Superior Court of Justice
ONTARIO
B E T W E E N:
KRISTINE MARYBETH HOHL
- and –
JEREMY TERRANCE HOHL
- and –
NICOLE HOHL, on behalf of 1064576 ONTARIO LIMITED, 1392974 ONTARIO LIMITED and HOHL RACING ENTERPRISES LTD.
Counsel: Taryn Simionati, Counsel for the Applicant Richard Buck, Counsel for the Respondent Ted Dueck, Counsel for the Third Parties on the Motion for Production of Records
HEARD: January 28, 2021
THE HONOURABLE MADAM JUSTICE C.D. BRAID
REASONS ON MOTIONS
I. OVERVIEW
1Kristine Hohl and Jeremy Hohl were married and subsequently separated. They have two school-aged children together. In 2020, the mother commenced an application seeking child and spousal support, as well as other relief.
2The father works for corporations that are owned and run by his family. The mother has brought a motion for production of financial information from those companies in order to determine the father’s income for support purposes. The father has brought a cross-motion seeking to reduce interim child and spousal support.
3The following issues arise on these motions:
A. Should the court order disclosure from the third parties?
B. Should the court vary interim support?
4For the reasons set out below, the court orders production from the third parties and dismisses the motion to vary interim support, without prejudice to renew the motion after the records have been fully produced.
II. FACTS
Background
5The parties were married on September 16, 2006 and separated on May 17, 2019. The application was commenced in January 2020. In addition to other relief, the mother claimed child and spousal support, equalization of net family property, and seeks to set aside a marriage contract entered into by the parties.
6The parties have two children together:
i. Olivia Emma Hohl, born December 16, 2007; and
ii. Charlotte Jeanne Hohl, born April 14, 2010.
7In these reasons, I shall refer to the parties as the mother and the father. Where I refer to the respondent father’s parents Nicole and Ronald Hohl, I shall refer to them by name.
The Father’s Family Business Structure
8Ronald and Nicole Hohl are the father’s parents. Ronald passed away in 2019. There are two relevant corporations that were founded by Ronald, and that have been controlled by Nicole since Ronald’s death:
i. 1064576 Ontario Limited, operating as Shear Metal Products (“Shear Metal”), which is a construction company; and
ii. 1392974 Ontario Limited, which is Nicole’s holding company (“Nicole’s Holding Company”).
9Nicole Hohl is an officer, director and shareholder of both of these corporations. The father and his brother are officers and directors of both companies. Nicole controls these corporations but requires the assistance of her sons with the management of them, and they operate these businesses on a day-to-day basis. No one else is an officer, director or shareholder of either company.
10The respondent father and his brother are employed by Shear Metal and hold common shares in that corporation. They do not have an ownership interest in Nicole’s Holding Company and are not employed by it. The father’s main source of income is Shear Metal. He also earns income from his own corporation, 1340516 Ontario Inc. This company is named as a respondent in the application but is not participating in this motion.
11Nicole states that Shear Metal generates revenue that funds her holding company. Nicole’s Holding Company advances temporary loans to Shear Metal from time to time when it has had temporary cash flow issues due to business conditions. These are later repaid to the holding company.
12The building used by Shear Metal is owned by the father and brother’s holding companies. Shear Metal pays rent to these holding companies, who in turn pay the mortgage that is held by Nicole’s Holding Company.
13The mother’s motion initially sought disclosure from a third corporation, Hohl Racing Enterprises Ltd. Those requests have been withdrawn.
Nature of the Disclosure Sought
14During the marriage, the father’s income was always in excess of $200,000. He states that his income is now $115,000 and that he has suffered from health issues since separation. There is no indication that the family companies have suffered as a result of the COVID-19 pandemic. The father receives corporate benefits through Shear Metal and possibly through other companies. The mother seeks disclosure to assess his income and the value of those benefits.
15The father has retained an expert Timothy Rickert to prepare an income-for-support report. The mother has retained expert Matthew Krofchik to prepare a critique of Mr. Rickert’s report. Mr. Krofchik provided an affidavit stating that he cannot complete the income report because he requires disclosure from the family corporations. The father and Nicole Hohl have refused to provide the requested documents.
16The mother seeks an order requiring Nicole Hohl to provide the following documents:
a) For 1064576 Ontario Ltd. and 1392974 Ontario Ltd.:
i. Financial Statements with accompanying notes for 2002 to 2006 and 2014 to 2020;
ii. T2 corporate tax returns and Notices of Assessment/Reassessment for 2002 to 2006 and 2014 to 2020;
iii. Corporate Registers with dates and names of any changes from 2002 to today’s date and Shareholders’ Agreements;
iv. Copies of the general ledger’s shareholders’ loan accounts for 2002 to 2006 and 2014 to 2020.
b) A breakdown of all amounts owing to/from related parties, including (but not limited to) intercompany loans, loans, and notes receivables for all companies of which the father was an shareholder, officer, or director for the years 2002 to 2006 and 2016 to 2020 to include the above two companies.
c) A list of all personal expenses paid on behalf of the father and any individual with whom he does not deal at arm’s length by all companies in which the father was a shareholder, officer or director during the years 2002 to 2006 and 2016 to 2020, including the above two companies
d) A list of all related parties that worked for or were paid by any companies in which the father was a shareholder, officer or director for the years 2002 to 2006 and 2014 to 2020 to include the names of the related parties, their titles, duties and remuneration, including the above two companies.
e) Such further and other documentary disclosure as the mother may request in addition to or arising from the above.
III. ANALYSIS
A. Should the Court Order Disclosure from the Third Parties?
1) Positions of the Parties
17The mother is seeking disclosure to determine the father’s income for support purposes, and to calculate equalization of net family property. She argues that it would be unfair for her to have to proceed without an opportunity to examine financial records of the family corporations, and that her expert is unable to complete a proper income analysis of the father’s income without this disclosure.
18Nicole Hohl strenuously opposes being subjected to a non-party disclosure order. She argues that the records are not relevant, especially since the parties signed a marriage contract that excluded the companies from any net family property division in the event of marriage breakdown. She states that the father has never had an ownership interest in her holding company and receives no income or personal benefit from that company. She also states that records regarding the father’s income are available from other sources, including his tax returns and financial records from his own company. She asks that the motion be dismissed.
19The father supports the position taken by Nicole Hohl on the disclosure motion.
2) Disclosure Obligations in Family Litigation
20The importance of relevant financial disclosure in family law cases is well-recognized. Delays in disclosure impede the progress of an action, act to the disadvantage of the opposite party, and impact the administration of justice: see Roberts v. Roberts, 2015 ONCA 450, 65 R.F.L. (7th) 6, at paras. 11-12.
21When a spouse controls a corporation and their income is necessary to determine the amount of child support, the Guidelines require that the payor spouse provide the other spouse with corporate documents. Those documents include, for the corporation’s three most recent taxation years: the financial statements of the corporation and its subsidiaries; and a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation, and every related corporation, does not deal with at arm’s length: see ss. 21(2) and 21(1)(f) of the Federal Child Support Guidelines, SOR/97-175.
22When a spouse is a shareholder, director or officer of a corporation, the pre-tax income of that corporation is relevant to the determination of their annual income. If the court is of the opinion that the amount of the spouse’s income does not fairly reflect all of the money available to the spouse for the payment of child support, the court may include all or part of the pre-tax income of the corporation. All amounts paid by the corporation as salaries, wages, management fees, or other payments or benefits to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances: see s. 18 of the Guidelines.
23If the payor spouse does not control the relevant corporation, there are two provisions of the Family Law Rules, O. Reg. 114/99, that permit the court to make orders for document disclosure from a non-party:
i. If a document is in a non-party’s control that is not protected by a legal privilege, and it would be unfair to a party to go on with the case without the document, the court may order the non-party to produce the document to the party: Rule 19(11).
ii. The court may order a non-party to disclose information where:
a. it would be unfair to the party who wants the disclosure to carry on with the case without it;
b. The information is not easily available by another method; and
c. The disclosure will not cause unacceptable delay or undue expense: Rule 20(5).
24On this motion, the onus is on the mother to satisfy the court that production should be ordered: see Weber v. Merritt, 2018 ONSC 3086, 11 R.F.L. (8th) 177, at para. 29.
25Non-party disclosure in family litigation is generally more permissible than under the Rules of Civil Procedure, and judges should exercise “liberal and generous discretion” in ordering non-party disclosure in the family context. This is because it is common in family litigation for parties to make use of close family members for purposes of concealing income or assets: see Weber at para. 33; Hagey-Holmes v. Hagey, 2005 CanLII 23324 (ON SC), [2005] O.J. No. 2760 (Ont. S.C.), at para. 32.
26It is not uncommon in the family law context for family members and their businesses to align themselves to support and protect a family member defending a property or support claim: see Weber at para. 34; Loeb v. Loeb, 2013 ONSC 1730, 34 R.F.L. (7th) 149, at para. 42.
3) Factors When Determining Whether to Order Non-Party Disclosure
27I agree with and adopt the reasoning in Weber, in which Madsen J. set out several factors when determining whether to order non-party disclosure. I shall address the factors that are relevant to the case before the court.
a. Importance of the Documents in the Litigation/Relevance
28The financial records sought fall into two separate time frames:
i. Records from 2002 to 2006
29The mother seeks production of corporate records from 2002 to 2006, and states that these records will be relevant to the calculation of net family property.
30If the marriage contract is set aside, and if the father owned a company at the date of marriage, the value of that company at that date would be a permissible deduction from the father’s net family property calculation. However, Nicole Hohl has provided evidence that the father did not have an ownership interest in Shear Metal until after the date of marriage, and that he has never had an ownership interest in Nicole’s Holding Company. As a result, the value of the corporations in 2002 to 2006 is not relevant.
31As a result, I decline to order production of financial disclosure from 2002 to 2006 because those records are not relevant to the issues on the application.
ii. Records from 2014 to 2020
32The father is an officer and director of the non-party corporations. Pursuant to s.18 of the Guidelines, the court can include all or part of the pre-tax income of those corporations when calculating the father’s income for support purposes, if the court is of the opinion that his income does not fairly reflect all of the money available to him for the payment of child support. If the father controlled the corporations, he would have been required to produce the financial records from three years prior pursuant to s. 21(1)(f) of the Guidelines. Since the parties separated in 2019, this would have included records from 2016 onwards. I therefore find that the corporate records of the non-parties from 2016 to 2020 are relevant to determine the father’s income for support purposes.
33The mother’s expert states that he requires corporate records for the five years preceding separation, since these records will be necessary in the event that the marriage contract is set aside at trial. The father’s shares in Shear Metal were provided as part of an estate freeze, which may impact whether or not those shares are excluded from equalization. These are issues to be decided at trial. The value of the father’s assets should be explored prior to trial, in the event the trial judge finds in favour of the mother on these issues.
34The father owns shares in Shear Metal, so its financial records from 2014 to 2019 are therefore relevant to the valuation and equalization of net family property. However, he does not own any shares in Nicole’s Holding Company, so the financial records from that corporation are not relevant to equalization.
35For the remainder of these reasons, where I refer to disclosure of financial documents, I am making reference solely to Shear Metal records from 2014 to 2020 and Nicole’s Holding Company records from 2016 to 2020.
b. Unfair to Proceed Without Disclosure
36The father’s family controls a group of companies. The mother seeks financial disclosure from two corporations that are not operating at arm’s length from the father, who is the support payor.
37The father earns income and has some of his personal expenses paid by at least by one of the corporations. The father and his brother assist their mother in the management of the corporations. Nicole Hohl refers to herself as the “bank of mom”. She provides numerous gifts to the father, none of which appear on his tax return. She has the power to structure how the income earned by Shear Metal is paid out.
38There is a complicated corporate structure that the father and his family can use to hide income. In these circumstances, a greater level of disclosure is required: see Weber, at para. 42; Loeb, at para. 48.
39The corporate financial records are directly relevant and material to the determination of the father’s income for support purposes. As such, it would be unfair to require the mother to wait until trial to receive the financial disclosure. The corporate records sought will permit the mother’s expert to determine whether the father is receiving any other income from the corporations, so that he can complete a report in advance of trial. In addition, interim orders for support are being made, which will require a proper determination of the father’s income.
c. The Information Is Not Easily Available By Any Other Method
40The mother does not have any other means to access the documents. The father states that he is unable to produce the records because they are not within his control. On September 23, 2020, the mother brought a motion seeking production from the father. Breithaupt Smith J. declined to make an order requiring the father to disclose the financial records because she found that the father had no control over the corporations. In these circumstances, questioning would not be adequate.
41The disclosure sought is therefore only accessible from Nicole Hohl, a non-party.
d. The Disclosure Will Not Cause Unacceptable Delay or Undue Expense
42There is no evidence that an order for production of the documents will cause undue delay or expense. The financial documents that are sought are not overly broad and should be easily accessible to Nicole Hohl.
43The mother’s expert has already commenced preparing his report. Once he obtains the requested disclosure, his income report should be prepared within a reasonable time thereafter.
e. Position of the Non-Parties Regarding Production
44Nicole Hohl has control of the corporations and will not provide the documents without a court order.
f. Relationship of the Non-Parties and Interest in the Litigation
45None of the officers, shareholders and directors of the non-party corporations are at arm’s length from the father. These are closely held family corporations and the financial disclosure is being sought from corporations controlled by Nicole Hohl, who is aligned with the father. She is not a stranger to the litigation. As such, the production is more susceptible to a production order than from a complete stranger to the litigation.
g. Privacy Interests of the Non-Parties
46While full and frank disclosure is a fundamental tenet of family law proceedings, there are also elements of proportionality, common sense and fairness built into the Family Law Rules. The test for compelling non-party disclosure must balance privacy interests of the third parties against the interests of the parties in the proceedings, and must take into account proportionality: see Weber at paras. 35-36.
47In this case, the relevance of the records outweighs the privacy interests of the third parties. It would be unfair for the mother to proceed to trial without the records. I am satisfied that orders can be made restricting the use of these records to this litigation and protecting their confidentiality, so that they do not fall into the hands of competitors.
4) Conclusion Regarding Disclosure
48After considering all of the factors, I find that the non-party financial records should be produced. An order requiring disclosure is proportionate to the issues and is required for the fairness of the trial.
49Even though I have ordered the production of the records, the privacy of the records should be protected. The order for disclosure will include confidentiality terms that require the parties to keep the disclosure confidential.
B. Should the Court Vary Interim Support?
1) Positions of the Parties
50The father argues that there has been a material change in circumstances in the incomes of the parties, and that child and spousal support should be reduced.
51The mother submits that the motion to vary support should be dismissed as being premature. She argues that no review of the interim order should take place until the non-party disclosure has been provided and the expert has completed his report.
2) The Father’s Income
52The father’s income appears to be derived from employment income received from Shear Metal and taxable dividends received from his own corporation 1340516 Ontario Inc. Since 2016, his income has been as follows:
2016 $264,000
2017 $271,000
2018 $276,000
2019 $199,000
53The father takes the position that his current annual income is $115,000. He states that he has suffered from health issues, which has caused him to work reduced hours.
3) Background Regarding Support Orders
54On January 22, 2020, MacLeod J. made an order, on consent of the parties, that set out a 50-50 parenting schedule in which the children spend equal time with each parent.
55On May 29, 2020, Breithaupt Smith J. made a temporary, without prejudice order, on consent of the parties, requiring the father to pay child support in the amount of $2,230/month and spousal support in the amount of $3,500/month. The support order was based on the father’s annual income of $199,000 and the mother’s annual income of $28,500. Pursuant to the order, support was to commence being paid on the first day of the month following the mother vacating the matrimonial home. Although the current interim support order was made in May of 2020, the father only began paying support on October 1, 2020, after the mother moved out of the matrimonial home.
56The mother has received $430,000 from the father as an advance on equalization. She used this money to buy her own residence, pay legal fees and debt, and other expenses. She does not have any of those funds remaining.
4) Father’s Motion to Reduce Support
57The mother’s income has recently increased to $45,000 per year. The father states that health issues have prevented him from working full-time since 2019. The father submits that there has been a material change in circumstances with respect to the income of the parties. He has brought a motion seeking to reduce interim support.
58The father argues that his income should be set at $115,000 and the mother’s income at $45,000. This would result in a monthly child support payment of $981 and spousal support payment of $1,000, which is the mid-range amount pursuant to the Spousal Support Advisory Guidelines. The mid-range amount would result in each parent having approximately 50% of the net disposable income, which the father says is preferable since the children spend equal time with each parent.
59The consent order was entered into well after the father began experiencing health issues and working part-time. In May of 2020, he consented to setting his income at $199,000 for support purposes. By the date of the consent order, the father would have known his approximate 2020 income. There is no evidence that his circumstances suddenly and drastically changed after the consent order.
60I have determined that non-parties must produce financial disclosure, which is ordered to permit the mother’s expert to complete his analysis of the father’s income for support purposes. The motion to vary support is therefore premature, and no review should be undertaken until the mother has received the disclosure and her expert has had an opportunity to complete an income report.
61The mother’s expert has provided evidence that he has started preparing his income report. In my view, he should be provided with a minimum of 60 days after receiving all of the disclosure to prepare his report, before the motion to vary support is renewed.
62The father’s motion to reduce child and spousal support is therefore dismissed, without prejudice to the father to renew the motion 60 days or more after the records have been fully produced.
IV. COSTS
63In the event that the parties cannot agree as to costs, they are directed to provide written submissions. The submissions shall be no longer than three typed pages, double-spaced, in addition to any relevant Bill of Costs and written Offers to Settle.
64Submissions shall include the costs of the motions argued before me as well as the costs of the motion before Breithaupt Smith J. on September 23, 2020.
65The mother shall provide costs submissions by April 21, 2021. The father and Nichole Hohl shall provide any responses by May 5, 2021.
66In the event that submissions are not received from either party by May 5, 2021, costs shall be deemed settled. Costs submissions shall be filed by email to Kitchener.SCJJA@ontario.ca, and marked for the attention of Justice Braid.
V. ORDERS
67For all these reasons, the court makes the following orders:
- The third party, Nicole Hohl, as Officer and Director of 1064576 Ontario Limited (o/a Shear Metal Products) and 1392974 Ontario Limited, shall provide to the applicant mother, Kristine Hohl, the following documents within thirty (30) days:
For 1064576 Ontario Limited, o/a Shear Metal Products:
i. Financial statements with accompanying notes for 2014 to 2020;
ii. T2 corporate tax returns and Notices of Assessment and Reassessment for 2014 to 2020;
iii. Corporate registers with dates and names of any changes from 2014 to today’s date and Shareholders’ Agreements;
iv. Copies of the general ledger’s shareholders’ loan accounts for 2014 to 2020.
For 1392974 Ontario Limited:
i. Financial statements with accompanying notes for 2016 to 2020;
ii. T2 corporate tax returns and Notices of Assessment and Reassessment for 2016 to 2020;
iii. Corporate registers with dates and names of any changes from 2016 to today’s date and Shareholders’ Agreements; and
iv. Copies of the general ledger’s shareholders’ loan accounts for 2016 to 2020.
- The third party, Nicole Hohl, as Officer and Director of 1064576 Ontario Limited (o/a Shear Metal Products) and 1392974 Ontario Limited, shall provide the following:
a) A breakdown of all amounts owing to/from related parties, including (but not limited to) intercompany loan, loans, and notes receivables for all companies of which the Respondent, Jeremy Hohl, was a shareholder, officer, or director for the years 2016 to 2020 to include the above two companies.
b) A list of all personal expenses paid by all companies in which the Respondent, Jeremy Hohl, was a shareholder, officer or director on behalf of the Respondent, Jeremy Hohl, and any individual with whom he does not deal at arm’s length for the years 2016 to 2020 to include the above two companies.
c) A list of all related parties that worked for or were paid by any companies in which the Respondent, Jeremy Hohl, was a shareholder, officer or director for the years 2014 to 2020 to include the names of the related parties, their titles, duties and remuneration to include the above two companies.
Such further and other documentary disclosure as the applicant mother may request arising from the above.
Documents produced by the third parties are to be held in confidence by the applicant mother and her counsel, subject to obtaining financial advice on those documents should they choose to. In the event that information and/or documents disclosed by the third parties are required to be used in Court either in relation to further motions or the application, those documents are to be made sealed exhibits.
The respondent father’s motion to reduce child and spousal support is dismissed, without prejudice to the father to renew the motion 60 days or more after the records have been fully produced.
Braid, J.
Released: April 7, 2021