereby the respondent would pay support based on imputed income of $250,000. In my view, it is appropriate to adjust spousal support upward as child support is reduced, in order to keep it in line with what the respondent should be paying, based upon that amount of income. It must be borne in mind that a drop in child support is not compensated for by an equivalent increase in spousal support, because child support is non-taxable, whereas spousal support is taxable income in the hands of the applicant and deductible by the respondent. For that reason, in the variation orders made below, the total amount of support payable to the applicant may not seem to decrease very much as children become independent, but in reality the after-tax amount received by her does decrease.
234To establish a baseline for comparison, I have put the relevant information into Divorcemate, which reflects the situation at the time of the final order. Child support is $5,446 per month for 5 children. The suggested range of spousal support, pursuant to the SSAGs, is from $1,054 to $1,957 per month. Given that the parties agreed to spousal support of $3,000 per month, which is more than $1,000 above the top end of the range, I infer that the applicant’s entitlement to spousal support should be assessed at or near the top of the recommended range as changes in child support occur.
235The first change occurred on February 1, 2016, when only 4 children remained dependent. Child support of $4,882 per month is payable. The suggested range of spousal support based on the SSAGs, as calculated by Divorcemate, is from $2,463 to $3,723 per month.
236The next change occurred on July 1, 2016, when only 3 children remained dependent. Child support of $4,051 per month is payable. The suggested range of spousal support is from $3,790 to $5,293 per month.
237The next change occurred on December 1, 2018, when only 2 children remained dependent. Child support is $3,277 per month. The suggested range of spousal support is from $4,604 to $5,930 per month.
238The final change occurred on July 1, 2020, when only 1 child remained dependent. An additional change is that the applicant now has imputed income of $25,200 per year. Child support is $2,019 per month. The suggested range of spousal support is from $4,764 to $6,196 per month.
239An order will go varying the amount of spousal support payable by the respondent to the applicant as follows:
$3,500 per month commencing February 1, 2016;
$4,500 per month commencing July 1, 2016;
$5,000 per month commencing December 1, 2018;
$5,500 per month commencing July 1, 2020, subject to my comments below regarding lump sum support.
240The SSAGs calculations suggest that support be indefinite, with a minimum duration of 6 years and a maximum duration of 12 years from the date of separation. The maximum suggested duration is clearly inappropriate here. Since the separation occurred in 2008, 12 years would bring us to this year, 2020. The applicant is still caring for the youngest child of the marriage, Tarynn, who is only 15. She continues to be disadvantaged by the breakdown of the marriage, and the financial hardship flowing from having primary care of the children, and is far from being self-supporting. Her entitlement to compensatory support, based upon the respondent having imputed income of $250,000 per year, continues. In my view, she continues to be entitled to indefinite support. While I have no intention of setting a termination date for spousal support, I am of the view that her entitlement will continue for at least another 5 years, and possibly longer.
Lump Sum Spousal Support:
241In her closing submissions, the applicant has asked for a lump sum of $250,000, payable within 90 days, and that monthly support of $3,000 continue to be paid until the lump sum is received, at which time monthly support would cease. To be more specific, that is the relief she asked for in the body of her written submissions, and which she said would be a fair global resolution of her spousal support claims, past, present and future. At the end of her submissions, though, the lump sum inexplicably became $300,000. I will hold her to her first figure.
242While the calculations upon which that figure was arrived at do not correspond with my findings, the sum she ultimately asks for is eminently reasonable. Support at the July 1, 2020 level of $5,500 per month amounts to $66,000 per year. A lump sum of $250,000 represents only 3.78 years worth of periodic support. I have already expressed the view that she is entitled to support for at least another five years. That would amount to a total of $330,000. A lump sum of $250,000 represents a reasonable discount for the fact that lump sum support will not be tax-deductible by the respondent nor taxable income in the hands of the applicant. The lack of a tax deduction for the respondent is further ameliorated by the fact that he has his Capital Dividend account from which he could withdraw, tax-free, a sum sufficient to pay this award.
243This court has jurisdiction to make a lump sum spousal support award on a variation application. Section 17(3) of the Divorce Act provides that the court may include in a variation order any provision that the court could have included in the original order. Section 15.2(1) gives the court that makes the original order the power to award lump sums or periodic sums or both.
244In my view, this is an appropriate case in which to make a lump sum spousal support award. There is no difficulty identifying the economic advantages and disadvantages accruing to each party arising from the relationship, and payment of the lump sum that is asked for will not result in a significant hardship to the payor: see Greenberg v. Daniels, 2005 CanLII 456 (ON CA), [2005] O.J. No. 87 (C.A.).
245With regard to the latter consideration, the respondent has resisted any request for a lump sum, either with regard to retroactive support or a lump sum for future support, on the basis that he would be required to sell farm land in order to pay. I reject that suggestion. I am not suggesting that the respondent should sell farm property to pay support. I agree that he needs the land to grow crops to feed his pigs, and for nutrient management. If he sells land, he will have to purchase feed elsewhere at a higher cost than producing it himself, and will have to pay to have manure hauled away. However, I note again the respondent’s statement to FCC that he hoped to pay the $3 million cost of the new barn, over and above insurance proceeds, from “cash flow”. He also handled the purchase of the Featherlight trailer, at a net cost of over $100,000, without any financing from FCC. If he can handle such large expenditures from cash flow, he could easily handle the lump sum of support I have ordered from the same source.
246There is one obvious way that the respondent could find the money to pay this lump sum, and that is to stop squandering money on his cutting horse hobby. Stopping the hobby altogether would save him an average of $547,465 per year, which means that he could pay a $250,000 lump sum with less than six months’ savings. His herd of 15 cutting horses itself represents a group of assets that could be sold, in whole or in part, to raise the necessary money. There is no need to sell farmland, which produces revenue, when there are horses to sell, which have produced nothing but debt.
247Alternatively, I am satisfied that he could borrow a sum sufficient to pay this lump sum. In the October 17, 2019 FCC interaction note of Mr. Vanden Hengel, he advised that the respondent could get a letter of credit from another bank, and they could go into second position to FCC behind their mortgages. The respondent has a vast amount of equity, which would stand as security for a loan. Eliminating his obligation to pay periodic spousal support through paying a lump sum also makes good economic sense. The applicant’s entitlement to period support has been fixed at $5,500 per month effective July 1, 2020, which is $66,000 per year. Eliminating that annual drain on his cash flow through a one-time payment of $250,000 represents an effective return on investment of 26.4%, which is far less than the cost of borrowing that sum.
248Lump sum support is often indicated where the parties need a “clean break”. This case cries out for such a solution. The animosity between these parties is palpable. They have not been able to communicate directly for many years. This proceeding has been total war since the respondent first filed his Motion to Change. He testified that he has spent about $250,000 in legal fees and disbursements to date. The applicant has similarly incurred legal costs that run well into six figures. If an indefinite periodic support award were to be ordered, yet another Motion to Change is a virtual certainty, with disastrous financial consequences to both parties. That cannot be allowed to happen.
249In my view, it is reasonable to award a lump sum of spousal support to the applicant in the amount of $250,000, in lieu of a periodic support order. That will permit her to pay her debts, and will provide transition funding over the next few years to assist her in becoming self-sufficient. An order shall go in that regard, payable within 90 days. The respondent shall pay periodic support in the amount of $5,500 per month commencing July 1, 2020 until the lump sum is fully paid, which monthly sums shall be credited to him against the total amount payable. Upon payment of the lump sum, the spousal support variation order that I made commencing July 1, 2020 will terminate.
250As agreed, counsel will “do the math” and compare the history of support actually paid by the respondent, as against the variation orders that I have made. If there is an overpayment, the amount thereof will be deducted from the lump sum, and if there is an underpayment, it will be added to the lump sum. If counsel cannot agree on their calculations within 15 days, each party shall provide their own calculations to me immediately thereafter, and I will rule on the matter.
Section 7 Expenses:
251The applicant, in her evidence, filed two briefs, marked as Ex. 58 and 59, setting out s. 7 special expenses, dating back to 2014, with respect to which she was claiming reimbursement of 25% pursuant to the final order. The respondent objected to the admissibility of this evidence, based on the fact that it was never put to the respondent during his cross-examination. In her closing submissions, the applicant did not request any order with respect to the payment of s. 7 expense arrears. I conclude that she has abandoned that claim.
252With respect to the payment of ongoing s. 7 expenses, at the level of child and spousal support I have ordered to commence July 1, 2020 (before converting the applicant’s periodic spousal support award into a lump sum), Divorcemate calculates the appropriate apportionment to be approximately 65% payable by the respondent and 35% payable by the applicant. The final order shall be varied in that respect as well. The remaining terms of the final order of Rady J., other than those that have been varied herein, remain in full force and effect.
Costs:
253I will establish a timetable for written submissions as to costs after the overpayment/underpayment issue is finalized.
“T. A. Heeney J.”
T. A. Heeney J.
Released: September 10, 2020
