COURT FILE NO.: FS-20-18689
DATE: 20230203
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MINNI JAIN
Applicant
– and –
RAJAT JAIN
Respondent
Minni Jain, on her own behalf
Rajat Jain, on his own behalf
HEARD: January 30 and 31, 2023
AKAZAKI, J.
[1] There were two main issues at this trial of a matrimonial dispute:
a. the amount of the equalization payment for net family property pursuant to the Family Law Act, R.S.O. 1990, c. F.3, s. 5.
b. the level of income to be imputed to the Respondent for the purposes of child support calculations according to the Federal Child Support Guidelines (SOR/97-175, “Guidelines”), pursuant to the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.); and
[2] The parties were in agreement that the Respondent has been paying child support at the rate of $594.00 per month since ordered to do so on an interim basis on June 18, 2021, based on an imputed income of $40,000.00 per annum. The Respondent acknowledges that he owes arrears, at whatever rate the court determines, for the period between March 2020 and July 2021. The Applicant also acknowledges that the Respondent has overpaid by $1,649.00 in respect of expenses under s. 7 of the Guidelines (overpayment of discontinued daycare expenses).
[3] On the income issue, the Applicant claims that the Respondent’s income should be imputed at $104,000.00 per annum, by reference to an income valuator’s assessment of corporate income; in the alternative, at $72,000.00 per annum, based on a scenario that does not include personal use of corporate expenses.
[4] The Respondent accepts an income imputation of $40,000.00, but says that his income has never been in the range of $100,000.00.
[5] On the equalization issue, the Applicant claimed that the net proceeds of the house sale should be put on the Respondent’s side of the ledger because it was the matrimonial home and he did not adequately account for how it was spent. In closing argument, the court referred her to the following s. 18(1) of the Family Law Act, and she had no answer to the fact that the former matrimonial home belonged to others at the date of separation:
18 (1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home. R.S.O. 1990, c. F.3, s. 18 (1). (underline added)
[6] She also stated that the value of the start-up tech business of a Delaware corporation controlled by the Respondent, incorporated in May 2020, should also be included in that calculation, because the Respondent developed the idea and business plan while he was housed and fed as a member of the family. Based on a transaction with an investor who spent USD $350,000.00 for 8% equity in the company, she values the company over $3,000,000.
[7] The Respondent’s response was that the company was not in existence at the time of separation. Moreover, it is currently incapable of valuation, it has no revenues, and any value as an income generator is in the future.
[8] There are existing parenting orders in place which were not disputed at the trial. After the trial ended, the Respondent inquired with the court whether there could be a modification to the parenting schedule to allow for school pickups. I stated that this was not properly before the court, and that the Respondent could seek a variation of the court order, either on consent if the Applicant consented, or through a contested motion if she did not agree.
FACTS OF THE MARRIAGE
[9] The parties were married on February 14, 2009. In December 2011, they moved to Canada. In 2014, they bought a house. They sold it, at profit, in 2016. There are two children of the marriage: a son, age 7, and a daughter, age 6.
[10] The parties are both educated and intelligent professional people. The Applicant possesses engineering degrees and works the office of a steel trading company. The Respondent is a former CNC machinist (operator of a Computer Numerically Controlled machine) with a bachelor’s degree in commerce. The Applicant left the Respondent in charge of the family finances, because he was good at business. She was not adept in financial matters.
[11] The Respondent used the proceeds of the 2016 sale of their home to invest in the stock market. In a relatively short time, he lost all of the money. This, combined with the lack of transparency on the Respondent’s part, appears to have been a catalyst in the breakdown of the marriage. The circumstances of the dissipation of the funds also appears to have been a motivator of the Applicant’s belief that the court had the authority to trace the dissipated funds or attribute them to the Respondent.
[12] There was no evidence that the sale of the home was anything other than a provident sale. There was no evidence to examine whether the funds were converted to some hidden bank account or other means of hiding the Respondent’s net family property.
[13] The Respondent operated a service business for a steel trading company. This company was essentially a captive client that used his services as either a commissioned agent or employee. In 2020, he “left” the company in that they effectively let him go and an employer or captive client. The same year, the Applicant became an employee of the same employer.
[14] The Respondent, having essentially lost his job, started a new venture, Prata Inc., which he incorporated in Delaware. He secured funding of USD $247,000 and $100,000 from a venture capital incubator company, in exchange for 8% of the shares of Prata Inc. He did not contribute to the capital of the company. This company has yet to earn measurable revenues. All of the capital has been used to support the business, including development of an app.
[15] Against the backdrop of these circumstances, I will now deal with the evidence in relation to the issues in dispute.
Evidence of Net Family Property Calculation
[16] The Applicant filed the Net Family Property (NFP) Statement of the Respondent, showing $43,233.90 as the equalization payment owed by the Respondent and showing a partial payment of $10,000.00 made on March 10, 2020. The Applicant admitted the payment and that the net amount was $33,233.90. The parties acknowledged there was a written agreement to these figures, although the agreement itself was not filed with the court.
[17] The Applicant’s objection to the agreement to the equalization calculation was that she had agreed to it without the benefit of legal advice. The parties agreed that they had signed it after receiving advice from an internet-based “lawyer” in Costa Rica allegedly licenced in the United States. Although these circumstances may, with a more profound evidentiary basis, have led to the influence of a foreign “lawyer” giving matrimonial law advice to Ontario residents, I am not persuaded that it provides any basis to set aside the agreement. While the Applicant disclaims knowledge or interest in financial matters, she is a sophisticated person. The court does not have the power to intrude into the contractual autonomy of parties who wish to take advice from any manner of people, anywhere in the world. Had they used a collaborative lawyer in Ontario, there could have been an inquiry into the terms of the joint retainer and the adequacy of ethical safeguards employed by the lawyer. The parties here knew they were not consulting a lawyer licensed in Ontario family law, and yet they went ahead with the arrangement. The lack of a more compelling ground for setting aside the agreement was not a reason for the court to assist the Applicant in developing her case more fully on this point. As the trial judge, it was not my role to help the Applicant make her case: Grand River Conservation Authority v. Ramdas, 2021 ONCA 815, at para. 21.
[18] The formal objection to the settlement of the equalization payment also appears to be a distraction, because the Applicant did not cross-examine the Respondent on the line entries in the NFP Statement to provide any basis to question the veracity of the entries, both as credits and as debits. It was the Applicant who entered this document into evidence as part of her case. Although the tactical elements of the case should not be strictly enforced against a self-represented person, neither her cross-examination of the Respondent nor her own evidence provided any evidentiary basis to contest it as a NFP Statement containing valid entries. The Applicant had ample time to prepare an effective cross-examination on the document, if there were grounds for impeaching the figures recorded by the Respondent.
[19] The value of the Respondent’s 92% controlling shares in Prata Inc. is difficult to bring into the NFP calculation, because the company’s incorporation post-dated the separation. That said, if there was a value that could be reliably put to the pre-incorporation business, on the basis that the Respondent had developed it while residing with the Applicant, this could be property included in the Respondent’s side of the ledger.
[20] The problem with this theory is that it is no more than a theory. In retrospect, one might look back at Jeff Bezos’ garage-based mail order bookstore and say it was worth what Amazon.com is now. However, a seed is not a tree, and the value of a seed is de minimis whereas a tree is very valuable. I find, in the absence of cogent evidence that the pre-incorporation value of Prata Inc. as of February 2020 is worth anything more than a glint in the Respondent’s eye, that the value of 92% of Prata Inc. cannot be included in the NFP calculation. This does not end the story, however, because Prata Inc. remains relevant to the Respondent’s income. The corporate income that can be imputed to the Respondent does not depend on the incorporation date being before or after separation.
[21] Even if there were a more substantial evidentiary basis for the Applicant to contest the validity of the agreement to settle the Respondent’s NFP and equalization payment, the contention that the Respondent controlled more resources than he disclosed did not go beyond the abstract notion that a potential multi-million dollar tech company had a pre-incorporation value to be entered into the Respondent’s side of the NFP ledger. I do not fully reject the relevance of the Applicant’s theory, however, and to his credit the Respondent did not fully reject it either. I will deal with this in the next section. I conclude that the Applicant is entitled to payment of $33,233.90 for equalization of the NFP.
[22] The Respondent has asked for the order for payment of arrears and NFP equalization to be staged in instalments. Under cl. 9(1)(c) of the Family Law Act, the court does have the jurisdiction to order that an award be paid in instalments, in order to avoid hardship. The main issue on the application of this provision is the availability of funds: Serra v. Serra, 2007 CanLII 2809 (ON SC), at para. 158. The Respondent filed his most recent statements from various bank accounts and credit facilities. As a snapshot of his current means, he is clearly without liquid capital and is carrying a modest amount of debt. He testified that his company is emerging from the development stage, and he expects to be in positive cash flow within a matter of months. The Applicant did not make any submissions on this point. However, given that the circumstances may be traced to the Respondent’s use (or misuse, according to the Applicant) of the proceeds of the family home, it could be unfair to afford the Respondent an inordinate amount of time (up to ten years, according to s. 9) to pay the equalization. The interval should not be long, and the Applicant is presumptively entitled to post-judgment interest on amounts that could have been awarded as a lump sum today. Since the amounts technically do not come due until the dates specified in the order, prejudgment interest shall continue to be incurred, and post-judgment interest shall thereafter apply to any outstanding instalments.
[23] Having regard to the priority of the child support arrears, as well as the $10,000 paid at the time of separation, I am prepared to grant the Respondent one year to pay off the indebtedness of equalization through quarterly instalments of $8,308.48, plus prejudgment interest. The prejudgment interest on the equalization payment pursuant to s. 128 of the Courts of Justice Act, R.S.O. 1990 c. C.43, calculated on the published rate of 4%, will be applied to each payment.
Evidence of Imputed Income
[24] The Applicant introduced the evidence of an expert income valuator, Carlo Viola, a Certified Business Valuator and Chartered Professional Accountant. I accepted Mr. Viola’s qualifications as an expert witness for the purpose of providing an opinion on the income to be attributed to the Respondent. Mr. Viola testified that a 2020 shareholder loan of approximately $44,000.00 from one of the corporations controlled by the Respondent should be attributed to him as income, because it indicated that funds were available to the Respondent. This increased the income from the $28,000.00 salary reported to the Canada Revenue Agency (CRA), to form a basis for imputing income at $72,000.00.
[25] Mr. Viola also analyzed the corporate financial statements to conclude that some $32,000 in expenses charged to the businesses could be imputed as personal shares of corporate expenses. This was the basis for the $104,000.00 income-attribution figure. If the personal use of corporate expenses was not attributed, the expert’s fall-back position was that $72,000.00 should be imputed. While I found Mr. Viola to be knowledgeable and his opinion easy to understand, I cannot help thinking that the opinion of corporate income available to the Respondent was based on a short interval of financial data.
[26] The Respondent testified that the shareholder loan was still outstanding and that it represented a true loan for the purpose of meeting living expenses. In this regard, the Respondent appears to have made Mr. Viola’s point, at least for 2020. (If he has not repaid it, Mr. Viola’s evidence that it was effectively a dividend seems to have been correct.) However, this evidence did not necessarily provide the basis for a sustainable source of personal income for 2021 forward.
[27] The Respondent’s evidence about his business and professional life did provide small nuggets of candid information. He was qualified to work as a CNC machinist, with an average salary range of $42,000 to $53,000, according to him. He had tried to obtain employment by applying for over 200 jobs. He did not have sufficient local experience to be hired, in his opinion. Despite his inability to find such employment, it does provide a measure of the value of his work, if he pursued it further. We are reminded that the purpose of imputing income to underemployed or unemployed payors is to ensure that children are to some extent sheltered from fluctuations in their parents’ economic fortunes. Child support is a parental obligation, and the Respondent acknowledged this principle in court. In order to meet this obligation, parents are required to earn what they are capable of earning: Lavie v. Lavie, 2018 ONCA 10, at para 24. I accept the Respondent’s evidence that he has attempted to secure regular employment that may amount to a “step backwards” in his career, in aid of being able to contribute to the expenses of maintaining the cost of feeding, clothing and housing the children.
[28] The Respondent, to his credit, acknowledged his hope that the Prata Inc. business would be in positive cash flow within several months. I assume he would not have conceded this during his submissions, if he did not have information about his business dealings to back it up. On the other hand, one must not accept too quickly the optimism of someone who dissipated the proceeds of the family home on online trading.
[29] The evidence of the Respondent’s income-earning capacity and his actual earnings therefore appeared like an assortment of numbers drawn out of a tombola. It was impossible to deny that the Respondent had combined personal and corporate income in the order of $104,000.00 in 2020, but the evidence of his ability to replicate these economic conditions in other years or in years going forward was thin. It was also not hard to accept the Respondent’s evidence that his current business venture has no measurable value at the present time, or even a reliable present value of future income or capitalization. Nevertheless, it is also undeniable that he has some source of income.
[30] The Respondent admitted that the 2021 income tax return he filed with the CRA with a zero number for income was wrong, and that the income should have been reported at about $30,000.00. This was not a draft or incomplete return, but one prepared by the Respondent’s tax accountant and bearing the Respondent’s electronic signature. It is not for this court to comment whether the Respondent has been paying his taxes. However, his expression of surprise when I told him about my concern about the reporting of no income in the tax return suggested left a cloud of doubt over the accuracy of all of the official income documentation presented in evidence, both corporate and personal. This is not so much a comment on the Respondent’s credibility. I found both parties to be credible witnesses. However, neither’s evidence proved totally reliable in that the Applicant’s evidence lacked specificity and the Respondent’s lacked consistency at the granular level.
[31] Both of the parties gave evidence about their lifestyle, educational background, and family expenses, to support their views on the issues. The Applicant contended that she had a regular job that provided a net income of $3,500 per month and that the expenses such as rent, food, babysitting and utilities amounted to about $10,000. She contended that the Respondent was contributing $6,500 and therefore should be imputed income higher than hers. His response was that there was income from various sources in addition to hers, including capital from the house sale. Despite a superficial logic to this argument, she was unable to identify an actual activity that could have been the source of income that was almost double hers. Had she introduced evidence of such activity, the evidence she obtained on cross-examination could have been more probative of a theory that the Respondent had a hidden source of income.
[32] The family relocated briefly to Vancouver, and this came up during an exchange between the Applicant as questioner and the Respondent as witness. During this time in Vancouver, the Respondent was flying back to Toronto to deal with his business affairs. He claimed that he was catching cheap flights at about $60. While there is no reason to disbelieve this, there must have been some means of financing the business beyond pocket change, and he must have been bringing some money into the family simply to allow the family to survive while maintaining a modest but comfortable existence. Lifestyle is not direct evidence of income, but it is capable of being evidence from which inferences can be drawn of a payor’s undisclosed income: Bak v. Dobell, 2007 ONCA 304, at paras. 42-43. That decision is consistent with the case law involving imputation of income, in interpreting and applying s. 19 of the Guidelines, in requiring the court to aim for the fairest consideration of all the circumstances. Here the lifestyle of the parties does not provide concrete proof of income, but it does signify the willingness of the Respondent to take risks that he expects to pay off. He has not sought a minimum-wage job or other form of underemployment, in order to make ends meet. His ability to have successfully pitched his business idea to an investor proves that he is articulate and capable of selling himself as a commercial asset.
[33] Given the swing between a realistic valuation of the business as currently worthless and an optimistic valuation of it as modestly limitless, it is hard to fix the imputed value of the Respondent’s annual income as low as $30,000.00 or as much as $104,000.00. His acceptance of $40,000 as the right amount does not make that the floor. This court’s task is not to strike a bargain or impose one through stated positions. Given that the Respondent has chosen an entrepreneurial exit from a past career as a technical machinist, his business acumen must count for something even though he may have proved to have been a poor stock trader. The fairest result appears to be slightly below the mid-point of what the Respondent has been reporting to the CRA and what the valuator measured as combined corporate and personal income. This considers the Respondent’s earning potential according to the expert, but it also takes into account the fact that imputed income does not put food on the table but simply requires the payor to do more to help raise the children. Based on this this analysis, the figure I would impute to the Respondent is $60,000.00 per annum. However, I am also cognizant of the lack of a consistent pattern over the last three years, and s. 17(1) allows some discretion to adjust such an imputation. This is especially appropriate having regard to the Respondent’s prior expectation of the income imputed to him of $40,000, albeit on an interim and non-binding basis. Accordingly, I find that the Respondent’s income for the purpose of the entire post-separation period to be $55,000.00.
[34] According to the DivorceMate software, the Child Support Guidelines Table Amount is $839.00 per month. The total amount of child support that ought to have been paid to date, for 36 months starting on March 1, 2020, is $30,204.00. He has paid 20 months of interim child support of $594.00 per month from July 2021, or a total amount of $11,880.00, as well as an overpayment of s. 7 expenses of $1,649.00. He therefore owes $16,675.00 in retroactive child support.
[35] Prejudgment interest pursuant to s. 128 of the Courts of Justice Act, on the amount of $13,424.00 from the first 16 months shall be calculated at one half of the current published rate of 4%, i.e. $357.97, and at the full rate for the remaining 20 months, i.e. $894.93. Prejudgment interest on the difference in monthly payments ($245.00) for the last 20 months shall be calculated at one half of the rate of 4%, i.e. $163.33. The total prejudgment interest is therefore $1,416.24.
[36] The modest elevation of imputed income should not, however, remain static. During the closing arguments, I canvassed with both of the parties the practical difficulty of attributing the economic value of the Respondent’s new business. The fact that an investor has contributed a significant amount of seed capital suggests that someone other than the Respondent believes in its prospects. The Divorce Act, s. 17(4), provides a mechanism for variation of a court order, including a child support order, if there is a significant change in circumstances of the parties or the children: Willick v. Willick, 1994 CanLII 28 (SCC), [1994] 3 S.C.R. 670. Family law judgments pursuant to this statute are different from final orders in other civil disputes, in that Parliament has recognized that family obligations and circumstances do not conclude or get fixed for good simply because a piece of litigation has concluded. This is a statutory exception to the principle of res judicata (“the matter has been decided”).
[37] The Respondent’s business situation being in a state of flux, the facts require a court order facilitating disclosure of material changes in order ensure the income attribution either remains current or is capable of adjustment. In this regard, the Respondent consented to an ongoing disclosure order that requires annual disclosure of his corporation’s financial statements when they are prepared filed for corporate income tax reporting, i.e. by June. He acknowledged his regret that lack of transparency had a role in the failure of his marriage with the Applicant, to whom he displayed utmost respect and courtesy during the course of the trial.
[38] In ordering this disclosure, I make no predetermination whether the financial statements will reflect material changes in the availability of corporate income to the Respondent. That assessment will have to be performed by the Applicant, with or without the assistance of a professional familiar with financial statements. Given the willingness of the Respondent to make this disclosure, there is at least some hope that the avoidance of another law suit and trial will encourage the parties to make adjustments in the event the Respondent’s company proves to be profitable and increases his ability to pay child support beyond the amount stated in this order.
[39] Pursuant to subrule 25(11), I hereby direct the clerk of this court to prepare an order for my signature, in accordance with the following terms:
a) The Respondent shall pay the Applicant the amount of $16,675.00, on account of retroactive child support, based on an imputed income of the payor of $55,000.00 per annum, less overpayment of s. 7 expenses.
b) The Respondent shall pay the Applicant prejudgment interest on child support in the amount of $1,416.24.
c) The Respondent shall pay the Applicant child support in the amount of $839.00 per month, payable at the first day each month, also based on an imputed income of the payor of $55,000.00 per annum, with such payments to continue as long as the children remain children of the marriage. When either child ceases to be a child of the marriage as defined by s. 2 of the Divorce Act, the amount of the payments shall be reduced to $419.50 per month until the second child ceases to be a child of the marriage.
d) This order does not preclude a further application for extraordinary expenses pursuant to s. 7 of the Guidelines, if and when the Applicant incurs them.
e) The clerk shall include in the draft order the full names of the Respondent as payor and the Applicant as payee, as well as the names and birthdates of the children as stated in the Application, pursuant to para. 13(a) of the Guidelines. The clerk shall also include a Support Deduction Order and mandatory clauses for administration of payments by the Family Responsibility Office.
f) The Respondent shall, for as long as there are children of the marriage in respect of whom the child support payments are to continue, disclose to the Applicant financial statements prepared by the accountants of Prata Inc. (Delaware Corp. No. 7977562, incorporated May 19, 2020). This disclosure shall be made by email or regular mail on or by June 1 of each and every year until the child support payment obligations in this order cease to apply. The Respondent shall co-operate with any reasonable requests from the Applicant or an accountant retained by her, to obtain clarification of the data contained in the financial statements.
g) The Respondent shall pay the Applicant an amount of equalization of net family property, in the amount of $33,233.90, in four instalments plus interest, as follows:
a. $8,308.48 plus prejudgment interest in the amount of $1,080.10, by March 1, 2023;
b. $8,308.48 plus prejudgment interest in the amount of $1,163.19, by June 1, 2023;
c. $8,308.48 plus prejudgment interest in the amount of $1,246.27, by September 1, 2023; and
d. $8,308.48 plus prejudgment interest in the amount of $1,329.36, by December 1, 2023.
[40] Under rule 24, the successful party is presumed to be entitled to costs. As the parties were not represented by lawyers at the trial, those costs should be limited by the amounts paid to their lawyers when they had lawyers, plus disbursements incurred for items such as the cost of the expert witness. There is no doubt that the Applicant was the successful party. The success of a party is measured by a result placing that person in a better position than prior to the judgment, even if the party may not have been successful in one of the main issues in the claim: Dawit v Kingsway General Insurance Co., [1997] OJ No 2888, 36 OTC 217, 72 ACWS (3d) 1112 36 O.T.C. 217|72 A.C.W.S. (3d) 1112, at para. 26. This is not a situation of a divided result, since the Respondent owed and did not pay the full amount of the agreed-upon equalization payment.
[41] I will leave it to the parties to agree upon a cost payment by the Respondent to the Applicant, based on 60% of the legal fees and HST, plus 100% of all court filing fees paid by the Applicant to her former lawyer in the proceeding. In addition, the Applicant shall be entitled to be indemnified for 100% of her cost of the expert witness, Carlo Viola, once he has submitted his final invoice. If the Respondent does not accept the calculation provided by the Applicant or does not agree that the Applicant is entitled to an award of costs, he may file a written submission to be sent to my attention, not exceeding two pages within fourteen days of the receipt of this decision. The Applicant shall then have seven days to respond to that submission, also limited to two pages. There will be no prejudgment interest on the costs award.
Akazaki, J.
Released: February 3, 2023
COURT FILE NO.: FS-20-18689
DATE: 20230203
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MINNI JAIN
Applicant
– and –
RAJAT JAIN
Respondent
REASONS FOR JUDGMENT
Akazaki, J.
Released: February 03, 2023