Court File and Parties
COURT FILE NO.: FC-19-1668 DATE: 2020-09-04 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Isabelle Juteau, Applicant AND Daniel Orr, Respondent
BEFORE: The Honourable Mr. Justice Marc Smith
COUNSEL: Manraj Grewal, Counsel for the Applicant Self-Represented, Respondent
HEARD: August 18, 2020 by video conferencing
Endorsement
M. Smith J
[1] The Applicant Mother seeks the following orders:
a. The Respondent Father shall pay the Applicant Mother $3,230.00 per month in spousal support based on the Respondent Father’s imputed income of $230,000.00 and the Applicant Mother’s imputed income of $40,000.00;
b. The Respondent Father shall pay offset child support in the amount of $3,061.00 based on the Respondent Father’s imputed income of $230,000.00 and the Applicant Mother’s imputed income of $40,000.00;
c. The parties shall share the section 7 expenses in accordance with their respective imputed incomes, namely that the Respondent Father’s share shall be 70 percent and the Applicant Mother’s share shall be 30 percent for expenses up to $10,000.00;
d. The Respondent Father shall be credited $383.38 for Spousal Support for the month of September 2020;
e. Support to be enforced by the Family Responsibility Office (“FRO”); and
f. Costs on a full indemnity basis including HST.
[2] The Father opposes the motion.
[3] For reasons that follow, the Mother’s Motion is granted.
BACKGROUND
[4] The parties married on May 10, 2010 and separated on December 1, 2017.
[5] There are three children of the marriage: Annabelle Orr (born February 22, 2009), Kayden Daniel Orr (born June 8, 2010) and Hudsan Isaiah Orr (born January 8, 2013).
[6] The Mother started the Nursing program at the University of Ottawa in 2015 and graduated in 2020.
[7] The Father is a real estate representative. He is an independent contractor and his income is 100% commissioned based.
[8] On July 5, 2018, the parties entered into minutes of settlement for child and spousal support (the “Agreement”). The relevant portions of the Agreement are reproduced below:
The parties have exchanged Notice of Assessments for three years and the father has provided, to the mother, his T4s for three years. Both parties have had the opportunity to review these documents and request further information where necessary. In full satisfaction of the required disclosure having been exchanged, the parties agree, that for the purposes of support, the father earns $200,000.00 a year as a realtor and the mother is unemployed.
The parties shall exchange financial disclosure no later than July 1st of each year, which will include their Notice of Assessment and T4 for the previous year. Support shall then be subsequently adjusted to reflect the proper amounts owing in the circumstances.
The father shall pay, to the mother $4,000.00 each month in spousal support. The parties understand that this amount is tax deductible to the father and taxable in the hands of the mother. This amount is payable on the first of each month, effective July 1st, 2018.
The father shall pay $1,000.00 in child support, to the mother on the first of each month, effective July 1st, 2018.
The mother shall collect and retain her share of the child tax credit, which is anticipated to be approximately $740.00 each month and the father will provide, to the mother, in addition to support, the $160.00 he receives from the government each month as the child tax credit. As of August 1st, 2018, each party will claim all three children on a shared basis.
The father shall pay 100% of all section 7 expenses for the three children to a maximum of $10,000.00 a year. This amount has been factored into the above support. Should the father spend more than $10,000.00, within a calendar year, on the children’s section 7 expenses, he shall contact the mother and advise as to the situation and only if, both parties agree to incurring this increased amount, will the mother be responsible for reimbursing the father for any excess section 7 expenses. Should the mother agree to contribute to any excess section 7 expenses, she shall contribute 25% towards this expense.
[9] At the outset of the hearing of the Motion, counsel for the Mother confirmed that the Father had previously been in arrears of child and spousal support, but they have now been paid. The Mother says that the Father has overpaid. No objection having been raised by the Father on this overpayment, I find that he shall be credited the sum of $383.38 for spousal support for the month of September 2020.
POSITION OF THE PARTIES
The Mother
[10] The Mother says that throughout the marriage, the Father was the sole income earner, while she was the primary caregiver.
[11] The Mother had planned to graduate from Nursing in the Spring of 2019. However, given her workload with both the school and parenting, she failed a course, which moved back her graduation. She has since passed this course and has recently graduated from the University of Ottawa in a Bachelor of Science in Nursing, Magna Cum Laude.
[12] In July 2019, the Father unilaterally changed the terms of the Agreement and started to pay the sum of $3,600.00 as opposed to the agreed upon amount of $5,000.00 per month. The Mother claims that this gesture was done in bad faith and it was the Father’s punishment for not having completed her Nursing program in 2019.
[13] In regard to her attempts at finding work, during the time that she was at school, she contemplated working part-time and asked the Father to share the costs of before and after school care for the children. He refused. It was therefore not feasible for her to undertake part-time employment.
[14] The Mother is hopeful to be entering the work force in her field relatively soon. She must write the NCLEX exam (National Council Licensure Examination). Although she is not working at present (she must successfully the NCLEX exam before working), she is prepared to accept an imputed income of $40,000.00, which she claims to be a reasonable amount for a part-time nurse. If she earns more income, the Mother is agreeable to adjusting the support structure to reflect a higher income.
[15] The Mother states that despite repeated requests, the Father has not provided her with his 2019 income. She argues that an imputed income of $230,000.00 is fair and reasonable, considering the previous years: in 2018, 2017 and 2016, he earned (after removing the deductions the expenses such as vehicle, meals and entertainment, travel, etc.) over $230,000.00, $220,000.00 and $230,000.00, respectively.
[16] In an email correspondence dated July 17, 2020 from counsel for the Mother, when asked to confirm his 2019 income, the Father responded as follows: “I think the gross will be about 350 similar to 2016 (net could be about 225 to 235)”.
The Father
[17] The Father says that it took the Mother five (5) years to complete her nursing degree. From January 2019 to April 2019, the Mother was only taking one course and failed to seek any part-time employment.
[18] In the Fall of 2019, the Mother only took one course and again, did not seek any part-time employment to assist with off setting the costs. Rather, she purchased a dog which added financial responsibilities.
[19] The Father claims that during 2019, there are no valid reasons to explain the Mother’s refusal to seek part-time employment. During this period, the parenting schedule was shared 50/50. He argues that the Mother should be imputed income for 2019.
[20] In terms of his own income, the effects of Covid-19 have had a negative impact on his income. He has not provided his 2019 income returns, claiming that for self-employed persons, they are not due until August 31, 2020. For 2018, the income earned was $206,806.00.
THE LAW
[21] Sections 15.1 and 15.2 of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp) govern child and spousal support, respectively. Section 15.2(6) outlines the objectives of spousal support orders.
[22] Section 19(1) of the Federal Child Support Guidelines, SOR/97-175 (the “Guidelines”) provides that a Court can impute an amount of income to a spouse that it considers appropriate in the circumstances.
[23] The party who seeks to impute income on the basis that his/her spouse is intentionally unemployed or underemployed has the onus to establish same (see Homsi v Zaya, 2009 ONCA 322, paragraph 28).
[24] A party is intentionally underemployed if he/she chooses to earn less than what he/she is capable of earning. The Court must consider if the act is voluntary and reasonable (see Drygala v Pauli, 2002 CanLII 41868 (ON CA), [2002] O.J. No. 3731 (Ont. CA).
ANALYSIS
The Agreement
[25] The Agreement incorporates a mechanism to adjust support on a yearly basis. Paragraph 6 of the Agreement requires that the parties exchange their financial disclosure by no later than July 1st of each year. Once disclosure has been made, the support will either increase or decrease, based upon the financial circumstances of the parties in that particular year.
[26] The Father suggests that the Agreement should not be modified as there has not been a change in circumstance justifying same. The Father says that in reaching an agreement, concessions were made, such as in the division of the matrimonial assets. Relying upon the setting aside of a domestic contract provisions, as found at section 33(4) of the Family Law Act, R.S.O. 1990, c. F.3., the Father argues that there is no reason to deviate from the current agreed upon support structure.
[27] The Mother is not seeking to set aside the Agreement or certain of its provisions. Rather, she is requesting that the Court impute the Father’s income, pursuant to section 19(1) of the Guidelines, on the basis that he has failed to provide financial disclosure in accordance with the terms and conditions of the Agreement.
[28] The Father also claims that the Mother is attempting to change the terms of the Agreement. I disagree. I acknowledge that in arriving at the Agreement in 2018, the parties negotiated a combined child and spousal support amount (i.e. $5,000.00) that was lower. According to the Mother’s DivorceMate calculations, the Father’s spousal and child supports obligations would have been $3,618.00 and $3,428.00, respectively. That said, I find that the Agreement clearly contemplates that it be reviewed and adjusted annually.
[29] The Father took it upon himself to alter the terms of the Agreement in 2019. I accept the Mother’s evidence and find that the Father breached the terms of the Agreement by unilaterally lowering the combined monthly spousal and child support from $5,000.00 to $3,602.00. In his affidavit material, the Father acknowledges that he was ill-advised to decrease the support payment and upon consulting with legal counsel, the arrears were immediately paid.
[30] The Father’s action to unilaterally decrease the support payments was certainly improper and not in the best interest of his children, as they would be directly impacted. I accept the Father’s explanation and do not find that it was done maliciously or in bad faith. He has taken steps to rectify this wrong by paying all the arrears before the Motion.
The Father’s Income
[31] The Father acknowledges that he has not provided financial disclosure to the Mother. He claims that the Canada Revenue Agency has extended timelines and that he had until mid-August to file his income tax returns. I can appreciate that the current pandemic has brought on new challenges for us all, but I do not believe that it should be used as an excuse not to provide financial disclosure. The Father’s obligation under the Agreement was to provide financial disclosure by no later than July 1st. I can accept that he would have not been able to provide a Notice of Assessment, especially if he has not filed his income tax returns, but as a self-employed individual, he should have kept records of his commissions and been able to provide some form of documentation to the Mother confirming his income for 2019.
[32] Financial disclosure was not only required by the terms of the Agreement but more importantly, it is a fundamental principle in family law, imposed upon all parties involved in litigation.
[33] The Mother says that without financial disclosure from the Father, she is unable to adequately calculate his income for 2019. She relies upon the Father’s previous year’s income (2016-2018) but questions the appropriateness of his business expenses and the amounts claimed. The Mother argues that, on average, the Father earned income in the range of $230,000.00 and submits that this is a fair and reasonable amount to impute.
[34] I have reviewed the Father’s 2016, 2017 and 2018 Income Tax Returns. The reported incomes earned throughout those years can be summarized as follows:
a. 2016 – gross income is $361,416.46; after business deductions and adding RRSP income, the net income totals $231,101.31. It is to be noted that for this fiscal year, the Father used income splitting to attribute $37,000.00 to the Mother;
b. 2017 – gross income is $291,207.07; after business deductions and adding RRSP income, the net income totals $158,478.71; and
c. 2018 – gross income is $310,521.10; after business deductions and adding RRSP income, the net income totals $206,806.51.
[35] In 2016, the Father’s business expenses represented 36.3% of his gross income; in 2017, it increased to 45.9%; and in 2018, the business expenses represented 33.7%. The largest sums incurred as business expenses are:
a. 2016 – advertising ($21,203.33), management and administration fees ($31,343.02), salaries, wages and benefits ($36,559.25), motor vehicle expenses ($12,984.53).
b. 2017 – advertising ($19,030.85), management and administration fees ($27,546.47), salaries, wages and benefits ($36,559.25), motor vehicle expenses ($16,485.36).
c. 2018 – advertising ($31,996.96), management and administration fees ($22,410.00), motor vehicle expenses ($13,634.37).
[36] The onus falls upon the Father to demonstrate that the business expenses have reasonably been deducted from his income for support purposes (see Probst v Shah, 2020 ONSC 1533). He has provided no evidence to this Court which would allow me to determine the reasonableness of the business expenses.
[37] Having reviewed the business expenses and without the benefit of receiving any explanations from the Father, I agree with the Mother that there is reason to question the reasonableness and legitimacy of some of the expenses. Take for example the salaries being claimed. In 2016 and 2017, the figures were identical, which I find somewhat unusual. In 2018, no business expense for salaries has been claimed. It is unknown who he has hired, in what capacity and the reason for no longer needing assistance from his employees. The advertising expenses increased by 60% in 2018 when they were relatively consistent in 2016 and 2017. Management and administrative fees vary between 20-24% of the total business expenses. There is no evidence before the Court to explain the purpose of these business expenses and their fluctuations throughout the years.
[38] In the absence of financial disclosure for 2019 and failure to provide meaningful supporting documentation regarding the business expense deductions, an adverse inference is drawn in determining the Father’s income.
[39] The Father estimates that his income for 2019 would be similar to 2016, where be believes that his gross income is $350,000.00, with a net income between $225,000.00 and $235,000.00. This estimate falls squarely within the Mother’s request.
[40] On the evidentiary record before me, as well as the principles set out in section 19(1) of the Guidelines, and the Father’s own admission that his 2019 income resembles his 2016 income, I agree with the Mother’s submissions and conclude that a fair and reasonable amount for the Father’s net income in 2019 is $230,000.00.
[41] Given that the financial disclosure was to be made on July 1st, I find that an appropriate effective date for the order is August 1st, one month following the obligation to disclose pursuant to the Agreement.
The Mother’s Income
[42] The Father requests that the Court impute income to the Mother for the period of January 2019 until December 2019. He claims that the Mother was only taking one course during the school year and she made no efforts to obtain part-time employment.
[43] In 2019, the parties were sharing parenting responsibilities on a 50/50 basis. The Mother’s evidence is that with her University schedule, albeit one course, any part-time work would have to accommodate her parenting and schooling responsibilities. She looked into child care for the three children (before and after school) and determined that it would cost $1,162.06 per month. The Mother asked the Father to contribute to these costs, but he categorically refused by saying “take me to Court”. Given the Father’s response, the Mother would have been required to fully pay for the child care costs on her own. On this basis, she found that it was not feasible to find part-time work that would be catered to her unique circumstances. I accept the Mother’s explanation.
[44] As an alternative argument, the Mother says that even if the Court was to impute her income in 2019, the result would be the same. The parties negotiated support and entered into an Agreement on terms that were less than the table amounts. The Mother argues that the support structure was more favourable to the Father. She states that by imputing part-time income to the Mother, at minimum wage, in the yearly amount of $15,600.00, this would have resulted in the Father paying more than the negotiated monthly support amount of $5,000.00. DivorceMate calculations confirm that the combined child and spousal support would have been $5,902.00 per month. I agree with these submissions.
[45] The Father has not persuaded me that the Mother was intentionally unemployed in 2019. I find that, in the circumstances, the Mother reasonably attempted to find a solution, but it was rejected by the Father. Not only would it have been difficult to find part-time work in her situation, but it would not have been financially feasible with the burden of carrying all the child care costs. I therefore decline the Father’s request.
[46] The Mother is prepared to accept an imputed income of $40,000.00, despite not being employed at the present time. The Father did not raise any objection to the Mother’s suggestion. I find this to be a fair and reasonable position. The Mother’s imputed income shall be $40,000.00, effective August 1, 2020.
SUMMARY
[47] Based on the foregoing, an Order shall issue as follows:
a. Effective August 1, 2020, the Father shall pay the Mother $3,230.00 per month in spousal support based on the Father’s imputed income of $230,000.00 and the Mother’s imputed income of $40,000.00;
b. Effective August 1, 2020, the Father shall pay offset child support in the amount of $3,061.00 based on the Father’s imputed income of $230,000.00 and the Mother’s imputed income of $40,000.00;
c. Effective August 1, 2020, the parties shall share the section 7 expenses in accordance with their respective imputed incomes, namely that the Father’s share shall be 70 percent and the Mother’s share shall be 30 percent for expenses up to $10,000.00;
d. The Father shall be credited $383.38 for Spousal Support for the month of September 2020; and
e. Support to be enforced by the Family Responsibility Office.
COSTS
[48] If the parties are unable to agree on costs, the Mother shall serve and file written submissions of no more than three pages, exclusive of her Bill of Costs and Offers to Settle, within 30 days of the date of this Endorsement. The Father shall then serve and file written submissions of no more than three pages, exclusive of his Bill of Costs and Offers to Settle, within 10 days thereafter. If required, the Mother can file a brief reply (1 page), within 5 days of the receipt of the Father’s submissions.
M. Smith J
Released: September 4, 2020
COURT FILE NO.: FC-19-1668 DATE: 2020-09-04
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Isabelle Juteau Applicant
AND
Daniel Orr Respondent
ENDORSEMENT
Justice Marc Smith
Released: September 4, 2020