COURT FILE NO.: FC390/20 DATE: October 22, 2024
ONTARIO
SUPERIOR COURT OF JUSTICE
FAMILY COURT
BETWEEN:
Wendy Marilyn Kirwin, Applicant Monique Rae Bennett, for the Applicant
- and -
Christopher Leo Kirwin, Respondent Zachary Wilson, for the Respondent
HEARD: May 13–16, 21–24 and 31, 2024 and September 10, 2024
TOBIN J.
REASONS FOR JUDGMENT: PART 2
Introduction
[1] In the Reasons for Judgment: Part 1, findings were made with respect to issues litigated by the parties. With these findings, it was expected that the parties would be able to calculate retrospective and ongoing support payments as well as the equalization payment and post-equalization adjustments.
[2] The parties were not able to resolve all of their outstanding issues. They appeared before the Court on September 10, 2024 to make further submissions with respect to these unresolved issues.
[3] The issues remaining to be resolved are as follows:
Support issues
- The amount of child support owing by the husband to the wife from March 1, 2019 until August 31, 2024.
- The amount of spousal support owing by the husband to the wife from March 1, 2019 until August 31, 2024.
- The duration of spousal support.
Equalization calculation issues
- The amount of contingent taxes with respect to the disposition of 13907 9 5 Ontario Inc. (“139”).
- The amount of contingent taxes for the parties with respect to the disposition of their cottage.
Post-equalization adjustment issues
- The responsibility of the husband to contribute to paying off the debt owing on the joint National Bank line of credit.
Issue No. 1—Child support owing
[4] The wife claims that the shortfall in child support owed by the husband from March 1, 2019 until August 31, 2024 is $86,974.53.
[5] In his written submissions, the husband calculated the amount due as $76,234.73.
[6] When the parties appeared before the Court, the only difference between their positions was whether child support was payable by the husband to the wife for [M.] during the period of her apprenticeship in the spring and summer of 2021.
[7] The husband argued that no child support should be owed for the period April 2021 to September 2021.
[8] The wife argued that child support was payable during that period.
[9] From April 2021 to September 2021, [M.] was learning how to become a tattoo artist. It was an apprenticeship. It was not until the fall of 2021 that she earned enough money as a tattoo artist to reside on her own.
[10] The child was engaged in making a serious attempt to train so she could become independent. She was unable to withdraw from parental charge during the period in question. Therefore, child support was payable. The husband did pay child support in August 2024 in the amount of $1,263 and is entitled to a credit in this amount.
[11] During argument, the husband conceded that the child support owing to the wife retrospectively was $86,974.73 less the August 2024 payment he made in the amount of $1,263.
[12] Accordingly, the amount of child support owing by the husband to the wife for the period March 2019 to August 2024 is $85,711.73.
Issue No. 2 —Spousal support owing
[13] The wife claims that $112,192.50 is owed to her by the husband on account of spousal support for the period March 1, 2019 until August 31, 2024.
[14] The husband claims that the sum due for this period is the lump sum of $57,753.25.
[15] The difference between the two calculations is the income tax treatment to be accorded to the calculation.
[16] The wife calculated the amount owing of spousal support on the basis that the monthly amounts used to calculate the total would be taxable to her and deductible to the husband. She totaled the support that would be payable in each year as calculated using the DivorceMate software.
[17] The husband calculated the amount owing on the basis that it should be net of tax. He argues that the amount to be paid is a lump sum which is not tax deductible to him nor taxable to the wife. The husband’s amount of spousal support due is calculated as the mid-point between the after-tax cost to him and the after-tax benefit to the wife of receiving spousal support. He too used the DivorceMate software calculations. He relied on the “after-tax cost/benefit of spousal support” calculations provided by the software.
[18] The husband argues that sharing their respective tax benefits and costs is the most equitable way to calculate his lump sum spousal support obligation.
[19] The wife argues that the husband’s analysis does not take into account that she did not have the benefit of the spousal support on a monthly basis, that is, as and when it should have been paid. She acknowledged during argument that some discount to her calculation of $112,192.50 is required. She submitted that the discount rate should be 30% on the authority of Charron v. Carrière, 2016 ONSC 7523.
[20] In Charron, the Court was asked to decide by what amount it should “net down the amount owing by a payor for spousal support payments owing” for prior years. The resolution of this issue depended on which of the parties’ tax rates would be used; the recipient’s, the payor’s, or the mid-point of their respective average tax rate. Neither party had sought a determination of this calculation from the Canada Revenue Agency, as they were entitled to do.
[21] After conducting a comprehensive review of the relevant legislation, caselaw and the Spousal Support Advisory Guidelines (“SSAG”), the Court in Charron determined that the fairest resolution was to use the “mid-point between the parties’ after-tax cost/benefit” (para. 13).
[22] In the case before this Court, the following considerations are relevant.
- The calculation of the amount both parties would have deducted and included in their incomes and the associated tax consequences. These were set out clearly in the DivorceMate calculations provided in submissions.
- The husband has the assets with which to pay the support owed.
- The wife lost the benefit of having spousal support paid to her in a timely manner.
- The husband had the benefit of these funds that should have been paid by him.
- The Court was not provided with the average tax rates of the parties.
- Neither party sought a determination of this calculation from the Canada Revenue Agency.
[23] Based on all these considerations, the balanced approach is the most appropriate way to resolve the issue. The husband’s calculation best achieves that result. It takes into account the after-tax benefit he would have received had the support been deductible. He is not going to receive the entirety of that benefit in this calculation. It also takes into account the after-tax cost to the wife if the support had been taxable to her. She will receive more in the lump sum than she would have received on an after-tax basis had the money been paid on a monthly basis. This provides some compensation for her not having the support on a monthly basis.
[24] The wife’s request for a 30% discount on the amount she calculated is not based on an analysis of the parties’ respective marginal tax rates in each year. The husband’s analysis considers the cost/benefit on a year-by-year basis.
[25] Accordingly, the husband is to pay the wife a lump sum spousal support payment for the period March 1, 2019 to August 31, 2024 in the amount of $57,753.25.
[26] The husband also asks that the amount of spousal support be reviewed annually to take into account any change in his income. He proposes to provide an expert report in this regard.
[27] This process is not necessary in this case. Should the husband’s income change to such an extent that he is of the view that there has been a material change in circumstances, he has the ability, just like any other support payor, to bring a Motion to Change.
[28] In any event, while child support is payable, the child support payor will be required to disclose their income and, if s. 7 expenses are claimed, so will the child support recipient. This information will assist the parties in determining whether to pursue a variation on the basis of there having been a material change in circumstances.
Issue No. 3—What should be the duration of the spousal support order?
[29] In the Reasons for Judgment: Part 1, the wife was found to be entitled to spousal support, both on a compensatory and non-compensatory basis. This entitlement was found to be on a moderate basis and, therefore, having regard to the SSAG, the monthly amount of support was to be in the low to mid-range. In submissions, the parties agreed that the amount of spousal support should be the mid-point between the low and mid values of spousal support calculated under the SSAG.
[30] Paragraph 237 of the Reasons for Judgment: Part 1 stated that subject to receiving submissions from the parties, “the duration of spousal support should be indefinite.”
[31] When the matter was back before the Court, the husband requested an order that his spousal support obligation be “terminated or reviewed de novo when the wife retires or… reaches the age of 60, whichever happens first.”
[32] The husband argues that a termination or review date should be granted because the parties operated their relationship and finances jointly. They operated their finances with the “unspoken intention” of working together for their retirement, which would occur roughly at the same time.
[33] Under the SSAG, indefinite support does not necessarily mean permanent support. It only means that no time limit can be set out at the time the order is made (SSAG, Revised Users Guide (“RUG”) p. 29).
[34] The SSAG (chapter 7(d)) suggests that in the circumstances of this case, where (1) the wife was 49 years of age at the date of separation and (2) the length of marriage was 23.5 years, the with child support formula, provides that the applicable duration is for an indefinite (unspecified) duration.
[35] I find that there is no basis on the evidence to depart from the SSAG. It is not possible to determine whether the wife’s entitlement will end when she retires or attains the age of 60 years. These issues of entitlement and quantum may be dealt with on a variation application when retirement or other relevant circumstances arise (RUG, chapter 17).
[36] The spousal support order shall be for an indefinite period.
Issue No. 4—Net Family Property calculations
What contingent tax liability should be attributed to the parties as at the date of separation with respect to 139?
[37] In the Reasons for Judgment: Part 1, I found that the husband was successful in his claim that he had a one-half proprietary interest in the shares of 139. As the shares in 139 were found to be owned equally by the parties, I acceded to the wife’s submission that the value of 139 should be the amount that is midway between the valuations submitted by the parties: $1,191,000 by the wife, and $772,000 by the husband. The average of the two resulted in 139 being valued at $981,500 for the purpose of calculating the parties’ respective net family property. The value of the parties’ respective interests was therefore $490,750.
[38] As at the date of separation there may be personal tax consequences to the parties upon the distribution of the proceeds of sale of the corporate assets.
[39] The following sections of the Family Law Act, R.S.O. 1990, c. F.3, are relevant in the analysis of determining what these personal tax consequences may be and how they are to be accounted for in the calculation of both parties’ respective net family property:
a) s. 4(1) provides that “the spouses’ debts and other liabilities” are deductions when calculating a spouse’s net family property. b) s. 4(1.1) provides that liabilities referred to in s. 4(1) include “any applicable contingent tax liabilities in respect of the property.” c) s. 4(3) provides that the onus on proving a deduction is on the person claiming it.
[40] These personal tax consequences are referred to as contingent or notional taxes. They are considered to be liabilities. As such, they are considered to be deductions when calculating the spouses’ net family property. Where the payment of these contingent costs will be deferred, the “present value” of these costs may be calculated. It is the present value as at the date of separation that will be the amount of the deduction when calculating the spouses’ net family property.
[41] As at the date of separation, there would be a contingent personal tax liability arising from the distribution of 139’s assets.
[42] At trial, Ms. Poole provided evidence of the wife’s date of separation contingent personal tax liability on the notional disposition of 139’s assets. [^1]
[43] This calculation was based on 139 being valued at $772,000. In the Reasons for Judgment: Part 1, the parties were encouraged to agree on the contingent tax liability for both, based on 139 being valued at $981,500. If they were not able to do so, they were to provide further submissions. As they were unable to do so, this was one of the issues addressed on September 10, 2024.
Correcting the value of 139
[44] Before continuing with the determination of the contingent personal tax liability of the parties, the husband asks that I reconsider the date of separation value of 139.
[45] The husband requests that the calculation used to arrive at the value of 139, being $981,500, be adjusted.
[46] The value of 139, calculated by Mr. Hoare on behalf of the wife and relied upon in Reasons for Judgment: Part 1, did not take into account the “present value” of the notional disposition costs and corporate taxes.
[47] The assets within 139 were not dispersed on the date of separation. This would happen at some undetermined time in the future. Therefore, a “present value” calculation should be considered. Mr. Hoare did provide a “present value” calculation of these notional disposition costs and taxes in his report. This resulted in Mr. Hoare valuing 139 on the date of separation at $1,231,000.
[48] I agree with the husband that this is the value ($1,231,000) that should be considered in determining the value of 139 for the purpose of determining the value of the parties’ respective interest in 139 at the date of separation. This would be consistent with the analysis provided by Ms. Poole in her valuation report.
[49] Based on this valuation of 139, the average of Mr. Hoare’s and Ms. Poole’s valuations is $1,001,500. The value of 139, therefore, to be included in both parties’ net family property calculations is $500,750. This amendment will not affect the equalization calculation. However, this is the more accurate value based upon the evidence and submissions made by the parties. As well, this amendment will not affect the notional personal tax consequences to the parties for the reasons set out below.
The notional personal tax consequences
Wife’s position
[50] The wife’s position is that the total contingent tax liability to the parties on the windup of 139 as at the date of separation was $127,595 based on its value being $981,500. This calculation is based on a tax rate of 13% ($127,595 / $981,500). The wife also proposes that this liability be divided equally between the parties. Therefore, she asks that one half of 13% of the value of 139 be included in both parties’ respective net family property calculations as part of contingent debts due on the date of separation.
[51] The wife also argues that because the parties should have the same contingent tax liability, the actual amount included in the NFP statement and equalization calculation will not matter because nothing will be gained nor lost.
[52] In her oral submissions made on September 10, 2024, the wife argued that the contingent tax liability with respect to 139 was $63,797 for both parties. As stated above, this calculation is based on a 13% tax rate being calculated on the value of 139 being $981,500.
[53] When reviewing the wife’s submissions, I was not able to find the evidence given at trial to support this claim. By endorsement dated September 23, 2024, counsel were asked to provide clarifying submissions with specific reference to the evidence. In short, what is the basis of the submission that a 13% tax rate should be used to calculate this contingent debt?
[54] The wife provided written submissions on September 30, 2024 explaining how she arrived at a 13% notional contingent tax liability. She relies upon and accepts the husband’s calculation of the notional or contingent corporate tax liability and disposition costs. In his net family property calculation [^2], the husband states that the “present value” of notional disposition costs and corporate income taxes should be $134,829. This amount is 13% of 139’s fair market value of $1,396,244, which was the fair market value determined by Mr. Hoare.
[55] The problem with this analysis is that it conflates calculations related to the disposition costs and tax consequences to the corporation, with those of the personal tax consequences to the parties. These are two discrete concepts. One relates to costs borne by the corporation and the other by the parties themselves. The wife relies on the contingent costs to the corporation to determine the contingent costs to the parties themselves. She did not provide authority for the proposition that the two calculations should be the same.
Husband’s position
[56] The husband relies upon the September 4, 2024 report of Ms. Poole in support of his request that the contingent personal tax liability to the parties should be $25,126 for the wife and $82,799 for the husband. These calculations are based upon 139 being held equally and valued at $981,500 as at the date of separation.
[57] The problem with relying on the September 4, 2024 report is that it was not given in evidence at the trial. This is understandable as the value of 139 was not determined until the Reasons for Judgment: Part 1 were released.
[58] The wife objected to the Court considering Ms. Poole’s September 4, 2024 report.
[59] I find that this report is not properly before the Court as evidence in this trial. The husband did not ask to reopen the trial so that he could call Ms. Poole to give further evidence. The wife was not provided with an opportunity to test this evidence or obtain her own report in response. Allowing the husband to rely on this report would not be consistent with ensuring the trial procedure was fair to all parties. [^3]
[60] A comparable situation occurred during the trial. Ms. Poole prepared a valuation report for the husband, detailing his contingent tax liability on the notional disposition of his interest in four corporations. This report was dated February 28, 2019. [^4] Mr. Hoare prepared a similar report dated May 23, 2024. This report was provided to counsel for the husband after Mr. Hoare had testified. This report was not tested on cross-examination. I did not rely on Mr. Hoare’s report in those circumstances.
Conclusion
[61] For the reasons set out above, I am not persuaded by the wife’s argument that the contingent personal tax rate should be 13%. As well, I am not able to rely upon Ms. Poole’s September 4, 2024 report.
[62] Consequently, neither party has met their onus of proving the value of their personal contingent tax liability in relation to 139.
Issue No. 5—What contingent tax liability should be attributed to the parties at the date of separation with respect to their jointly owned cottage?
[63] At para. 129 of the Reasons for Judgment: Part 1, I found that the wife’s capital gains owing on the sale of her one-half interest in the parties’ cottage was $140,154.97. The wife provided evidence and made submissions in support of this request. The husband made no submissions to the contrary.
[64] At trial, the husband did not argue that he was entitled to a deduction for the contingent taxes associated with the cottage. [^5] The husband now wants to rely upon Ms. Poole’s report of September 4, 2024 in support of his claim for the contingent taxes attributable to the parties’ respective ownership of their cottage.
[65] While I have no doubt that on the date of separation, the husband and the wife both had a contingent tax liability on account of the eventual sale of the cottage, I cannot rely upon the report of Ms. Poole dated September 4, 2024 for the reasons set out above. The husband provided no other evidence in respect of this issue. Consequently, the husband has not met his onus in establishing his entitlement to a deduction on account of contingent tax liability in respect of the cottage.
Issue No. 6—Post-equalization adjustment: the National Bank line of credit
[66] The parties were joint debtors on a line of credit extended to them by National Bank. This line of credit was secured by a mortgage registered on title to 1117.
[67] In the Reasons for Judgment: Part 1, I found that the debt was a joint one and responsibility for it should be shared equally (para. 133).
[68] The wife paid this debt in full on the closing of the sale of 1117. The particulars of the sale of 1117 were not put in evidence as the closing occurred after the evidence portion of the trial concluded. However, the fact of the sale and the line of credit being paid by the wife was acknowledged by the husband. These are admitted facts I can rely upon in this trial.
[69] The wife requests that she be granted a post-equalization adjustment in the amount of the debt she paid on behalf of the husband.
[70] The husband argues that if he is responsible for reimbursing the wife for one half of the line of credit, then “the proper approach would be to change each party’s NFP calculation so that on the valuation date, the amount is noted as owing by the husband to the wife, which makes it an asset to the wife and a debt to the husband.” This would reduce his net family property and increase hers. The husband does not want the wife to “double dip” on account of this debt.
[71] With respect, I am not persuaded by the husband’s argument.
[72] On the date of separation, both parties were equally indebted to the National Bank on account of this line of credit.
[73] On the day the sale of 1117 was completed, the parties were still jointly indebted to the National Bank on account of this line of credit.
[74] On the day the sale of 1117 was completed, the wife paid her share of the debt as well as the husband’s share to the National Bank.
[75] The husband owes the wife one half of the debt she paid off for his benefit. This post-equalization adjustment was not an asset to the wife on the date of separation nor a debt to the husband. The wife’s request is simply that the husband repay her for paying a debt on his behalf. This is not a case of double dipping.
[76] One half of the monies paid by the wife to retire the National Bank line of credit should be paid by the husband to her as a post-equalization adjustment. I have not included the amount as it is not properly in evidence. The wife in her submissions claims the amount is $151,681.83.
[77] If the husband does not agree with this amount, I may be spoken to as arranged by the parties through the Trial Coordination Office to determine this issue.
Calculation of the equalization payment and post-equalization adjustments
[78] Attached to these reasons as Appendix “A” is the equalization calculation based on the findings made. As most components of the calculation had been agreed to by the parties or determined in Reasons for Judgment: Part 1, I relied upon the net family property statement provided by the wife in her written submissions for the September 10, 2024 hearing. This document was consistent with the comparative NFP prepared by the respondent for use that day. Details of the parties’ assets and debts were redacted to ensure their privacy.
[79] I determined that the applicant owes the respondent an equalization payment of $438,562.79.
[80] The following are the post equalization adjustments:
- Wife is to pay husband for household contents: $3,757.
- Husband is to pay wife, a) for cottage contents: $28,750; b) National Bank line of credit payments made: $11,539; and c) repairing and staging the cottage: $14,407.50.
[81] In addition, the husband owes the wife one half of the amount she paid to retire the National Bank line of credit.
Order
[82] For these reasons, the following order shall issue:
- A Divorce Order is granted.
Child Support
- Commencing on the first day of September 2024 and on the first day of each month thereafter, the Respondent shall pay to the Applicant Table child support for the child, [J.], born [MM DD], 2006, in the amount of $2,185 based upon the Respondent’s annual income for child support purposes in the amount of $273,000.
- Commencing on the first day of September 2024 and on the first day of each month thereafter, the Applicant shall pay to the Respondent Table child support for the child, [P.], born [MM DD], 1999, in the amount of $923 based upon the Applicant’s annual income for child support purposes in the amount of $101,579.
- For section 7 expenses, the prospective proportionate sharing percentages of the parties will be for the Applicant 27% and for the Respondent 73%.
- The Respondent shall pay to the Applicant a lump sum of $74,190.24 on account of retroactive and retrospective child support for the period March 1, 2019 until August 31, 2024. This amount is based upon the following: a) The net amount of child support owing by the Respondent to the Applicant after accounting for child support due from one to the other less amounts paid—$86,974.73; b) The Respondent is to be credited with insured expenses paid by him but reimbursed to the Applicant—$11,521.49; and c) The Respondent is to be credited with child support paid by him in August 2024—$1,263.
Spousal Support
- Commencing on the first day of September 2024 and on the first day of each month thereafter, the Respondent shall pay to the Applicant spousal support in the amount of $2,458 based upon: a) the Respondent’s income for support purposes of $273,000; b) the Applicant’s income for support purposes being $101,579; and c) the mid-point between the low and midrange of spousal support calculated under the Spousal Support Advisory Guidelines.
- The Respondent shall pay to the Applicant on account of retroactive and retrospective spousal support a lump sum that is not tax deductible by him nor taxable to the Applicant for the period March 1, 2019 to August 31, 2024 in the amount of $57,753.25.
Property
- The Applicant shall pay to the Respondent an equalization payment of $438,562.79.
- The Applicant shall pay to the Respondent a post-equalization adjustment for household contents of $3,757.
- The Respondent shall pay to the Applicant post-equalization adjustments for the following: a) cottage contents: $28,750; b) National Bank line of credit payments made: $11,539; c) repairing and staging the cottage: $14,407.50;
- The Respondent shall pay to the Applicant one half of the amount she paid to National Bank of Canada to retire the line of credit #7059490.
- The assets of 13907 9 5 Ontario Inc. (“139”) shall be sold and the net proceeds divided equally between the parties. As the Applicant is the sole director and shareholder of this corporation, she shall be authorized to take the reasonable steps necessary to wind up 139, including engaging third parties to provide needed services. The Applicant may also claim management fees for her efforts to wind up the corporation in the same manner the Respondent did post-separation.
- The retrospective and retroactive child support and spousal support owed by the Respondent to the Applicant shall be set off against the equalization payment as adjusted by the post-equalization adjustments owing by the Applicant to the Respondent.
[83] If the parties wish to make submissions regarding prejudgment interest and costs, they are to be limited to three pages for prejudgment interest and five pages for costs. These submissions shall be double-spaced, in 12-point font, together with a Bill of Costs and any Offers to Settle. The Applicant is to provide her submissions within ten (10) days of the release of these reasons and the Respondent within ten (10) days after being served with the Applicant’s submissions.
[84] The parties have the option of filing their costs and prejudgment interest submissions through the JSO portal or to London.courthouse@ontario.ca
[85] If submissions are not filed in accordance with this timeline, the issues shall be deemed settled and no order shall issue.
[86] If I made any arithmetic errors in calculating the equalization payments or adjustments, or if an order is required with respect to the dispersal of funds now held in trust in connection with the sale of the cottage property, 1117 and 139, I may be spoken to as arranged by counsel through the Trial Coordination Office.
“Justice B. Tobin”
Released: October 22, 2024
SCHEDULE A – EQUALIZATION CALCULATION
A. VALUE OF ASSETS OWNED ON VALUATION DATE
WIFE HUSBAND
Land
1117 $1,600,000.00
Cottage – post-separation sale price: $1,800,100.00 (net $854,369.87 each)
$854,369.87 $854,369.87
Household Contents & Vehicles $68,262.50 $44,407.50
Bank Accounts & Savings, Securities & Pensions (net of taxes)
$433,000.15 $79,860.32
Business Interests
“139” $500,750.00 $500,750.00
“266” $0.00
“KRS” $866,000.00
“186” $108,900.00
“JACK” $243,600.00
“GOFORIT” $5,857.50 $5,857.50
TOTAL ASSETS AT VALUATION DATE: $3,462,240.02 $2,703,745.19
B. DEBTS AT VALUATION DATE
National Bank Line of Credit $159,828.98 $159,828.98
Visa $1,713.30
Mastercard $7,858.60
Car Loan $37,941.98
CRA $27,306.60
Shareholder Loans
“JACK” $2,438.40
“KRS” $9,633.00
Contingent Taxes
“JACK” $36,523.00
“186”, KRS, “266” “139” . (not proved)
Cottage: Wife – based on actual sale price (as at date of sale)
Husband – not proved $140,154.97 $222,272.00
TOTAL DEBTS AT VALUATION DATE: $345,784.53 $459,715.28
C. PROPERTY, DEBTS AND OTHER LIABILITIES AT DATE OF MARRIAGE
Vehicles, Savings, Securities, Pensions $3,500.00 $8,200.00
TOTAL PROPERTY / DEBTS AT DATE OF MARRIAGE:
$3,500.00 $8,200.00
NET FAMILY PROPERTY (A-(B+C)) : $3,112,955.49 $2,235,829.91
$2,235,829.91 $877,125.58 ÷2
EQUALIZATION PAYMENT DUE – WIFE TO HUSBAND:
$438,562.79
Footnotes
[^1]: Exhibit 46. [^2]: Exhibit 18, page B-615. [^3]: See Family Law Rules, O Reg 114/99, rr. 2(2)(a), 20.2. [^4]: See Exhibit 46. [^5]: See Exhibit 18—Husband’s comparative net family property calculations.