COURT OF APPEAL FOR ONTARIO
CITATION: Korman v. Korman, 2015 ONCA 578
DATE: 20150821
DOCKET: C59141
Feldman, Cronk and Huscroft JJ.A.
BETWEEN
Isaac Michael Korman
Applicant (Appellant)
and
Susan Korman
Respondent (Respondent)
Peter I. Waldmann and Matthew J. Armstrong, for the appellant
Evelyn K. Rayson and Diana L. Solomon, for the respondent
Heard: May 7, 2015
On appeal from the judgment of Justice Clifford S. Nelson of the Superior Court of Justice, Family Court Branch, dated June 23, 2014.
Cronk J.A.:
I. Introduction
[1] The appellant, Isaac Michael Korman (the “Husband”), and the respondent, Susan Korman (the “Wife”), married in 1988 and separated in 2009. There are two children of the marriage: J., now approximately 22 years of age, and Je., soon to be 17 years of age.
[2] In January 2010, the Husband applied for a divorce under the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) and for various relief under the Family Law Act, R.S.O. 1990, c. F. 3 (the “Act”). After an eight-day trial, the trial judge granted the parties a divorce. He also ordered the matrimonial home to be sold, the Wife to pay an equalization payment in favour of the Husband, and the Husband to pay child and spousal support, as well as part of Je.’s private secondary school education costs.
[3] The Husband appeals from three aspects of the trial judgment: i) the trial judge’s finding that the Husband gifted his interest in the matrimonial home to the Wife when the parties purchased the property; ii) the trial judge’s imputation of income to the Husband based on money and dividends that one or both of his parents had previously gifted or allocated to him; and iii) the trial judge’s treatment of Je.’s private secondary school fees as a s. 7 extraordinary expense under the Federal Child Support Guidelines, SOR/97-175 (the “Federal Guidelines”). As these are the only issues on appeal, I will address only those facts pertinent to them.
II. Background Facts
(1) Matrimonial Home
[4] At the date of separation, the parties resided with their children at a house on Marinucci Court in Richmond Hill, Ontario (the “Matrimonial Home”). They had acquired this home in July 2002 for approximately $560,000. They paid the purchase price in full, using proceeds from the sale of their jointly–owned first matrimonial home in Aurora, Ontario, funds gifted to them by their parents – $150,000 from the Husband’s parents and $50,000 from the Wife’s parents – and accumulated joint savings. The property was thus mortgage-free’ from the time of purchase.
[5] Title to the Matrimonial Home was placed solely in the Wife’s name. The legal consequence of this arrangement is a principal issue on this appeal.
[6] When the parties purchased the Matrimonial Home in 2002, the Husband was working as an investment advisor. In August of that year, he received a letter of caution from the Investment Dealers Association of Canada in respect of a client complaint. Some seven years earlier, the Husband had made an error in authorizing a client transaction, prompting him to leave the firm at which he was then working to obtain new employment.
[7] At trial, the Wife maintained that the parties had placed title to the Matrimonial Home in her name alone to protect it from potential claims by creditors arising out of the Husband’s employment. She argued that, since she was the sole registered owner of the Matrimonial Home, she alone was entitled to any post-separation increase in its value.
[8] The Husband resisted this claim. He maintained that he never intended to gift his interest in the Matrimonial Home to the Wife; that the Wife insisted that title to the Matrimonial Home be put in her name alone to protect it from potential creditors; and that he loved and trusted the Wife and wanted to make her happy and therefore simply acquiesced to her demand, without considering any potential legal consequence of so doing, even though he was not concerned about creditors. Based on principles of constructive and resulting trust, as well as unjust enrichment, the Husband argued that he was entitled not only to an equal share in the value of the Matrimonial Home on the date of separation (“V-Day”) but also to an equal share in any post-separation increase in the property’s value.
[9] The trial judge found that the Matrimonial Home had a value of $725,000 on V-Day and $940,000 by April 2013. By the time of trial, it was “likely worth more”: at para. 49.
[10] The trial judge concluded that, while the Husband was entitled to share in the value of the Matrimonial Home at V-Day by reason of the equalization provisions of the Act, the Wife “through ownership … benefits in any increase in value of the [Matrimonial Home] as and from [V-Day]”: at para. 67. He reasoned as follows, at paras. 65-67:
When the [Husband] transferred the entire house to the [Wife] he did so because he loved her. There were no strings attached to this gift. I also find that the house was put into the [Wife’s] name to protect it from potential creditors so that the [Husband] could, at some time in the future, if necessary, protect “family” assets from third party creditors.
The equalization provisions of the [Act] give the [Husband] the protection afforded by our laws in the sense that these provisions will give him his lawful share in the rise in value of the property up to and including the date of separation. While he may have made further contributions to the running costs of the property after the date of separation, those contributions, which were not categorized, nor proved, would fall into the category of support payments belonging to the [Wife].
The concept of constructive trust survives the equalization process set out in the [Act], it seems to me that it would be the rare case where it should be applied to prevent a clear injustice not cured by the usual equalization scheme.
(2) Income Imputation to the Husband
[11] Neither Je.’s entitlement to ongoing child support nor the Wife’s entitlement to spousal support was seriously contested at trial. The parties were divided, however, on the questions of retroactive child support for both children of the marriage and the quantum of retroactive and ongoing spousal support.
[12] To resolve the contested aspects of child and spousal support, the trial judge had to determine the parties’ respective incomes. He made the following pertinent findings:
1) “[w]hile the [Wife] does have some employment skills and worked from time-to-time during the marriage, she mainly stayed home to raise the children while the [Husband] was the family breadwinner”: at para. 90;
2) during the marriage, the Husband’s parents assisted the parties financially in many ways. This assistance included: i) gifts to the Husband from his father in the aggregate amount of $590,000 to start two businesses, both of which ultimately failed: at paras. 95-97; ii) a gift to the Husband from his mother, Ruth Korman, after the date of separation, in the sum of $14,000 to invest in another corporate venture: at para. 99; iii) gifts from Ruth Korman to pay for or assist with camp and private school expenses for the children of the marriage: at para. 100; and iv) funds from Ruth Korman to assist the Husband with his costs of the matrimonial litigation: at para. 99;
3) the financial assistance from the Husband’s parents also took the form of dividend income allocated to the Husband and his three sisters by Gleedah Investments (“Gleedah”), a corporation controlled by Ruth Korman. This dividend distribution scheme was effected to reduce Ruth Korman’s annual income tax liability. Neither the Husband nor his siblings actually received the allocated dividends: at paras. 112-18;
4) over the years, the Husband and his family “benefitted greatly from the funds he received from his parents”. Historically, the parties incurred significant family expenses based on the Husband’s anticipated receipt of funds from his parents: at para. 122;
5) prior to 2008, the Husband earned significant employment income. However, commencing in 2008, his income suffered a significant decline due to market reversals and the general downturn in the economy. His reported income from all sources (including allocated dividend income) was $145,469.10 in 2010, $138,447.30 in 2011 and $120,659.80 in 2012: at paras. 106-07;
6) by consent orders dated August 30, 2010 and September 12, 2012, the Husband agreed to pay temporary child support for both children in the amount of $1,644 per month and spousal support in the amount of $2,120 per month based on a disputed annual income of $120,000: at paras. 93, 129 and 193;
7) over time, the Husband fell seriously in arrears of the consent support orders: at para. 93;
8) based on the family’s history, gifts to the Husband by way of dividend income “will likely continue to flow to [him] for the rest of his life” and “funds will continue to be given to the [Husband] by his mother, whether by gift or through some other tax-friendly plan”: at paras. 123 and 126; and
9) the Husband “has always received money from his parents and will likely continue to receive them [sic] from his mother”: at para. 126.
[13] Based on these findings, the trial judge imputed annual income to the Husband in the amount of $120,000: at para. 129. As I will discuss later in these reasons, the Husband attacks this income imputation on several grounds.
[14] The trial judge also imputed annual income to the Wife in the amount of $20,000 until January 1, 2015 and $25,000 thereafter: at para. 146. The Husband does not challenge this income imputation to the Wife.
(3) Private Secondary School Fees
[15] Je. was almost 16 years old at the time of the trial judgment and continues to be dependent on the parties for her support. She has attended private parochial schools for her entire life. By the date of judgment, about two years remained for the completion of her secondary education.
[16] By contrast, at the time of judgment, J. was 21 years of age and independent. There was and is no issue regarding ongoing child support for J.
[17] On the trial judge’s findings, one of the pressure points in the parties’ marriage was the cost of the children’s private religious schooling. With the advent of the global economic recession in 2008, the parties’ differences regarding the costs of private school tuition and related expenses intensified. The Husband urged public school placements for the children. The Wife refused.
[18] At trial, the Husband maintained that he was unable to pay for private schooling for Je.; that the children’s grandmother (Ruth Korman) had underwritten the cost of the children’s private education in the past in the exercise of her discretion; and that her future payment of such expenses was uncertain. The Husband argued that, in these circumstances, the costs of Je.’s private secondary school education were not a proper s. 7 extraordinary expense under the Federal Guidelines and that the parties could not afford to continue to pay these costs.
[19] The trial judge disagreed. He held that, given the annual incomes he had imputed to both parties, the parties’ commitment to Je. regarding her schooling and her life-long attendance at private schools, the costs of Je.’s continued attendance at private school for the completion of her high school education were a proper s. 7 expense: at paras. 152-53. He directed that the Husband pay 66.6% of Je.’s remaining private secondary school costs, including incidental expenses directly related to her education: at para. 205.
III. Issues
[20] There are three issues:
1) Did the trial judge err in finding that the Husband gifted his interest in the Matrimonial Home to the Wife in 2002, when the parties acquired the property?
2) Did the trial judge err in imputing income to the Husband based on gifts that one or both of his parents had given to him and on dividend income allocated to him?
3) Did the trial judge err in treating Je.’s private secondary school fees as a s. 7 extraordinary expense under the Federal Guidelines?
IV. Analysis
(1) Matrimonial Home
[21] The Wife accepts that the Husband is entitled to an equal share in the value of the Matrimonial Home on V-Day. The dispute between the parties concerns the narrow question whether the Husband is also entitled to an equal share in any post-separation increase in the value of the Matrimonial Home, the amount of which has yet to be determined.
[22] The trial judge rejected the Husband’s claim to an equal share in any post-separation increase in the value of the Matrimonial Home on three bases:
1) he viewed the Husband’s claim as inconsistent with the objective of placing the Matrimonial Home beyond the reach of creditors. He found that, when the property was acquired in 2002, the Husband unconditionally gifted his interest in it to the Wife to protect it from claims by potential creditors and because the Husband’s love for the Wife caused him to accede to her demand that title to the property be placed solely in her name for this protective purpose: at para. 65;
2) while he recognized that “the concept of constructive trust survives the equalization process set out in the [Act]”, he concluded that “it would be the rare case where it should be applied to prevent a clear injustice not cured by the usual equalization scheme”: at para. 67; and
3) he held that any post-separation contributions by the Husband to the upkeep and maintenance of the Matrimonial Home were not proven at trial and, in any event, “would fall into the category of support payments”: at para. 66.
[23] In my opinion, the trial judge’s ruling on this issue is unsustainable for the following reasons.
(a) Beneficial Ownership of the Matrimonial Home
[24] The critical issue at trial concerning the Matrimonial Home was whether the Husband intended to gift his interest in the property to the Wife when the property was acquired in 2002.
[25] For married spouses, the Act provides a comprehensive scheme for resolving financial issues following marriage breakdown. Section 10(1) of the Act authorizes a court to determine questions of title between spouses. This includes considering whether legal title actually reflects beneficial ownership. As indicated by this court in Martin v. Sansome, 2014 ONCA 14, 118 O.R. (3d) 522, at para. 47, citing Rawluk v. Rawluk, [1990] 1 S.C.R. 70, “[b]efore property can be equalized under the [Act], a court must first determine the “net family property” of each spouse. This exercise requires first that all questions of title be settled.” In other words, property entitlements must be determined before they can be equalized.
[26] Section 14 of the Act affirms the presumption of a resulting trust in determining questions of ownership between spouses in the context of gratuitous property transfers. Where the presumption is invoked, the party resisting the imposition of a resulting trust is required to disprove the presumption that his or her spouse is the beneficial owner of an interest in the disputed property.
[27] In Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at paras. 16-19, the Supreme Court confirmed that a traditional resulting trust may arise in the domestic context where, as here, there has been financial contribution to the initial acquisition of a property and a subsequent gratuitous transfer of title to the property. In these circumstances, the actual intention of the transferor is the governing consideration. See also Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at paras. 43-44; Schwartz v. Schwartz, 2012 ONCA 239, 290 O.A.C. 30, at paras. 41-42. Further, the intention of the transferor to make a voluntary and gratuitous transfer is an essential ingredient of a legally valid gift: see McNamee v. McNamee, 2011 ONCA 533, 106 O.R. (3d) 401, at para. 24.
[28] At the appeal hearing, although the Husband relied on the s. 14 statutory presumption of resulting trust, he focused his claim regarding the Matrimonial Home mainly on principles of constructive trust and unjust enrichment. It appears that he proceeded at trial in a similar fashion. As a result, the trial judge made little reference to the s. 14 presumption.
[29] The focus of the Husband’s argument on this issue was misconceived. As I have said, under the Act, questions of title must be settled before property can be equalized. By reason of s. 10 of the Act, trust claims – including claims based on constructive or resulting trust – may be advanced prior to equalization. And, crucially, s. 14 legislates a presumption of a proprietary resulting trust. Where the presumption applies, it yields a finding of beneficial ownership in the context of a gratuitous property transfer. The Act contains no analogous presumption of constructive trust.
[30] In my view, the Husband’s claim regarding the Matrimonial Home turns on whether the Wife met her burden at trial to disprove the presumption that the Husband was the beneficial owner of a one-half interest in the Matrimonial Home. Her argument, in effect, was that the presumption of a resulting trust was rebutted by evidence of a voluntary and irrevocable, gratuitous gift by the Husband of his interest in the Matrimonial Home to the Wife at the time of its acquisition.
[31] And it is here, in my opinion, that the Wife’s failure to meet her burden is evident. Neither the Wife’s own trial evidence nor that of the Husband supported a finding that the presumption of a resulting trust in respect of the Matrimonial Home had been displaced.
[32] Turning first to her evidence at trial, the Wife never said that the Husband gifted his interest in the Matrimonial Home to her. To the contrary, she testified that while title to the Matrimonial Home was put in her name to protect it from potential claims by creditors, the Husband nonetheless had a full interest in the Matrimonial Home.
[33] The trial judge viewed the parties’ evidence on this issue as “quite muddled” and “a little surprising”: at para. 56. Nonetheless, he appears to have captured the essence of the Wife’s testimony at paras. 60-61 of his reasons:
The [Wife] is adamant, both in parts of her testimony and in her submissions, that the house was placed in her name to protect it in the future. She states that it was the [Husband’s] idea to deal with title this way as he was the one in the family with a financial background.
A difficulty with the [Wife’s] position, however, is that on cross-examination, she clearly stated that it was her view that no matter how the family held assets, their value should be shared equally. She made no exception for the matrimonial home. Her point was that, as far as she was concerned, the marriage was one of financial equality. Had there been creditors, the equity in the matrimonial home would have been insulated against a potential lawsuit for the benefit of the family.
[34] The trial judge rationalized the Wife’s evidence on this issue on the basis that she had claimed an interest in the Gleedah family business. He stated, at para. 62:
Given the totality of the evidence with respect to “the family business”, while not specifically expressed, I can reasonably infer that the [Wife] meant that she would willingly divide all assets equally if those assets included the value of the Gleedah shares. In other words, if all assets she thought were owned by the [Husband] could be shared equally, then so could the house. [Emphasis added.]
[35] With respect, this inferential gloss on the Wife’s evidence conflicts with the core of her trial testimony regarding the Matrimonial Home. The Wife did not in any way qualify her admission at trial that the Husband had a full interest in the Matrimonial Home. She did not assert that his equal interest in the house was conditional on her having an equal interest in his shares in Gleedah. And, as I have indicated, she did not say that the Husband gifted his interest in the Matrimonial Home to her. Instead, she testified on cross-examination that the Husband had a full interest in the Matrimonial Home and, in effect, that the assets held during the marriage were to be shared equally.
[36] Nor did the Husband suggest that he intended to gift his interest in the Matrimonial Home to the Wife because he loved her. When cross-examined by the Wife – who was self-represented at trial – the Husband testified as follows:
We had our [first] home in joint name[s] in Aurora. I loved you. I trusted you. You said it’s because of creditors. I said well, look, I have – I’m not worried about creditors. I’ve never been sued in my life.’ So, I said whatever makes you happy.’ And I had, at that point, as I said – it’s not a key thing but I had liability insurance, you know, from my business and I didn’t see the – I didn’t know of any future ramification and so I – I acceded to your request.
[37] Thus, I do not think it can fairly be said that either the Wife’s or the Husband’s trial testimony supports the trial judge’s key finding that the Husband unconditionally gifted his interest in the Matrimonial Home to the Wife in 2002 when the parties purchased the property. The trial judge’s impugned finding to the contrary ignores the presumption of resulting trust that operates in favour of the Husband. Moreover, in my opinion, even absent the presumption, the evidence at trial does not ground a finding of a clear intention to gift.
[38] Furthermore, any motivation to shield the property from the Husband’s potential creditors does not in itself rebut the presumption of a resulting trust. In Nussbaum v. Nussbaum (2004), 9 R.F.L. (6th) 455 (Ont. S.C.), Karakatsanis J., then of the Superior Court of Justice, noted that, despite “a line of cases … where the court has found the specific intention to evade creditors means an implied intention to deprive oneself of beneficial ownership”, and “[w]hile evidence that someone intended to fully evade creditors can be evidence that they intended to gift their entire interest in the property, the intention of the parties is a question of fact to be determined from all the evidence”: at paras. 19-27 and 32. See also Schwartz, at para. 43.
[39] The trial judge’s finding that the Husband unconditionally gifted his interest in the Matrimonial Home to the Wife denied the Husband any proprietary interest in the Matrimonial Home. For the reasons given, I conclude that, in light of the unrebutted presumption of a resulting trust, the trial judge committed a palpable and overriding error in finding that the Husband did not retain a beneficial ownership interest in the Matrimonial Home.
(b) Effect of Beneficial Ownership of the Matrimonial Home
[40] The determination that the Husband is a beneficial owner of a one-half interest in the Matrimonial Home is dispositive of his entitlement to share in any post-separation increase in the value of the property: he is placed in the same position as a joint owner on title, thereby becoming entitled to a one-half interest in the value of the Matrimonial Home whenever that value crystalizes. Consequently, when the property is sold, the Husband will be entitled to one-half of the net proceeds of sale, reduced by any unpaid share in the expenses of upkeep. The value of the Matrimonial Home at V-Day is thus irrelevant since, for the purpose of equalization, a one-half interest in the property is placed on each side of the parties’ property ledgers, requiring no further equalizing exercise.
[41] The Wife’s argument to the contrary relies on this court’s recent decision in Martin. The Wife says that Martin confines married spouses’ property claims to the equalization provisions contained in the Act, except in rare cases. In her submission, a case in which a matrimonial home has increased in value since the date of separation is insufficiently rare to fall within that exception.
[42] I do not read Martin in the manner urged by the Wife. Martin is an unjust enrichment case. Unlike this case, it concerns the sufficiency of a monetary remedy once unjust enrichment in respect of a joint family venture has been found. Martin does not involve the presumption of a resulting trust or an asserted gift of property between spouses.
[43] Perhaps more importantly, Martin illustrates, in the context of married spouses, that where either a monetary or a proprietary remedy in respect of property is claimed and a monetary award is sufficient to address unjust enrichment, the court should look to the Act’s equalization provisions to determine the appropriate amount of the monetary award. The Martin court put it this way, at para. 66: “[i]f unjust enrichment as the result of a marriage has been found, and it has been determined that monetary damages can suffice, the aggrieved party’s entitlement under the equalization provisions of the [Act] should first be calculated.”
[44] That is not this case. Here, the application of the unrebutted statutory presumption of a resulting trust establishes an entitlement to property ownership, as opposed to a monetary award. And the establishment of an entitlement to ownership, as opposed to a monetary award, precedes the calculation of net family property and the application of the equalization provisions of the Act.
[45] Martin, therefore, does not assist the Wife. On this evidentiary record, the Wife did not rebut the statutory presumption of a resulting trust by establishing an unequivocal intention by the Husband to gift his interest in the Matrimonial Home to her. Consequently, the Husband is entitled to full recognition of his 50% beneficial interest in the Matrimonial Home. It follows that he is entitled to 50% of the net proceeds of the sale of the Matrimonial Home, less his share of the maintenance costs of the Matrimonial Home until the date of sale. I will return to the details of this remedy later in these reasons.
(2) Income Imputation to the Husband
[46] Under s. 19(1) of the Federal Guidelines, the court is empowered to impute “such amount of income to a spouse as it considers appropriate in the circumstances”. The section lists a number of circumstances in which such imputation may be appropriate. None of these specifically includes monetary gifts or other direct parental financial assistance received by a payor spouse.
[47] In Bak v. Dobell, 2007 ONCA 304, 86 O.R. (3d) 196, this court considered s. 19(1) of the Ontario Child Support Guidelines, O. Reg. 391/97 (the “Ontario Guidelines”) – a provision that is virtually identical to s. 19(1) of the Federal Guidelines. Bak is instructive in several respects.
[48] First, Bak holds that the circumstances listed in s. 19(1) of the Ontario Guidelines – and, by analogy, those listed in s. 19(1) of the Federal Guidelines – are simply examples of situations in which the imputation of income to a payor spouse may be appropriate. There are also other circumstances in which the court may conclude that income can, and should, be imputed: Bak, at para. 35; Riel v. Holland (2003), 67 O.R. (3d) 417, 42 R.F.L. (5th) 120 (C.A.), at para. 36. The Bak court observed, at para. 34:
The list of circumstances in s. 19(1) is not exhaustive: the legislature only provides that the list “include” items (a) – (i). Further, there is nothing in the provision that suggests other appropriate circumstances must be analogous to those specifically enumerated, although similarity of circumstance to one listed in s. 19(1) would support the imputation of income, simply because such a circumstance would be consistent with legislative intention. The absence of analogy to a listed circumstance is simply a factor to be considered in interpreting the provision.
[49] Second, Bak recognizes that the imputation of income to a payor spouse is a fact–specific exercise that “depends on the circumstances of the family at issue”: at para. 73. For this reason, the court observed, “the legislature provided the courts with a residual discretion [under the Ontario Guidelines] to be exercised by a trial judge based on his or her factual findings”: at para. 73.
[50] Third, Bak confirms that “income” for support purposes is presumptively the payor’s income as it appears on line 150 of his or her income tax return: at para. 30. Consequently, under the Ontario Guidelines, income is presumptively restricted to that which is subject to taxation. Since gifts are not subject to taxation, they are not included in a payor’s presumptive income: at para. 31.
[51] However, whether income should be imputed to a payor spouse does not depend solely on the determination of that spouse’s presumptive income. The courts retain discretion to impute income to a payor spouse in excess of that spouse’s presumptive income where the imputed income is supported by the evidence and is consistent with the objective of establishing “fair support based on the means of the parents in an objective manner that reduces conflict, ensures consistency and encourages resolution”: Bak, at para. 36; Drygala v. Pauli (2002), 61 O.R. (3d) 711, 29 R.F.L. (5th) 293 (C.A.), at para. 44.
[52] In this case, the Husband does not contest the trial judge’s authority under s. 19(1) of the Federal Guidelines to impute income to him for the purpose of determining his ongoing child and spousal support obligations. He argues, however, that the trial judge erred in imputing annual income in the amount of $120,000.
[53] The trial judge based his calculation in part on his finding that the Husband would continue to receive funds from his mother, “whether by gift or through some other tax-friendly plan”: at para. 126. This was an error, the Husband submits, since it impermissibly shifts the burden of sustaining the Wife’s and Je.’s lifestyle onto his mother – Ruth Korman – who has no legal obligation to support either her granddaughter or the Wife. The proper approach, the Husband says, would have been to impute income to him in the sum of $96,834 per annum – the amount of his average annual employment income from 2010 to 2012.
[54] I would reject this argument for several reasons.
[55] In his calculation of income to be imputed to the Husband, the trial judge considered the Husband’s income from three sources: i) his employment income, as disclosed in his annual income tax returns; ii) monetary gifts received over the years from one or both of his parents; and iii) annual dividend income from Gleedah, as reported by the Husband in his income tax returns.
[56] Earlier in these reasons, I set out the amount of the Husband’s annual income for the years 2010-12, inclusive of dividend income from Gleedah, as reported for tax purposes. Based on those figures, the Husband’s average annual income for the three years prior to trial was $134,858.73, well above the $120,000 per year that the trial judge imputed to him. This average annual income figure establishes the Husband’s presumptive income for the purpose of the Federal Guidelines.
[57] However, the Husband’s presumptive income includes dividends allocated to him by Gleedah. The Husband contends that, since he never actually received this dividend income, the trial judge should have excluded it from his income imputation analysis. On this evidentiary record, I agree.
[58] The evidence at trial established that the Husband is a non-voting shareholder of Gleedah. His mother, through her voting shares, controls the corporation and, hence, its dividend declaration policy and allocations.
[59] Before this court, it is undisputed that the historical dividends that Gleedah allocated to the Husband and his siblings did not reflect funds they actually received. Nor did they correlate to the amount of monetary gifts they received in any given year from their mother. Rather, Ruth Korman disbursed funds from Gleedah in the exercise of her sole discretion. Gleedah declared dividends and allocated them to the Husband and his siblings only “on paper” for the purpose of reducing Ruth Korman’s annual taxable income. While each child declared the allocated dividends on his or her own tax return, Ruth Korman used the funds at issue for her own living expenses. She also withdrew money from the corporation to pay each child’s resulting tax liability. Thus, on this record, the Husband’s dividend income was more notional than real.
[60] In these circumstances, I do not think that the trial judge’s imputation of income to the Husband based on assumed dividend income from Gleedah can be said to have been grounded in the evidence. It follows, in my view, that the trial judge made a palpable and overriding error in including the Husband’s declared dividend income from Gleedah in his calculation of the quantum of annual income to be imputed to the Husband.
[61] That, however, does not end the matter. His reported dividend income aside, the Husband’s gross income from employment in the three years prior to trial was $140,675.33 (2010), $204,336.77 (2011) and $175,067.00 (2012). His average annual gross income from the same source – during the same three-year period – was therefore $173,359.70. His average annual net income was $96,834.73.
[62] The generous monetary gifts made to the Husband by one or both of his parents are also a proper and necessary consideration. The trial judge found, at para. 119, that “[t]hrough the marriage, very generous gifts were given to the parties” and, at para. 126, “that funds will continue to be given to the [Husband] by his mother, whether by gift or through some other tax-friendly plan.” While some of these gifts were intended to enhance the Husband’s employment prospects and his career, others were not. And, contrary to the Husband’s submission, the thrust of the trial judge’s findings is that these gifts were neither irregular nor infrequent.
[63] In this context, the trial judge emphasized that: “the [Husband] has always received money from his parents and will likely continue to receive [monetary gifts] from his mother”: at para. 126. He went on to hold, at para. 129, that, “[w]hile it is impossible to know exactly how much the [Husband] will benefit from gifts or dividends, the amount of $120,000.00 strikes a reasonable balance between earnings and other cash flow the [Husband] is likely to receive.”
[64] The evidentiary record amply supports these findings. There was evidence before the trial judge establishing a settled pattern of monetary gifts to the Husband by one or both of his parents, over many years, to assist him in maintaining his family’s lifestyle, to finance specific family expenditures – such as private school tuition or camp expenses for the children – or to underwrite the costs of the Husband’s various business ventures.
[65] Moreover, these gifts were substantial. Between 1990 and 2009 (the year of separation), one or both of his parents gifted at least $986,000 to the Husband. These funds covered a significant part of the purchase price of the parties’ Matrimonial Home, the costs of the Husband’s various business ventures and investments, and the children’s private school and camp fees. In the five years following separation, 2009 to 2013, the Husband received additional funds from his mother in the approximate amount of $73,500, plus the sum of $100,000 for his costs of the matrimonial litigation. These funds were used to defray personal and family-related expenses.
[66] I note that, contrary to the Husband’s submission, imputing income on the basis of these substantial and consistent gifts does not impose any obligation on the Husband’s mother to continue such gifts in the future. It simply reflects the trial judge’s factual determinations about the Husband’s actual past revenues and his likely financial future. If the situation changes, it would be open to the Husband to request an adjustment accordingly, in the normal manner.
[67] I am therefore not persuaded that the trial judge erred in imputing global annual income to the Husband in the sum of $120,000. This is not a case like Bak, where a parent provided financial assistance to support a disabled adult child who would otherwise have been unable to support himself. The Husband is able to support himself and has also received regular and substantial gifts from his parents, for many years. These gifts helped the Husband establish a lifestyle well in excess of a basic standard of living for himself and his family during the marriage. They have also assisted the Husband with his lifestyle and his liabilities since separation. At trial, the Husband did not call any evidence to suggest that the intended duration of these gifts was limited or that they would cease as a result of the parties’ separation. Indeed, as I have indicated, the gifts continued post-separation, in material amounts.
[68] Finally, the annual income imputed to the Husband ($120,000) is the same amount to which he stipulated in two consent support orders, dated August 30, 2010 and September 12, 2012. Although the Husband did not admit the amount of income imputed to him in those orders, he also did not move to vary or appeal the child and spousal support orders containing this imputation of income.
[69] For all these reasons, I see no basis on which to disturb the trial judge’s discretionary imputation of income to the Husband.
(3) Section 7 Extraordinary Expense: Je.’s Private Secondary School Fees
[70] Under s. 7(1)(d) of the Federal Guidelines, a child’s “extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs” qualify as special or extraordinary expenses for which provision may be made by a court in a child support order. The designation of a particular expense as a s. 7 expense must be based on: i) “the necessity of the expense in relation to the child’s best interests”; and ii) “the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family’s spending pattern prior to the separation”.
[71] The only s. 7 expense at issue in this case concerns the tuition fees and associated expenses for Je.’s private schooling for approximately two years after trial, to permit her to complete her secondary education in a parochial private school. As I have said, Je. has attended private parochial schools her entire life. J. completed both his primary and secondary education at such schools.
[72] The trial judge appreciated that Ruth Korman – Je.’s grandmother – “has been very generous in assisting with [private school] fee payments”: at para. 153. He also recognized that the continuation of this assistance after trial was uncertain.
[73] However, given the annual income imputed to the Husband and the fact that, by the time of trial, J. no longer required any contributions from the Husband to his expenses, the trial judge concluded that Je.’s secondary school fees qualified as a s. 7 expense under the Federal Guidelines and that both parents would have to make Je.’s secondary education a priority: at para. 153.
[74] I see no reversible error in this ruling. The trial judge expressly applied the two-part test of necessity and reasonableness and addressed Je.’s needs and best interests, the parties’ historical approach to the children’s schooling, and the Husband’s financial ability to meet his share of this expense. Having properly considered these factors, the trial judge concluded that Je.’s remaining private high school fees qualified as a s. 7 expense and that she, like her brother, should be allowed to complete high school in a private school, consistent with her school placements throughout her life. This was the trial judge’s call to make.
[75] I would reject the Husband’s attack on this time-limited obligation.
V. Remedy and Disposition
[76] The trial judge ordered that the Wife pay the Husband a net equalization payment in the sum of $245,597.70; that the Matrimonial Home be listed for sale forthwith; and that the equalization payment be paid to the Husband from the net proceeds of the sale.
[77] Several comments are appropriate.
[78] First, the trial judge’s calculation of the net equalization payment was premised in part on his finding that, by reason of her sole ownership of the Matrimonial Home, the Wife alone is entitled to benefit from any post-separation increase in the value of the property. I have concluded that this finding is unsustainable and that the Husband is entitled to an equal share in any post-separation appreciation in the value of the Matrimonial Home. However, on the trial judge’s findings, the Husband failed to demonstrate at trial that he had made any contributions to the upkeep of the Matrimonial Home since the date of separation. The Husband, therefore, is liable for his 50% share of those expenses.
[79] Second, the trial judge’s calculation of the equalization payment provided for the deduction, from the amount otherwise payable, of the Husband’s child and spousal support arrears as at the date of the trial judgment ($57,498). Those arrears have continued to mount. This court was informed that, based on records maintained by the Family Responsibility Office, the Husband’s child and spousal support arrears had increased by $25,296 as of April 1, 2015, yielding total arrears in the sum of $82,794 as of that date.
[80] Consistent with the trial judgment, the increase in arrears should be deducted from the equalization payment. Accordingly, I would direct that the net equalization payment be further reduced by the sum of $25,296. I would also continue the trial judge’s order that no interest should be payable on the equalization payment or on the Husband’s outstanding support arrears.
[81] Finally, for various reasons and notwithstanding the terms of the trial judgment, the Matrimonial Home has not yet been sold. The Wife seeks an order that her obligation to make the net equalization payment be stayed and that that payment serve as security for the Husband’s ongoing support obligations until those obligations terminate.
[82] I would not accede to this request. The trial judge ordered the Husband to pay monthly child support for Je. and monthly spousal support for the Wife “until further court order”: at paras. 204 and 207. Thus, absent further court order, the Husband’s support obligations are indefinite. To accept the Wife’s stay request would be to permit her to continue to reside in the Matrimonial Home for an indeterminate period. This is clearly inconsistent with the trial judge’s division of assets. Further, the Husband’s financial obligations under the trial judgment and as contemplated by these reasons are not trivial. It may well be that resort by him to the funds generated by the equalization payment will be necessary to enable him to satisfy those obligations and avoid continuing arrears in support payments.
[83] Accordingly, for the reasons given, I would allow the appeal in part. The Husband is entitled to 50% of the proceeds of sale of the Matrimonial Home, less his 50% share of the maintenance costs of the Matrimonial Home from V-Day to the date of sale. The Wife is entitled to a credit of $25,296 on account of the Husband’s arrears in child and spousal support as of April 1, 2015, plus a further credit in the amount of any additional support arrears from April 1, 2015 to the date of these reasons. In all other respects, I would dismiss the appeal.
[84] If the parties are unable to agree on the quantum of any of the financial adjustments described above, I would refer the contested issues regarding quantum to the trial judge for determination. Finally, I would specifically affirm paragraph 3 of the trial judgment, directing that the Matrimonial Home be listed for sale forthwith and that the net equalization payment, as recalculated in accordance with these reasons, be made to the Husband by the Wife from the net proceeds of the sale of the Matrimonial Home.
[85] Success on this appeal being divided, I would make no order as to costs.
Released:
“GP” “E.A. Cronk J.A.”
“AUG 21 2015” “I agree K. Feldman J.A.”
“I agree Grant Huscroft J.A.”