COURT FILE NO.: FS-18-258-00 DATE: 2024-02-08

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Ashley May Baxter M. Cupello, for the Applicants Applicants

- and -

David Lawrence Pykari N. Melchiorre, for the Respondents Respondents

HEARD: January 15, 2024, at Thunder Bay, Ontario Madam Justice T. J. Nieckarz

Reasons on Motion

Overview:

[1] The Respondent, Mr. Pykari, seeks to vary interim child and spousal support orders. Specifically:

a. his obligation pursuant to paragraph 2 of the Order of Pierce J., dated February 22, 2019 (“February Order”), to pay child support in the amount of $818.00 per month; and

b. his obligation pursuant to paragraph 5 of the Order of Pierce J., dated March 14, 2019 (“March Order”), to pay spousal support in the amount of $600.00 per month.

While his Notice of Motion also seeks property-related relief, Mr. Pykari does not wish to proceed with that request.

[2] Mr. Pykari argues that pursuant to paragraph 7 of the February Order, support was to be varied annually, but the Applicant, Ms. Baxter, has been unreasonable in refusing to do so. Arrears of support in the amount of $55,238.07 have accumulated as of January 1, 2024, and the Family Responsibility Office has undertaken enforcement proceedings. This includes suspension of Mr. Pykari’s driver’s license and passport in 2022. Presumably, this is what prompted the motion to vary.

[3] Mr. Pykari seeks to have child support adjusted annually based on each party’s income commencing 2019, up to and including support to July 2024. With respect to spousal support, he seeks to have it terminated effective the date of commencement of the March Order, or alternatively reduced in accordance with the incomes of the parties.

[4] Ms. Baxter takes the position that the relief being sought by Mr. Pykari is relief properly sought at trial and not on a motion. There are two significant issues identified by Ms. Baxter:

a. What is the income of the parties in light of Mr. Pykari’s business income and arguments that income should be imputed to Ms. Baxter? and

b. Leaving aside issues related to the appropriateness of varying interim/temporary orders, is there sufficient evidence on which the Court can properly determine income and support?

[5] For the reasons that follow, I find that the evidence is insufficient to allow me to properly determine the income of the parties for the purpose of child and spousal support. A determination of the appropriate income for each party given Mr. Pykari’s business and arguments of imputation of income applicable to Ms. Baxter are best left for trial on a more complete evidentiary record. Similarly, the arguments with respect to entitlement of spousal support have already been determined on a temporary basis and should now proceed to trial. The motion is dismissed.

Facts:

[6] The parties began living together in May 2010, were married in December 2013, and separated August 29, 2016. Their relationship was approximately 6 years in duration.

[7] There are two children born of the marriage, who are now 13 years old and 9 years old. The parties share parenting time and decision-making responsibility for the children equally.

[8] I have the impression that the time following the breakdown of the relationship was tumultuous for the parties. While, to their credit, they were able to agree upon an equal time-sharing arrangement for their children, their relationship was fraught with conflict, culminating in criminal harassment and public mischief charges against Mr. Pykari in 2018 that were ultimately withdrawn in favour of a peace bond. The parties currently have little communication.

[9] In 2019 the parties agreed to orders with respect to child support, and spousal support was adjudicated. The most relevant orders are:

a. The February 2019 order, made on consent, provides for child support payable by Mr. Pykari in the amount of $818 per month, calculated on a set-off basis pursuant to s. 9 of the Federal Child Support Guidelines (the “Guidelines”). The order was based on a 2017 income for Mr. Pykari of $84,500 and an imputed annual income to Ms. Baxter of $30,000. The order provided for a recalculation of support annually on July 1st.

The March Order requires Mr. Pykari to pay spousal support in the amount of $600 per month commencing March 1, 2019.

[10] Mr. Pykari is the President and sole shareholder of 2262649 Ontario Ltd., carrying on business as DP Diamond Blades. This is how he earns his living, and it is his sole source of income. His company services mining exploration, a significant amount of which ceased at the onset of the COVID-19 pandemic. As a result, he argues that his income materially decreased. He also argues that in 2019 his income was impacted by false and derogatory posts made by Ms. Baxter contrary to my order dated January 4, 2019. He further alleges that his inability to drive due to his driver’s license suspension by the Family Responsibility Office has affected his ability to generate income in the business and has also increased his personal expenses due to transportation costs.

[11] Mr. Pykari’s income as reported on his income tax returns is as follows:

a. In 2018, his line 150 income was $70,028.

b. In 2019, his line 150 income was $78,201.

c. In 2020, his line 150 income was $53,616 ($45,000 employment income, $10,000 CERB income, and ($1,397) net rental income)

d. In 2021, his line 150 income was $50,514.

e. In 2022, his line 150 income was $66,731.

[12] Mr. Pykari states that he has been financially unable to comply with the current child support order of $818.00 per month, and instead has paid $400.00 per month.

[13] He is also responsible for paying all expenses related to the matrimonial home, in which he is living. The parties still have not dealt with the home 7 years post-separation. Mr. Baxter’s evidence suggests that there are almost $20,000 in arrears of property taxes owing against the home.

[14] Mr. Pykari has re-partnered, and his partner is employed by the business, as are other arms-length third parties.

[15] The corporate net income before and after taxes (respectively) for DP Blades is as follows:

Year ended October 31, 2018 $8,800 [$ 7,018] Year ended October 31, 2019 $(61,641) –[$(54,110)] – net loss Year ended October 31, 2020 $35,296 [$ 32,172] Year ended October 31, 2021 $253,482 [$222,506]

There is no evidence before me of any income information for the corporation beyond the year ended October 31, 2021.

[16] Ms. Baxter operated an eyelash business until September 2021, when she states she was forced to close the business due to the impact on personal services from the COVID-19 pandemic. She then took a permanent part-time position with her current employer at Rocky Bay Child & Family Services.

[17] Ms. Baxter’s income as reported on her income tax returns is as follows:

a. In 2018, her line 150 income was $18,037 (net business income)

b. In 2019, her line 150 income was $39,519 – this comprised $4,273 in taxable support payments, $15,105 in RRSP income, and $20,141 in net business income

c. In 2020, her line 150 income was $24,421 (RRSP withdrawal of $15,929.48 and taxable support of $692) line 150 income without support is $23,729 (including RRSP)

d. In 2021, her line 150 income was $17,345 - in addition to tax exempt income of $26,144

e. In 2022, her line 150 income was $0 – tax exempt income was $38,201.

[18] This motion to vary was brought October 11, 2022. Ms. Baxter had to change lawyers twice due to circumstances beyond her control, but beyond that I am uncertain as to the reason for the delay. Mr. Pykari relies on his affidavits sworn October 11, 2022, and December 12, 2022, and his Financial Statement, sworn November 21, 2023. Ms. Baxter relies on her affidavits sworn December 6, 2022, and January 11, 2024, and her Financial Statement, sworn January 18, 2023. Both parties were cross-examined on their affidavits and financial statements and have some outstanding undertakings. The Transcript of Ms. Baxter’s cross-examination was uploaded to Caselines but not referred to by either party, whereas the Transcript of Mr. Pykari’s cross-examination was not. Ms. Baxter gave oral evidence to admit documents Mr. Pykari’s counsel sought to rely on, but that were not attached to an affidavit or were not exhibits on Ms. Baxter’s cross-examination.

Analysis:

[19] Based on the actual incomes of the parties as reported for tax purposes, including Ms. Baxter’s disclosed non-taxable income from employment, Mr. Pykari argues that child support should have been as follows:

a. July 1, 2019 – July 1, 2020 $803 or $608 if $30,000 is imputed to Ms. Baxter

b. July 1, 2020 – July 1, 2021 $594

c. July 1, 2021 – July 1, 2022 $449 or $358 if $30,000 is imputed to Ms. Baxter

d. July 1, 2022 – July 1, 2023 $73

e. July 1, 2023 – July 1, 2024 $424

[20] Ms. Baxter argues that any adjustment to child or spousal support should be left to trial on the basis of a complete evidentiary record. Income disclosure is outstanding from Mr. Pykari and if, for example, Ms. Baxter’s arguments with respect to determining income for support based on 3-year average, and with respect to income that should be imputed back to Mr. Pykari are accepted by a trial judge, then there will be no retroactive reduction. In fact, Mr. Pykari may owe even more.

[21] Consideration of the arguments of the parties requires an analysis of each of their incomes. The parties, to date, have approached child support on the basis of set-off, which I appreciate is not always appropriate.

Mr. Pykari’s Income:

[22] Based on the evidentiary record before me, it is impossible to determine an appropriate income for Mr. Pykari for the following reasons:

a. The primary issue is whether Mr. Pykari is drawing a proper income from his company. In 2018 and 2019 the corporation either barely broke even or incurred a significant loss. A review of the financial statements for those years notes a slight dip in revenue in 2019, but an increase in overall salaries. Legal fees are substantial in 2019, without any explanation, but other than a small increase in the due to shareholder account in 2018, there is nothing untoward revealed in the financial statements.

In 2020, however, the corporation generated a net income of $32,172 after payment of all expenses, including Mr. Pykari’s income. More significantly, in 2021 the corporation’s sales skyrocketed due to diversification. The corporation enjoyed net after-tax income of $222,506. I do not know what the net income for 2022 or 2023 is.

When asked to explain why Mr. Pykari could not pay himself more in those years for which the corporation had a significant net income, two explanations were provided:

i. Mr. Pykari diversified his business and needed capital to do it; and

ii. Mr. Pykari is attempting to rebuild the value of the business that was loss during the years of the relationship.

It is difficult to accept either of these explanations. Firstly, there is no evidence as to what the capital or other requirements were as a result of diversification of the business that necessitated Mr. Pykari keeping $222,506 of income in the business, while only paying himself $55,605. Mr. Pykari does not provide evidence as to banking or other requirements that necessitated the significant reduction in his income while the corporation made a sizable profit. Based on the evidence before me, I find that Mr. Pykari could have easily earned the income on which the February and March orders were made, and possibly more. Given this and given the lack of disclosure of corporate net income for 2022 and 2023, I cannot make support orders for 2021, 2022, 2023, and 2024 based on the evidence before me.

Mr. Pykari has provided evidence that the overall value of his business declined during the marriage period. His counsel argues that the significant net income earned by the corporation was also required to remain in the business to rebuild lost equity. Without any further evidence as to the necessity of this, this strikes me as irrelevant to support. Mr. Pykari’s desire to leave money in the business to rebuild the value lost during the marriage cannot come at the expense of his support obligation. Based on the evidence before me, this is not a legally tenable argument on either a temporary or final basis.

b. Mr. Pykari’s partner earns an income from the business. Mr. Pykari states she is paid only what she earns. Ms. Baxter says she was paid an income as part of an income-splitting strategy during the relationship. She suspects the same is true of Ms. Wawia. The issue is whether the income paid to Ms. Wawia should be imputed to Mr. Pykari. Her income from the corporation was as follows:

2018 $ 4,000 2019 $13,000.97 2020 $ none noted 2021 $ 7,970.35 2022 $ 8,470.60

Further evidence will be required as to Ms. Wawia’s role and income to determine whether all or part of her income should be imputed to Mr. Baxter. While the income is not significant, and in my view the bigger issue is the retention of a significant net income in the business for 2021 and possibly onwards, the attribution of Ms. Wawia’s income for 2019 (for example), if appropriate, could result in Mr. Pykari having a higher income than the 2019 orders were based on. This is an issue for trial that requires a determination based on a complete evidentiary record.

c. Other than what has been identified, there are no significant issues with the corporate financial statements. There are no significant amounts on account of due to shareholder loans or expenses that appear to be problematic.

d. Mr. Pykari’s net income is reduced in some years by net rental losses. Whether these losses are reasonable for child support purposes, or whether Mr. Pykari is attempting to build equity again at the expense of his support obligation is an issue to be tried with respect to 2018-2021.

e. There are small amounts of gross business income, with little net income, on account of a sole proprietorship. In my view, these amounts are negligible, and while the parties may be best served focusing on the corporate income issues, it could make a difference when combined with all other issues raised. Nonetheless, it is an issue for trial. I do not have sufficient evidence to make any findings at this point.

Ms. Baxter’s Income:

[23] While Mr. Pykari’s income is the more difficult issue, Ms. Baxter’s income must be examined also given the shared parenting arrangements for the children and spousal support claim.

[24] Mr. Pykari argues that Ms. Baxter’s income should be imputed as follows:

2018 to 2021 the highest of $30,000 (imputed per current order for child support) or current income 2022 $50,000 (tax free with further gross up for non-tax)

[25] There is no doubt that Ms. Baxter’s income has improved over what it was at the time of the February and March orders. Exactly what her income is given the questions raised by Mr. Pykari, and whether additional income should be imputed to her are difficult questions to answer based on the evidentiary record before me.

[26] For the purpose of this motion, I would have had no difficulty accepting the highest of either $30,000 or Ms. Baxter’s actual income. There is insufficient evidence for me to impute an income of $50,000. This does not mean I may not be inclined to impute additional income to Ms. Baxter at trial if the evidence supports such a conclusion. I simply do not have sufficient evidence on this motion to do so.

[27] Mr. Pykari argues that income should be imputed on the basis that Ms. Baxter is intentionally under-employed, is exempt from paying federal or provincial tax, and had property that could have reasonably been utilized to generate income. He relies on s. 19 of the Guidelines.

[28] For support purposes, the non-taxable nature of much of Ms. Baxter’s income must be taken into consideration. I do not disagree with Mr. Pykari on this point.

[29] With respect to the utilization of property to generate income, Mr. Pykari argues that Ms. Baxter should have reported rental income derived from a home owned by her at 213 Dease Street. Mr. Pykari says that he believes this property was rented out by Ms. Baxter but not reported as income between 2021 when she moved out, until 2023 when it sold. If it was not rented out and was left vacant for these years, then income should be imputed as it is unreasonable, particularly in a market when rental accommodations are in demand, to leave a property vacant. I do not have sufficient evidence to impute or to know how much to impute. Mr. Pykari’s own rental ran at a loss for most of the years in question.

[30] With respect to intentional under-employment, Mr. Pykari argues that Ms. Baxter has the ability to work full-time but refuses to do so. He argues that if she did work full-time, she would be earning more than $69,000 annually on a tax-free basis. I do not know how this number was arrived at. Instead, he argues that she continues to pursue her esthetician work “under the table”, from which she earns cash income that has not been disclosed. This is in addition to part-time work for Rocky Bay as a transitional care home worker. Mr. Pykari does not know Ms. Baxter’s income from her eyelash business as he says this undertaking has yet to be satisfied. He also claims she has considerable means as a result of inheritance monies received. Particulars are the subject of an outstanding undertaking. Mr. Pykari argues that Ms. Baxter is intentionally under-employed, and overall is in a significantly better financial position than he is. This may or may not be the case, but the evidence before me on this motion does not allow me to draw the inferences Mr. Pykari seeks.

Spousal Support:

[31] Mr. Pykari seeks to re-litigate the issue of entitlement. He argues that there is no entitlement on either a compensatory or needs basis. He further argues that given the actual reported incomes of the parties for the period in question, the Spousal Support Advisory Guidelines suggests that for most years no support is payable based on the low or mid-range, and nominal support is payable based on the high-end of the range. His request is to terminate support retroactively to March 1, 2019.

[32] Based on the evidentiary record before me, I am satisfied that there is a prima facie entitlement to spousal support on a compensatory basis. Ms. Baxter’s evidence is that her education in nursing ceased when she became pregnant with the parties’ first child. She then became a stay-at-home mother. Her income during the relationship was largely from her eyelash business and income splitting with Mr. Pykari.

[33] Mr. Pykari argues that it is Ms. Baxter’s onus to establish her ongoing entitlement to support. The parties separated in 2016 and responsibility for the care of the children since that time has been shared. He argues there is no longer a need or ability to pay, and any compensatory claim that Ms. Baxter may have had for support has been fulfilled through support over the past six years (which remains unpaid and is inconsistent with an argument that seeks a retroactive adjustment to the commencement date of the interim support order). Ms. Baxter herself says in her December 6, 2022, affidavit that she is looking for spousal support equal to at least half of the time the parties cohabited, which she says was a total of 106 months. If Mr. Pykari had paid his spousal support throughout the period in question, he might have satisfied what Ms. Baxter is looking for, but he has not.

[34] What is or is not reasonable for Ms. Baxter to be doing over and above her current part-time income, and what amount of support is sufficient to address possible compensatory or needs based entitlement are issues for the trial judge to determine. Ms. Baxter maintains that she is unable to do anything more than her current employment given that her childcare responsibilities necessitate her being available to pick the children up from school during her parenting weeks. Whether or not this is the case, and the availability and requirements of full-time work for which Ms. Baxter is qualified are not issues I can determine based on the evidence I have before me.

[35] If entitlement is confirmed at trial and quantum remains the sole issue, and if Mr. Pykari is able to prove that no additional income should be imputed to him for the years up until 2021, he may receive some retroactive adjustment for this period. For 2021 onwards, what spousal support should be paid (if anything), remains to be seen given the issues associated with determining Mr. Pykari’s income. Again, this needs to be determined at trial.

Order:

[36] For the foregoing reasons the motion is dismissed, without prejudice to the ability of the parties to advance each of their arguments made on the motion at trial. This case needs to proceed to trial. The delay to date has been lengthy and the parties have confirmed this case is ready for trial. The parties shall schedule a trial management conference forthwith and ensure that they prepare the trial scheduling endorsement forms for completion with the conference judge so that they may be placed on a trial list as soon as possible. With affidavits for evidence-in-chief, subject to cross-examination, and assuming the business valuation report can be entered on consent, this trial should be capable of completion in two to three days.

[37] As an aside, the evidence suggests that there are some charges to Mr. Pykari in the Director’s Statement of Arrears that may have been paid, such as the costs award of $2,500. Hopefully the parties are able to resolve these small issues with FRO directly.

[38] If the parties cannot agree on costs, submissions shall be provided in writing as follows:

a. The claiming party shall deliver their written submissions limited to 5 pages (not including the Bill of Costs, offers to settle, and caselaw), double-spaced, no later than March 8, 2024, failing which costs shall be deemed to be reserved to the trial judge.

b. The responding party shall deliver their submissions, limited to 5 pages, no later than April 5th, 2024.

c. Any reply submissions shall be delivered no later than April 15th, 2024.

“Original signed by” The Honourable Madam Justice T.J. Nieckarz

Released: February 8, 2024