Knight v. Knight

OSHAWA COURT FILE NO.:  FC-17-1799-00

ONTARIO

SUPERIOR COURT OF JUSTICE

FAMILY COURT

BETWEEN:

David Henry Knight

            Applicant 

– and –

Christine MacDonald Knight

Respondent

 

Counsel

Gary S. Joseph and Kenneth Younie, for the Applicant

 

John P. Schuman and Ira Marcovitch, for the Respondent


HEARD: November 21-24, 27-30 and December 1, 4, 5 and 6, 2017 (Oshawa), and February 23, 2018 (Newmarket)

 

JUDGMENT

NELSON J.:

INTRODUCTION

[1]               A trial was required in this case to resolve issues surrounding equalization of net family property (“NFP”), as well as child and spousal support. A marriage contract signed by the parties prior to the marriage is central to their dispute.

[2]               The applicant, David Henry Knight (“David”), initiated an application for divorce against the respondent, Christine MacDonald Knight (“Christine”), in 2014 (the amended application was delivered in 2017).  

[3]               Both parties were forty-two years of age at the time of the trial.

[4]               The parties married on July 1, 2011 having cohabited since about the beginning of September 2010.

[5]               Both parties had previously been married and divorced from their first spouses.  David and Christine have one biological child, Scarlett, who was born on June 20, 2012 and was five years of age at the time of the trial.  Christine has two children from her previous marriage, Cole MacDonald, born November 15, 2001, and Tristyn Lauren MacDonald, born September 16, 2004.  Cole was sixteen and Tristyn was thirteen at the time of the trial.

[6]               The parties separated on August 1, 2014.

BACKGROUND

[7]         David and Christine met on a social networking site in 2009.

[8]         It did not take long for Christine to learn that David was wealthy.  He made a number of trips to Nova Scotia where Christine lived during their courtship.  Christine became aware that David was an avid outdoorsman who enjoyed skiing, hunting and fishing.  David hunted for big game in far‑flung places in the world. During the marriage, these places included Africa, British Columbia, the Yukon, and Russia.

[9]        David described himself as passionate about hunting.  David’s hunting trips cost at least $10,000 to $15,000, and sometimes more depending on the species hunted.  Major hunting trips occurred every year.

[10]           Before David and Christine became officially engaged, David either purchased a new Audi G7 for Christine or gave her the car to use.  He gave her many other expensive gifts.

[11]           At the time they met, David was a shareholder in various corporations that grew, stored, processed and distributed apples.  The corporations in which he directly (and indirectly) held shares, owned apple orchards in the Colborne, Ontario area.

[12]           Christine, along with Cole and Tristyn, lived in a suburb of Halifax, Nova Scotia.  Christine worked for Yellow Pages.

[13]           It became clear even before David proposed marriage that the parties would have to live in the Colborne area so that David could continue to be involved in his businesses.

[14]           Prior to the marriage, David had plans drawn up in order to construct a luxury custom-built home in which he, Christine and the children could reside.  Christine also became aware that David had the use of his parents’ cottage on Sharbot Lake in eastern Ontario on a regular basis.

[15]           Christine and her two children moved to the Colborne area around September 2010.  The parties initially moved in with a friend of David’s while the matrimonial home was being constructed.  The parties, together with Cole and Tristyn, moved into 816 Dudley Road in Colborne (“the matrimonial home”) early in the fall in 2010.  The children attended school in Grafton, Ontario.

[16]           The parties’ married on July 1, 2011. David and Christine had two honeymoon trips after their marriage.  One was to Antigua, where they stayed at a Sandals Resort, and the other was a big‑game hunting trip to South Africa.

[17]           David bought expensive gifts for the children.

[18]           Around that time, David was driving a Ford F150 (Harley Davidson Edition) and had the use of his parents’ Mercedes-Benz.

ROADMAP

[19]           For ease of reference, the remainder of this decision deals with the following matters in the order laid out below:

PROPERTY, EQUALIZATION AND THE MARRIAGE CONTRACT

Factual Background

David’s Business Interests

Christine’s Financial Interests at the Time of Marriage

The Marriage Contract

Validity of the Marriage Contract’s Property Clauses

The Equalization Payment

Assets to be Included and Excluded in Net Family Property

Notional Deductions

Unequal Division of Net Family Property

Submissions of the Parties

Discussion

Characterization of the $70,000 Prepayment

Submissions of the Parties

Discussion

CHILD SUPPORT

Validity of Christine’s Contractual Entitlement to Child Support for Cole and Tristyn

Submissions of the Parties

Discussion

Interpreting the Contractual Support Provisions

Discussion

Determination of David’s Income for Support Purposes

Submissions of the Parties

Discussion

Income Going Forward

Quantum of Child Support to be Paid by David for Three Children

Submissions of the Parties

Discussion

Section 7 Expenses

Retroactive Child Support

SPOUSAL SUPPORT

Entitlement

Submissions of the Parties

Discussion

Christine’s Income for Support Purposes

Submissions of the Parties

Discussion

David’s Income for Support Purposes

Duration and Quantum of Spousal Support

Lump Sum Spousal Support

DIVORCE

LIFE INSURANCE

SUMMARY OF ORDERS MADE IN THIS JUDGMENT

Division of Property

Child Support

Spousal Support

COSTS

SCHEDULE A: JOINT STATEMENT TO ASSIST IN EXPLAINING DAVID’S INCOME (EXHIBIT 82)

SCHEDULE B: ACCOUNTANT’S SCHEDULE (EXHIBIT 47)

 

PROPERTY, EQUALIZATION AND THE MARRIAGE CONTRACT

Factual Background

David’s Business Interests

[20]           The apple orchards in which David eventually acquired a controlling interest have been in David’s family for many generations.  The family has had an apple orchard and an apple distribution business since pre‑Confederation times.

[21]           Three companies were incorporated to carry out the apple business.  The three businesses were Big A Farms, Knight’s Appleden Fruit Ltd., and Scarlett Acres.  David now controls the entire business operation through a holding company.

[22]           Big A Farms owns buildings for storage and packing.  Knight’s Appleden Fruit Ltd. deals with packaging and sales, and Scarlett Farms (previously known as Redland Fruit Farm) runs the farming operation.  The scale of the operation is large.  To run the orchards successfully requires sophisticated, specialized equipment and, especially during harvesting, numerous employees.  In a typical year, 70 to 100 foreign workers are recruited to ensure that the apples are harvested.  Big A Farms has about 45 full-time employees and Scarlett Acres has about ten full-time employees.  The overall acreage is between 400 – 500 acres. 

[23]           Apples are sold to Walmart, Sobey’s, Metro, and in the U.S.A., to Publix (a large food chain).

[24]           In 2014, while the parties were still married, David’s uncle Ron retired, and David purchased his uncle’s shares. After this acquisition, David holds about a 75% ownership interest in the operation.  David’s father owns a minority interest of about 25%.

Christine’s Financial Interests at the Time of Marriage

[25]           Christine’s property interests were not anywhere near as extensive as David’s when they married.  While she owned a house, car and furniture, the evidence discloses that any positive balance was subsumed by debt.

[26]           Basically, she came into the marriage with a pension that she had earned through her work at Yellow Pages.

The Marriage Contract

[27]           A few weeks prior to the wedding, David indicated to Christine that the “corporation” required them to enter into a marriage contract in order to protect his business interests.  At this time, David was not the controlling shareholder because he had not yet purchased his uncle’s shares.

[28]           The parties each retained lawyers, and a marriage contract was drafted.  As Christine tells it, the original draft was one-sided because it excluded all of David’s business interests from inclusion in NFP and gave her little in the event of a separation.  As a result, there was some negotiation, and revisions were made to the initial draft.  The final version, which was signed June 24, 2011, protects Christine’s pension and, most importantly as far as Christine was concerned, it requires David to support her children should there be a separation. 

Validity of the Marriage Contract’s Property Clauses

[29]           Under s. 52 of the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”), a marriage contract properly entered into, allows two people who are married to each other to agree on the ownership and division of property upon separation.

[30]           The paragraphs of the contract that relate to division of David and Christine’s property upon marriage breakdown are below. They exclude David’s corporate assets and Christine’s pension from division. 

4.   David and Christine agree to exclude David’s right, title and interest in the Corporations, including assets held in trust for him by the Corporations and any money owing to him from the Corporations, from the application of Part 1 of the Family Law Act, R.S.O. 1990, c. F.3, as amended.

5.   David and Christine agree to exclude David’s interest in the Corporations and monies owning to him from the Corporations from the satisfaction of any judgment, settlement or agreement which may require David to transfer assets or pay monies to Christine as part of an equalization payment to her under the Family Law Act, as amended.

6.   David and Christine agree that any claim that Christine may have to equalization of NFP, or to any other right or entitlement

      (i)   shall not be satisfied or enforced by the transfer to Christine of any interest David has in the Corporations; and

      (ii)   shall not be the subject of a charge against the assets of the Corporations.

7.   David and Christine agree that If [sic] the value of David’s other assets, excluding his shares or any other interest in the Corporations, is insufficient to meet his financial obligations to Christine under any judgment, settlement or agreement, David shall be permitted to satisfy those obligations by way of a series of instalment payments extended over a maximum period of three (3) years from the date of the judgment, settlement or agreement.

8.   If on the date of separation, any of David’s right, title and interest in any shares in the capital stock of one or more of the Corporations shall be represented by a different holding in any one or more of the Corporations or in any other corporation or corporations to which he is entitled [sic] the date of separation as a result of any stock dividend, stock split, amalgamation, reconstruction, rearrangement or the sale or undertaking of any of them to any other corporation, the reference … to shares in the capital stock of the Corporations shall be deemed to also be a reference to the capital holding or holdings which are the result of that stock dividend, split, amalgamation, reconstruction, rearrangement or sale or undertaking.

9.   Upon separation and while negotiating an equalization of net family property (NFP), David and Christine agree to exclude Christine’s pension with Yellow Pages Group from the calculations.  Her pension has a current value of $58,000 (assuming a retirement age of 65).

[31]           Neither party takes serious issue with the fact that the marriage contract is valid and subsisting.  Each party was legally represented in the process.  The contract was signed, each page was initialled, and the evidence at trial clearly indicates that each party appreciated the nature and effect of the marriage contract on their legal rights upon separation and divorce.  The parties made a bargain and were clear about the bargain they were entering into upon their marriage.

[32]           At trial, there was no evidence led about duress, lack of adequate financial disclosure prior to the execution of the marriage contract or, indeed, about any other matter that would cause the court to void the marriage contract in this case by applying the law as expressed in Miglin v. Miglin, 2003 SCC 24 (CanLII)[2003] 1 SCR 303.

[33]           There is, however, an issue that must be raised at this point in the judgment with respect to the validity of the marriage contract.  I indicate above that neither party “seriously” questioned the validity of the agreement. I have placed emphasis on the word “seriously” because David challenges a particular provision in the parties’ contract that governs part of Christine’s entitlement under it, and Christine makes a less than vigorous argument that if I accept David’s position, the entire contract should be set aside. David’s counsel submits that only the provision he challenges needs to be set aside.  The rest of the marriage contract is still valid.

[34]           David’s counsel accepts the provisions in the marriage contract that govern equalization of the parties’ property. However, the marriage contract deals not only with equalization of NFP, but also with spousal support, and child support for Christine’s two biological children, Cole and Tristyn. David submits that the provision governing his obligation to pay child support for Christine’s two biological children should be set aside. As this part of the judgment deals with equalization of the parties’ NFP, that analysis will come later; however, the matter needs to be raised now because if I accept Christine’s position that the entire contract between the parties’ fails, the difference between the value of David’s corporate assets at the date of marriage and at the valuation date should be included in his NFP.  

[35]           Christine, in my view, did not advance her position with much conviction.  There was no attempt on her part to deal with the value of David’s corporate interests at the date of marriage or at the date of separation other than to use book values as found in the corporate financials.  David did not value his corporate interests, which were excluded under the marriage contract.  As an aside, the fact that the court should have had at least estimated values seems to have been overlooked.  I say this not for the purpose of dividing the value of the parties’ NFP but because the court is tasked with taking into account the condition, means, needs and other circumstances of the spouses in order to determine the appropriate amount of spousal support (see s. 15.2(4) of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.)).  This becomes difficult when estimated values are not provided (even in short marriage situations).

[36]           In any case, with respect to Christine’s submission that the entire marriage contract might be voided, the point is moot and need not be explored as I intend to uphold the child support provisions in the marriage contract and award child support to Christine for her biological children. Therefore, David’s corporate assets and Christine’s pension will be excluded from NFP pursuant to the parties’ valid marriage contract. 

The Equalization Payment

[37]           At the outset of the trial, the parties disagreed about the ownership and value of many of the assets that would comprise NFP.  The most important and most valuable was the matrimonial home.  After hearing evidence from three land appraisers, as well as the comptroller of David’s companies, David’s accountant, and a professional appraiser of contents, the parties, to their credit, were able to agree on the inclusion or exclusion, and values of many of the assets in dispute.

[38]           I shall, therefore, deal with those assets on which the parties failed to reach agreement, by discussing each individually or by class.  The parties may then recalculate the equalization owing.  If they are still unable to reach an agreement on the amount, I may be spoken to.  As well, if the parties require a formal order with respect to the equalization payment, they need simply submit it, and I will sign it.  The equalization payment should be made forthwith, together with prejudgment interest.

[39]           David states that the equalization payment owing by him, according to his calculations, is $137,378.31; Christine states that he owes her $206,841.46.  I have decided to use as my reference point the property breakdown contained in David’s Form 13C: Comparison of Net Family Property Statements,[1] as Christine’s NFP statement contains book values for David’s corporate interests and is, therefore, less helpful.

Assets to be Included and Excluded in Net Family Property

2014 Jeep Wrangler

[40]           David has excluded his 2014 Jeep Wrangler from his NFP calculation as it is owned by one of the corporations.  Christine’s evidence indicates that the automobile is used by David personally.  That may be so, but it is ownership on valuation day that dictates whether or not the value of the asset should be included in David’s NFP.[2]  Therefore, I agree with David that this item should be excluded.  In the event I am in error, I find that the sum of $14,800, as Christine submits, would have to be added to David’s valuation day value.

The 2008 Ford F-150 Custom Harley Davidson Edition

[41]           Although it is apparent that David’s 2008 Ford F-150 is redundant to the farming operation, I am satisfied that it is owned by one of David’s corporations and is, therefore, properly excluded from his NFP.  Possession and usage does not amount to a transfer of ownership.

[42]           In the event I am incorrect about the finding of ownership, the value of the vehicle is $29,600 and would be added to David’s NFP.

The Trailer

[43]           There was very little evidence led by either party about the trailer; however, as it appears in both parties’ NFP statements, I accept that it exists.  I also accept David’s evidence that, notwithstanding personal use, the trailer is a corporate asset and, therefore, excluded from NFP by the marriage contract.  In the event I am in error, its value at the valuation date is $3,000.

Watersports Equipment (Skis, Tube, Life Jackets)

[44]           There was a paucity of evidence on these items; however, I accept Christine’s positions that they exist and that David owns them. These items should be included in his NFP. The valuation date value is $1,409.95.

Taxidermy Mounts 

[45]           David enjoys big game hunting.  He has a number of animals mounted as trophies.  The evidence indicates that David was able to have the corporations deduct the costs of hiring a taxidermist and of mounting and shipping his hunting trophies, through the corporations as their cost was written-off for income tax purposes as art.  The ownership of these trophies would be reflected in the corporate financial statements, and as such, they are excluded from David’s NFP even though David received personal benefit from them.  In fact, at one stage, they were displayed in the matrimonial home while David’s office was being renovated.

[46]           As with some of the other assets listed above, the personal benefit of a corporate asset can be taken into account when dealing with income, but as far as ownership is concerned, the asset is excluded as corporate property.  If my finding is incorrect, the value of the mounts and trophies is $37,879.

Other

[47]           There are two items in dispute under the heading “Promissory Notes” (see part 2: Value of Debts and Other Liabilities on Valuation Date).  They are of de minimis value, and I have ignored them.

[48]           The value of David’s assets set out in Part 1(e): “Business Interests,” and the corporate book values set out in Part 3: “Net Value of Property and Debts on Date of Marriage” have similarly been ignored because of my finding that David’s corporate assets are excluded from the value of his NFP as a result of the valid marriage contract dated June 24, 2011.

Notional Deductions

Reduction for Notional Costs of Disposition for the Sale of the Matrimonial Home

[49]           David submits that he should be allowed to deduct a notional amount of 5% from his NFP for the cost of the sale of the matrimonial home.  That amount totals $33,650.  Christine submits that he should not be allowed a deduction for this item.

[50]           David relies on the case of Sengmueller v. Sengmueller (1994), 1994 CanLII 8711 (ON CA)17 O.R. (3d) 208 (C.A.), as authority for the proposition that a deduction for notional disposition costs is appropriate where there is some evidence of disposition, provided that the costs are inevitable.  In Sengmueller, the court stated,

While these costs are not liabilities in the balance sheet sense of the word, they are amounts which the owner will be obliged to satisfy at the time of disposition, and hence, are ultimate liabilities inextricably attached to the assets themselves.  (p. 213)

[51]           In addition, David raises the case of Buttar v. Buttar, 2013 ONCA 517 (CanLII)116 O.R. (3d) 481, in which the court held that disposition of an asset need not be inevitable in order to deduct notional disposition costs as long as the disposition is  more likely than not.  As well, in Perri v. Perri, 2016 ONSC 5833 (CanLII), rev’d but not on this point in 2017 ONCA 1001 (CanLII), the deduction of disposition costs was allowed as the court found that these disposition costs are inherent in the value of the asset.

[52]           David goes further, submitting that he should be entitled to a notional deduction, and this should have nothing to do with whether a party actually intends to sell a property at a particular time.  Evidence of a disposition date, he argues, is not necessary. In support of this argument, David relies on two cases.

[53]           In Fielding v. Fielding, 2014 ONSC 2272 (CanLII), notional costs were allowed even though no evidence was led about an intention to sell.  The evidence was good enough to allow the trial judge to find that the property (a cottage) would be sold eventually or, that there would be a deemed disposition on the wife’s death.  The decision reveals that the wife, who owned the cottage, was late middle-aged.  Notional costs of 5% were requested, but reduced to 2% with no explanation.

[54]           In Baiu v. Baiu, 2014 ONSC 216 (CanLII), there was speculative evidence that the matrimonial home would be sold when the youngest child was about seven years of age.  Notional disposition costs were reduced to 2.5%.

[55]           Interestingly enough, Christine also relies on the Sengmueller case and submits that it stands for the proposition that notional disposition costs may be deducted from a spouse’s net family property if there is satisfactory evidence of a likely disposition date and it is clear that such costs will be inevitable when the owner disposes of the assets or is deemed to have disposed of them.  Notional disposition costs may not be deducted where it is not clear when, if ever, there will be a realization of the property. (my underlining)

[56]           I agree with David that for the court to deduct disposition costs, Sengmueller does not require evidence of a specific date of sale for an asset. However, I find that in order to obtain a deduction for notional costs of sale, some evidence must be established that allows the court to find that it is likely the asset will be sold. I find that David has not proved that the matrimonial home will ever be sold (other than the fact that a person will not live forever, meaning there will be a deemed disposition on death). I agree with Christine’s position that there was no evidence before me that would allow me to make such a finding. 

[57]           Most of the cases David relies on accepted the fact that a sale might be triggered at some point because at least some evidence had been established with respect to the property owner’s intentions.

[58]           As far as the other cases that reduced the claim for disposition costs from 5% to some lesser percentage, I have considered that in those cases, the facts were such that it could reasonably be argued that there was a light at the end of the tunnel, allowing such a claim: for instance, a contemplated move when a child finished school.  It may well be the case that an owner could claim notional disposition costs if he or she were elderly or in very ill-health.  In this case, David is young.  Given the evidence I heard about the amount of effort and money that was required to build this well-appointed matrimonial home on Dudley Road, it is reasonable to conclude that David has no intention of selling it.  His claim is, therefore, disallowed.

Notional Tax Rate Deduction for David’s RRSPs

[59]           David also claims a 50–53% notional deduction from his NFP for taxes on his Registered Retirement Savings Plans (“RRSPs”).  In his Form 13C: Comparison of Net Family Property Statements, which is found at Tab A of his written submissions, he claims a deduction of 48%, amounting to $7,547.30.  Christine’s position is that David should be allowed a 15% deduction, which would amount to $2,358.53.

[60]           The only submission that David made to convince the court that he should be allowed a notional deduction of between 48–53%, was that “Mr. Machan (the applicant’s accountant) provided evidence that David’s anticipated tax rate at the time he will redeem his RRSPs would be in the range of 53%.”

[61]           Once again, as the onus is on the party claiming the deduction, the court would have expected to hear some evidence from David or another witness that would enable the court to find that it is likely or probable that David will dispose of his RRSPs at a certain time and in a manner that tax at his full‑marginal rate will be exigible.  Christine submits that David made it clear that he had no plans at the time of the valuation date to redeem his RRSPs.  There was no evidence of a likely disposition date.  David is 42 years old.  It is reasonable and probable to conclude that David will not have to begin reducing his RRSPs until the end of the year he turns 71.  Even then, it is reasonable and probable to conclude that his RRSPs will not be disposed of as a one-time event.  The conversion of RRSPs to a Registered Retirement Income Fund (“RRIF”) is what a reasonable and prudent person would likely do to avoid income tax being assessed at the taxpayer’s then highest marginal rate.

[62]           I was provided with no evidence about the present value of this future obligation.  I am, therefore, prepared to accept Christine’s submission, and I will allow David a 15% deduction in the amount of $2,358.53.

Unequal Division of Net Family Property

[63]           Having determined the assets to be included in the value of David’s NFP, the court must also consider whether to affect an unequal division of property between the parties. 

Submissions of the Parties

David’s Position

[64]           David takes the position that Christine should receive less than an equal division of NFP.  He argues that the marriage was of short duration, only three years, and relies upon s. 5(6) of the FLA, which allows the court to award an unequal division of property where equalization results in unconscionability. Specifically he relies on s. 5(6)(e), which states,

Variation of share

(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

(e) the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;

[65]           David submits that in making findings of unconscionability under s. 5(6) of the FLA, courts have taken into account not only short periods of cohabitation, but also cash or property that has been gifted to a party. 

[66]           David relies on a number of cases in which an unequal division of NFP was ordered because of a short period of cohabitation or other factors, such as gifting of funds (see Chambers v. Chambers (1997), 34 R.F.L. (4th) 4274 (Ont. Gen. Div.); Hipel v. Hipel, 2011 ONSC 6411 (CanLII)14 R.F.L. (7th) 343; Dovicin v. Dovicin (2002), 2002 CanLII 49522 (ON SC)29 R.F.L. (5th) 281 (O.N.S.C.); and Kucera v. Kucera (2005), 2005 CanLII 12854 (ON SC)16 R.F.L. (6th) 250 (O.N.S.C.)).

[67]           David relies on Sarcino v. Sarcino, [1999] O.J. No. 902 (Ont. Gen. Div.), as authority for the proposition that for marriages shorter than five years, equalization can be reduced pro-rata. (See also: Gomez v. McHale, 2016 ONCA 318 (CanLII)79 R.F.L. (7th) 305).

[68]           David also points out that Kucera raises a number of factors that parallel some of the circumstances of this case, including the purchase of land by one party prior to the marriage.

[69]           David submits that the court should take into account that the majority of any equalization payment found owing by him to Christine, will simply be due to an increase in the value of the matrimonial home, which he purchased without Christine’s monetary assistance and which is situated on land that was gifted to him by his mother.

[70]           Finally, David submits that Christine should receive at most 40% of the parties’ combined NFP.

Christine’s Position

[71]           Christine submits that David is correct that the parties’ marriage was only three years, but she submits that the s. 5(6)(e) of the FLA refers to the full length of the parties’ cohabitation, not just the length of the marriage itself.  She argues that if you include the period when they first moved into David’s friend’s house, their cohabitation began in August 2010.  As the date of separation is August 1, 2014, the period of cohabitation is approximately four years.

[72]           Christine also submits that David’s submissions on s. 5(6)(e) take a circumscribed approach to the test for unconscionability by focusing solely on the asset of the matrimonial home.  She argues that the court must take a holistic view of the parties’ NFP and should not focus on a single asset.

[73]           Christine refers to the case of Ward v. Ward, 2012 ONCA 462 (CanLII)111 O.R. (3d) 81, to demonstrate that courts have generally been reluctant to adjust the equalization payment simply because one spouse brought the matrimonial home into the marriage be it by gift or inheritance.  (See alsoLinov v. Williams, [2007] O.J. No. 907 (S.C.J.); Clemlow v. Clemlow, 2004 CanLII 7355 (ON SC)[2004] O.T.C. 757 (S.C.J.); and Murphy v. Murphy (1987), 17 R.F.L. (3d) 422 (Ont. Dist. Ct.) aff’d [1991] O.J. 2905 (C.A.).)

[74]           In analyzing these cases, Christine submits that David’s position runs counter to the legislative intent of Part 1 of the FLA and, most particularly, its special treatment of the matrimonial home.

[75]           Christine references Serra v. Serra, 2009 ONCA 105 (CanLII)93 O.R. (3d) 161, in which the Ontario Court of Appeal, at paras 47-48, stated:

[T]he threshold of “unconscionability” under s. 5(6) is exceptionally high. The jurisprudence is clear that circumstances which are “unfair”, “harsh” or “unjust” alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must “shock the conscience of the court” …

Discussion

[76]           In following the Serra case, I have come to the conclusion that I will not apply s. 5(6) of the FLA as unconscionability does not exist in this case.

[77]           Christine argues that the parties executed a marriage contract that specifically deals with property.  The parties decided to exclude David’s business interests and Christine’s pension, but left the balance to be decided under Part I of the FLA.  The matrimonial home was not occupied by the parties at the time the contract was executed.  

[78]           I do not agree that because the parties’ contract said nothing about the matrimonial home, they meant to include its full value in the NFP calculation.  As it was not mentioned in the marriage contract, David is entitled to rely on the law

[79]           While the evidence David raised discloses that his mother gifted him the land that he then built the house upon and that his father helped him clear the land, the evidence also discloses that Christine was fully involved in designing many features of the house both inside and out.  They acted as partners with respect to the property.  I might also add that I agree with Christine that the court should not conflate the analysis of unconscionability with the value of the matrimonial home even though it is the most valuable asset.

[80]           Section 5(6)(e) is difficult to apply literally as it states that the amount in question has to be disproportionately large “in relation to a period of cohabitation that is less than five years.”  Yet many cases consider factors other than just the passage of time.  In part, this is through the operation of s. 5(6)(h), which allows the court to consider facts other than simply the parties’ period of cohabitation.

[81]           Despite this difficulty, given the probable amount of the equalization payment, I am not satisfied that payment of the full equalization in this particular case would or should shock the conscience of the court.  I find that given much of the other evidence raised (which I will set out when discussing support), the facts in this case fall well below meeting the “unconscionable” threshold envisaged in s. 5(6) of the FLA.

Characterization of the $70,000 Prepayment

[82]           Corkery J., on October 15, 2014, ordered David to pay to Christine the sum of $20,000, which was to be “wholly without prejudice to either party’s position and shall be characterized at a later date.”

[83]           On January 18, 2015, Christine brought a motion seeking interim costs and disbursements in the amount of $75,000, or alternatively, as an advance on monies found owing to her in the case.

[84]           That motion was settled by an agreement whereby David paid Christine the further sum of $50,000 without prejudice to either party’s position and to be characterized later. 

[85]           The parties dispute how to characterize these prepayments.

Submissions of the Parties

David’s Position

[86]           In his submissions, David simply states that he made an advance of $70,000 to Christine in the proceeding.  He argues that the $70,000 was a prepayment of any equalization payment owing and should, therefore, be credited against any equalization owing.  He further submits that no matter how these funds are characterized there must be an accounting for them upon resolution.  He submits that even if the sum is characterized as an interim disbursement, it cannot and should not be found to be a gratuitous gift from one party to the other.  David relies on the case of Stuart v. Stuart (2001), 2001 CanLII 28261 (ON SC)24 R.F.L. (5th) 188 (O.N.S.C.), in which Rogers J. in ordering interim disbursements, characterized them as a loan from the husband to the wife.  It is, therefore clear, David argues, that there must be some accounting.

Christine’s Position

[87]           Christine submits that the payment should be interim costs and disbursements.  She states that this was the relief she originally requested.  The reasons that she requested the relief were to pay her expert business valuator and to continue paying her legal fees.

Discussion

[88]           Because case law has characterized prepayments of funds in two or three different ways, characterizing these payments is difficult when they have not been specifically ear-marked as an expense or an advance of equalization.

[89]           Courts have ordered interim costs and disbursement to help one party “level the playing field” in the context of the litigation.  In other cases, the prepayments have also been deducted from the final equalization owing. The court’s characterization in Stuart was really a variation of the concept of an advance on equalization.

[90]           In this case, I intend to characterize the prepayments as interim costs and disbursements because of the vast disparity in the parties’ financial positions.  Christine could not hope to litigate this case without advance funding.  In addition, if the $70,000 is characterized as an advance in equalization, the amount of Christine’s equalization will be reduced to a rather insignificant amount when compared to David’s overall wealth.  Frankly, no matter the final equalization, after paying the legal and valuation fees owing, nothing will be left by way of capital for Christine.  The evidence at trial indicates that Christine owes in the neighbourhood of $350,000 to her lawyers and about $150,000 to her expert valuator.  This was even before the trial concluded.

[91]           I do, however, agree with David’s submission that even if the prepayment of $70,000 is characterized as one of costs and disbursements, some accounting should be made.  In this particular case, the accounting exercise should take place when the court ultimately deals with costs.  In that way, the court will have a more developed understanding about whether the rather large sums of money required to litigate this case were necessary expenditures.  An examination at that time of the offers to settle the case will be instructive.

CHILD SUPPORT

[92]           There is no question that David will pay child support for his daughter, Scarlett.  He takes no issue with this.  He does not want to pay child support for Cole and Tristyn.

Validity of Christine’s Contractual Entitlement to Child Support for Cole and Tristyn

[93]           As stated previously, just prior to the marriage, the parties entered into a marriage contract dated June 24, 2011. While protecting all of David’s business wealth from erosion as a result of separation, the marriage contract contains a rather unusual clause dealing with child support.  I say that it is unusual because it is rare to see child support provisions in a marriage contract.

[94]           Paragraphs 10 and 11 of the marriage contract require David to pay child support to Christine for Cole and Tristyn. These provisions read as follows:

10.  David acknowledges that Christine has two children of a previous marriage, namely Cole MacDonald, born November 15, 2001 and Tristyn Lauren MacDonald, born September 16, 2004.  Christine has custody of the children and they reside with her and David.

11.  David acknowledges that he stands in place of a parent (“in loco parentis”) to Christine’s children, Tristyn and Cole, and shall financially support them as though they are children of his family.  Upon separation, David shall pay Christine child support for the above named children at a minimum rate of $2,543.00 per month based on an income of $197,500.00 until such time as the children turn 18 years of age and/or until they are considered independent adults.

[95]           Whether David is bound by this provision depends on whether it is set aside under s. 33(4)(a) of the FLA

Submissions of the Parties

David’s Position

[96]           David relies on s. 33(4)(a) of the FLA in order to convince the court that paragraph 11 of the marriage contract should be set aside.

[97]           Section 34(4)(a) allows the court to set aside a support provision if it results in unconscionable circumstances. It reads as follows:

Setting aside domestic contract

(4) The court may set aside a provision for support or a waiver of the right to support in a domestic contract and may determine and order support in an application under subsection (1) although the contract contains an express provision excluding the application of this section,

(a) if the provision for support or the waiver of the right to support results in unconscionable circumstances;

[98]           David argues that the following authorities give the court the authority to set aside the child support provision under s. 33(4)(a) of the FLA even though this trial proceeded under the Divorce Act:

1.                  In Desramaux v. Desramaux (2002), 28 R.F.L. 2731 (O.N.C.A), the Court of Appeal applied s. 33(4)(a) of the FLA to set aside provisions for spousal support in a separation agreement and ordered support in circumstances in which a wife had claimed spousal support under the Divorce Act.

2.                  David also refers to the case of Newby v. Newby, 1986 CanLII 2616 (ON SC)56 O.R. (2d) 483 (O.N.S.C.), as an example of a case in which a court applied s. 33(4)(a) of the FLA years after divorce had been granted.

[99]           David submits that because a relationship no longer exists between David, Cole and Tristyn, it would be unconscionable to allow paragraph 11 of the marriage contract to stand.  In addition, he argues that if the court is inclined to set aside paragraph 11 of the marriage contract, then support should be set at nil.

Christine’s Position

[100]      Christine takes the position that David cannot rely on s. 33(4)(a) of the FLA because this application proceeded under the Divorce Act. She submits that s. 33(4)(a) only applies when a child support application proceeds under s. 31(1) of the FLA, which states as follows:

Obligation of parent to support child

31 (1) Every parent has an obligation to provide support, to the extent that the parent is capable of doing so, for his or her unmarried child who,

(a) is a minor;

(b) is enrolled in a full-time program of education;

 …

[101]      The definition of parent is found in s. 1 of the FLA.  It reads:

“parent” includes a person who has demonstrated a settled intention to treat a child as a child of his or her family, …

[102]      Christine submits that it is the decision in Scheel v. Henkelman (2001), 2001 CanLII 24133 (ON CA)52 O.R. (3d) 1, that applies to this case, not Desramaux as argued by David.  Scheel clearly stated that s. 33(4)(a) could not apply to applications under the Divorce Act.  At paragraph 15 of Scheel, the court opined that,

[15]   It is well established that s. 33(4) empowers the court to set aside a waiver of support contained in a domestic contract only when an application for support has been commenced, as in this appeal, under s. 33(1).

This means, according to Christine, that parties moving for support under the Divorce Act – be it child or spousal – cannot avail themselves of s. 33(4)(a). 

[103]      Christine observes that the Divorce Act, under which she has applied for support, contains no provision similar to s. 33(4)(a) of the FLA. If a party wishes to move against all or part of a support provision in an agreement, they must resort to a Miglin analysis: See also Mealey v. Broadbent (1984), 1984 CanLII 3063 (ON SCDC)47 O.R. (2d) 161 (Div. Crt.), aff’d (1987), 5 R.F.L. (3d) 214 (C.A.); and Segal v. Qu (2001), 2001 CanLII 28201 (ON SC)17 R.F.L. (5th) 152 (O.N.S.C.). David has not taken that route.

[104]      Christine made an alternative pleading for support under the FLA. Christine submits that because David initiated a divorce pursuant to the federal Divorce Act and she claimed support in her Answer, both for herself and the children, s. 36(1) of the FLA must be applied to stay the proceedings under the FLA.  That section reads as follows:

Effect of divorce proceeding

36 (1) When a divorce proceeding is commenced under the Divorce Act (Canada), an application for support under this Part that has not been adjudicated is stayed, unless the court orders otherwise.

[105]      Christine says that there is no reason for the court to proceed under the FLA as this court can order corollary relief under the Divorce Act and, therefore, Divorce Act considerations apply.  Federal legislation, she argues, is paramount to provincial legislation.  As a result, the court should not rely upon s. 33(4) of the FLA.

Discussion

[106]      The Desramaux decision has been the subject of a lengthy annotation by Professor James McLeod in the Carswell Reports, 2002 CarswellOnt 2731.  Professor McLeod stated that it is difficult to tell whether the Court of Appeal set aside the support provisions in the separation agreement under s. 33(4)(a) of the FLA or whether it applied the test under the Miglin decision.  David’s point is that the Court of Appeal utilized s. 33(4)(a) in Desramaux in the context of a divorce proceeding and that it is, therefore, sufficient authority to allow this court to do so.  It is interesting to note that in Desramaux it was obvious to the court that the provisions for time‑limited spousal support had to be set aside.  Professor McLeod stated:

Rather than dispose of the case by applying Miglin, the Court of Appeal chose to base its decision on s. 33(4) of the Family Law Act. This seemed an obvious case to override the support provisions of a patently unfair support agreement even under the relaxed “radical, unforeseen change” test applied by the Divisional Court in Santosuosso v. Santosuosso, 1997 CanLII 15688 (ON SCDC)27 R.F.L. (4th) 2341997 CarswellOnt 369 (Ont. Div. Ct.). If anything, the wife in this case appeared to be in a worse financial state. In any event, there seems little doubt that the court could have overridden the agreement pursuant to Abella J.A.’s reasons for judgment in Miglin. Maybe the court was reluctant to apply the case while it is under appeal to the Supreme Court of Canada. Surprisingly, Gillese J.A. did not even mention Miglin or any of the other cases dealing with overriding the support provisions of a final agreement under the Divorce Act. Instead, she held that the trial judge erred in not applying s. 33(4) of the Family Law Act. Gillese J.A. interpreted the trial judge’s reasons to mean that he declined to apply s. 33(4) because the wife had not pleaded the subsection. On the other hand, Gordon J.’s reasons also can be read to mean that he was deciding support under the Divorce Act, that s. 33(4) of the Family Law Act dealt with overriding agreements, not the validity of agreements, and that s. 33(4) applied only in support proceedings under the Family Law Act.This interpretation does less damage to the rules of statutory interpretation, accepted constitutional law principles, and the existing case law than do the alternatives.

It is difficult to disagree with Gillese J.A.'s conclusion that upholding the support release in the agreement would result in unconscionable circumstances within the meaning of s. 33(4)(a) of the Family Law Act since it would leave a long-term traditional spouse with no support, although she was unable to support herself because of the economic disadvantage arising from the roles adopted in marriage, and the husband with a secure well-paying career.

As a matter of statutory interpretation, s. 33(4) of the Family Law Act should be characterized as authorizing a court to override the support provisions of a valid domestic contract in support proceedings under the Act. It is the legislative equivalent of Miglin in support proceedings under the Act. Structurally, s. 33(4) appears as a subsection of s. 33 which deals with spousal support, which in turn suggests that s. 33(4) deals with allowing a court to award support contrary to the terms of a valid contract, not to invalidate a contract in whole or part. The validity of contract rules are contained in Part 4 of the Act, s. 56(4). As might be expected, the factors affecting validity of contract all deal with flaws in the formation of the contract. As the Court of Appeal pointed out in Scheel v. Henkelman, 2001 CarswellOnt 282001 CanLII 24133 (ON CA)11 R.F.L. (5th) 376 (Ont. C.A.)s. 33(4) is directed to the consequences flowing from a valid agreement, not flaws in the formation of the agreement. Unfortunately, Gillese J.A. did not address how s. 33(4) fits within the structure of the Act. This shortcoming is even more problematic in light of the fact that s. 33(4) expressly provides that the power in the subsection is in the context of an application to determine and order support under s. 33(1).

If, as suggested, s. 33(4) of the Family Law Act is merely an authorization for courts to override the support terms of a domestic contract in support proceedings under the Act, the Court of Appeal may have assumed that a court can decide support under the Act in divorce proceedings if this would produce a result that is more acceptable to the presiding judge. With respect, this seems to conflict with the way the paramountcy doctrine has been applied in support cases. If this is the approach adopted by the court, it presupposes two further points. First, if a spouse seeks support under the Divorce Act and the Family Law Act in divorce proceedings, a court may opt to decide support under the provincial legislation, although the federal legislation would lead to a different result. Second, once a support order is made under the Family Law Act in divorce proceedings, a spouse cannot seek a contradictory order under the Divorce Act to supercede the provincial order.

Unfortunately, there does not seem to be a solid jurisprudential basis for either of these statements, and Gillese J.A. did not address either. What case law there is confirms that a spouse can seek a support order under the Divorce Act to supercede a provincial order, instead of applying to vary the provincial order. Accordingly, if a court would reach a different result under the Divorce Act than under the Family Law Act, the husband can just apply to determine the wife’s support under the Divorce Act, in which event the divorce order would supercede the provincial order by paramountcy: cf. Pantry v. Pantry, 1986 CanLII 2537 (ON CA)50 R.F.L. (2d) 2401986 CarswellOnt 333 (Ont. C.A.); Clayton v. Clayton, 19 R.F.L. (Jill 430, 1989 CarswellOnt 232 (Ont. Div. Ct.).

Moreover, s. 36(1) of the Family Law Act stays any support proceedings under the Family Law Act without leave once divorce proceedings are commenced, which suggests that a court should order support under the Divorce Act in divorce proceedings. Unfortunately, Gillese J.A. did not even mention s. 36(1) of the Family Law Act, which suggests that she was not awarding support under that Act.

[107]      When I examine the pleadings in this case, it is clear to me that Christine is seeking spousal and child support as corollary relief pursuant to the Divorce Act, meaning that any application for support under the FLA was and remains stayed under s. 36(1).   Christine’s pleading for support under the FLA is raised as an alternative pleading.  There is wisdom in that.  If for any reason, a divorce is disallowed, corollary relief could not be granted, but support claims could still be pursued under the FLA

[108]      I am of the view that as long as Christine’s claim for support is made and granted under the Divorce Act, David’s attempt to invoke s. 33(4)(a) of the provincial legislation is invalid. While s. 36(1) of the FLA gives me the discretion to lift the stay of proceedings, I am not persuaded by David’s submissions, that I should do so in this case.  To do so would be to turn s. 33(4) into an override provision. As a result, David cannot use the provisions under s. 33(4)(a) of the FLA.

[109]      If I am incorrect in taking the above approach, I would still disallow David’s attempt to utilize s. 33(4)(a) of the FLA. For the reasons explained when I was dealing with David’s post-separation relationship with the children, I do not find in the circumstances of this case, that paragraph 11 of the marriage contract results in unconscionable circumstances towards David.  Unconscionable is not simply unfair or unjust.

[110]      On the contrary, the provision for support if set aside, would result in unconscionable circumstances towards Cody and Tristyn, especially in circumstances where David freely bargained to preserve his business wealth in exchange for a promise to support the children.  It would be a strange result, indeed, if David were allowed to retain all of the benefit of the agreement without having to abide by the bargain he made in consideration for that agreement.

[111]      All legislation, be it federal or provincial, dealing with child support should be interpreted in favour of children.  There are a myriad of cases in which courts have set aside support provisions where that provision has resulted in unconscionable circumstances.  Most, if not all cases, deal with support obligations between adults and not with the issue of child support.  David has not referred me to any case that would allow me to consider the issue with respect to an attack on child support provisions alone.

[112]      The child support provisions in the marriage contract will not be set aside.

Interpreting the Contractual Support Provisions

[113]      Even though the contractual child support provisions are valid, the court must still determine whether as a matter of interpretation, Christine’s biological children are entitled to support within the meaning of the contract. This question requires an exploration of the concepts of settled intention, in loco parentis and “standing in place of a parent.”

[114]      The parties’ contractual child support clause requires David to pay support on the grounds that “he stands in place of a parent (“in loco parentis”) to Christine’s children, Tristyn and Cole…”

[115]      Christine spent a considerable amount of time attempting to establish an evidentiary basis to prove that David adopted a settled intention to treat Cole and Tristyn as children of the marriage within the meaning of the contract.  She also spent additional time on this point in her written submissions.  She need not have done so.  David clearly admitted that he “stood in the place of a parent” to Cole and Tristyn during the marriage.[3]  This admission simply buttresses the evidence he gave at trial that clearly indicates that he treated the children (Cole and Tristyn) as part of his family.

[116]      David submits that after separation, he no longer stands in place of a parent to Cole and Tristyn. While he stood in place of a parent to them prior to separation, his intention to treat Cole and Tristyn as part of his family changed, through no fault of his own, after separation.  He submits that he made overtures to the children with respect to having a relationship with them, but Christine rebuffed him and threatened him with criminal charges. Therefore, he wants to rely on cases that have decreased or terminated the obligation to pay child support for a step-child based on the strength of the step‑parent/child relationship.

Discussion

[117]      The child support clause is not well-drafted in the sense that it uses the archaic common‑law term “in loco parentis” as well as the more modern term of “settled intention” or “stand in the place of a parent”.  I raise this as it is important to attempt to understand what the parties’ intentions were when they decided to include the issue of child support in the contract.  Having said that, and given the fact that there is no definition of the term “in loco parentis” in the contract, I conclude that “in loco parentis” and “stands in the place of” carry the same meaning.

[118]      The only evidence at trial about the possible meaning of this clause from the parties’ perspectives was indirect.  Christine testified that an earlier draft of an agreement protected David’s business assets only and, therefore, feeling it was one-sided, she asked that it be changed to include child support in the event of separation.  David readily agreed.  Further, the bargain as contained in the contract was that David could protect his business assets as long as he recognized an obligation to support Cole and Tristyn.

[119]      Neither party produced direct evidence to explain their understanding of the meaning of the clause.  In fact, at one stage during the trial, David’s counsel objected to Christine giving any evidence about her intention as offending the parol evidence rule.  He argued that the meaning of paragraph 11 of the contract is clear on its face.  I do not think it is.  The difficulty I have, however, is that I have no evidence to shed any light on what the parties intended when they used the terms “in loco parentis” and “stands in place of a parent”.  Did they, for instance, simply mean to agree that David would have an obligation to pay support for Cole and Tristyn upon separation no matter the relationship?  Or did the parties intend that these terms as interpreted by the courts would apply?  If so, can David rely on case law that reduced or even stopped the obligation to pay child support for step-children depending on the ongoing relationship?  

[120]      Given the fact that a legal term of art is used in the contract, the better view is to examine how case law has dealt with the concept of “settled intention” in circumstances where the adult-child relationship has deteriorated to the point of no contact, rather than to treat the paragraph simplistically and accept that child support must be paid because that was the bargain.

[121]      The term “stands in place of a parent” is used in s. 2(2)(b) of the Divorce Act, which states that a child of the marriage is “any child of whom one is the parent and for whom the other stand in the place of a parent.”

[122]      David submits that while he stood in the place of a parent to Cole and Tristyn prior to the parties’ separation, he no longer stands in the place of a parent because he and the children (Cole and Tristyn) have no relationship.  He blames Christine and, to some extent, Cole for this.

[123]      The facts of the case disclose that David, who at first had a warm and loving relationship with both of his step-children, began to get testy and angry with them over many things.  There were angry words, especially between David and Cole.  In her testimony, Christine stated that David’s warm relationship with the children started to change around 2012 when David became pre‑occupied with buying his Uncle Ron’s shares.  Money and finances seemed to be the focus of David’s anger.

[124]      In any event, the separation itself was precipitated by a confrontation that David had with Cole while Christine was on vacation in Las Vegas with her sister.  Christine received a frantic telephone call from her daughter that caused her to worry about the children’s safety.  David’s mother, Diane, who lived next-door to David, picked the children up and removed them from David’s house.  The children went to live with Christine’s sister and brother‑in-law, who were close-by, for a few days.  When Christine returned from Las Vegas, she left with the children for Newfoundland and did not return.

[125]      David submits that Christine is making more of the incident that it is worth.  He maintains that while Cole was disruptive, David did not get physical with him, but simply told him to go to bed.  David also states that after the separation he attempted to foster an ongoing relationship with the children, but was prevented from doing so because Christine and Cole and Tristyn’s biological father prevented him from doing so.  David argues that they wanted him out of the children’s lives.

[126]       David raises the case of Sutherland v. Schamp, 2014 SKQB 34 (CanLII)437 Sask. R. 56, in which the court stated, 

[I]f a stepchild of sufficient age or maturity unilaterally rejects the stepparent, or where there is a bilateral or mutual rejection of one another, absent compelling reasons to the contrary, the legal standing with its attendant rights and obligations should cease.

[127]      In V.(R.A.) v. V.(S.M.I.), 2007 BCSC 1896 (CanLII)48 R.F.L. (6th) 413, the court held that if a parent acts in a manner that interferes in the step-parent/child relationship, this can be considered in dealing with the amount and duration of support.  It also stands for the proposition that another biological parent’s obligation should be considered.  David raises Ollinger v. Ollinger, 2006 SKQB 433 (CanLII)32 R.F.L. (6th) 425, which is authority for the proposition that “standing in place of a parent” is non-static and can be lost if mature children decide to have no association with a step-parent over a number of years. See also Kincaid v. Arsenault, 2002 CanLII 49547 (ON SC)27 R.F.L. (5th) 84 (O.N.S.C.).  In both Ollingerand Kincaid, the court dealt with teenage children.

[128]      Christine relies on the leading case of Chartier v. Chartier, 1999 CanLII 707 (SCC)[1999] 1 SCR 242134 Man. R. (2d) 19, which held that once a person is found to stand in the place of a parent, the relationship cannot be unilaterally withdrawn.  The breakdown of the relationship after separation is not a relevant factor in considering the issue.  Christine also makes reference to the case of Spring v. Spring (1987), 1987 CanLII 4379 (ON SC)61 O.R. (2d) 743 (U.F.C.) for this point.

[129]      On the facts, it is clear to me that David had a part to play in the poor relationship that developed with Cole and Tristyn after the separation.  I find that he minimized or attempted to minimize the conflict he had with Cole.  On his own evidence, he testified that he had no ongoing relationship with the children because he was concerned that he might be reported to the police.  He, as the adult, did nothing to contact the children – no cards, no emails, no letters.  It is clear to me from his evidence that he was determined to treat Scarlett as his only child.  Further, it is my view that his antipathy towards Christine prevented him from having an ongoing relationship with his step-children.

[130]      I should also say at this point, that the cases that reduced or dismissed child support all involved older children.  At separation, Cole was almost 13 years of age and Tristyn was almost 10 years of age.  They did not have the maturity or resources that an older child might have to deal with the relationship issues.  It may be that at some point in the future their maturity will become more of a factor.  It was not a factor at separation or, thereafter.  Therefore, the cases David raised do not apply.

[131]      While it is true that Christine and the children’s biological father have not fostered a relationship between Cole, Tristyn and David, I find that there was reason for them to be concerned about David’s feelings towards Cole and Tristyn should there be contact.  Christine has arranged counselling for the children to help them deal with the issue.  It might be helpful for David’s future relationship with them if the entire family consideres counselling.  That is, if repairing the relationship truly is a goal.

[132]      For David to be successful in his argument that he is estranged from the children and that none of the estrangement is his fault, he would have had to convince me on a balance of probabilities that he was and remains entirely innocent in causing the estrangement.  He attempted to do so by producing his lawyer’s letter asking for access some months after the separation.  This was entirely self-serving.  There had been no attempt on David’s part to reach out to them to try to increase their comfort level about such a request.

[133]      Under all of the circumstances of this case, I do not find it surprising that Christine and the children’s biological father have been less than willing to have the children see David.  Any reconciliation will have to first start with him.  He is the adult.

[134]      Therefore, I find that Cole and Tristyn are entitled to child support because David continues to stand in place of a parent to them within the meaning of the contract.

Determination of David’s Income for Support Purposes

[135]      Having determined that all three children are entitled to support, the court must determine David’s income for child support purposes.  It is not easy to determine.  He draws a monthly income from his company, Knight’s Appleden, in the amount of $8,500.  This amount has been fairly standard for some time.  It was set by his father before David became the controlling shareholder.  Prior to May 2014, the amount may have been a bit lower ($8,000).  In addition, the company pays his propane and electricity expenses for his residence and his vehicle expenses for the sports utility vehicle he drives.

[136]      David also charges a number of expenses to one or more of his credit cards.  He then meets with his company manager or “comptroller” from time‑to‑time and instructs his comptroller as to whether a particular expense can be written-off as a business expense or whether it is a personal expense.  The choice is David’s.

[137]      The draw and the personal expenses are then allocated to David’s shareholder loan account.  At the end of each fiscal year, David’s accountant, Mr. Machon, advises David as to the most cost effective way to declare income – either through the declaration of a dividend or by way of income.  As a result, David’s income varies from year to year, sometimes considerably.  Both Mr. Ferth, the comptroller, and Mr. Machon testified that it is solely up to David to allocate the expenditures as he sees fit.

[138]      Since David, alone, can exercise his discretion with respect to expenses, he has a financial advantage over a regular salaried worker.  For instance, on business trips, David is able to allocate certain expenses of the trip to his business account, notwithstanding the fact that the items he purchases or consumes give him some personal benefit.  Another example is that David’s hunting trophies are written-off as business expenses.

[139]      At trial, much time was devoted to the issue of David’s income.  Both the companies’ comptroller and accountant were called to give evidence, as was David’s banker.  All were extensively cross-examined.  The parties, to their credit, were able to resolve the issue of David’s income for the years leading up to 2017.  As a result, the business valuators retained by both sides did not have to testify, saving, perhaps, two days of trial.  The parties instead filed exhibits numbered 82 and 83 with the court.

[140]       Exhibit 83 shows that David’s annual income was as follows for the years 2012 through 2016:

2012 - $344,225

2013 - $495,125

2014 - $337,876

2015 - $184,248

2016 - $186,756

[141]      The income for support purposes laid out above is agreed upon. Exhibit 83 shows the projected income figure for the year 2017 as $1,080,066.  This figure is not agreed upon. The 2017 income figure consists mainly of a dividend gross-up of $531,000 and a capital dividend that David received from Scarlett Acres. Part of the parties’ dispute over how to calculate David’s 2017 income is whether to include this dividend in it. 

[142]      Exhibit 82 is a joint statement filed by the parties that assists in explaining David’s income with some emphasis on his 2017 income.  I have reproduced it and attached it as Schedule “A” to this judgment.  The questions to be explored now are the amount of David’s 2017 income and the amount of his annual income for support purposes.

Submissions of the Parties

David’s Position

[143]      David points out that his income has not been very strong for the last two years (2015 and 2016) because the companies’ earnings have not been strong and he is basically living off debt as the companies carry a long-term debt of about three million dollars (fluctuating).

[144]      The companies have entered into two debt covenants with their lending bank.  These covenants are a current ratio covenant, which measures a company’s ability to meet its current obligations, and a fixed charge coverage ratio, which measures cash flow.  To be offside with respect to these covenants is to risk having the bank debt called, which would likely shut down the businesses’ operations.

[145]      Prior to 2014, the bank had only demanded that the companies comply with the current ratio covenant.  This test was not met in 2014.  The evidence is unclear, but perhaps as a result of this, the bank demanded the second covenant – the fixed charge ratio.  The companies were not in compliance with either covenant at the time of trial.

[146]      The only year in the last few that David’s companies have been in compliance with these covenants was 2015 as a result of the sale of some land (which will be discussed in more detail below).  In 2016 and 2017, the companies were not in compliance.

[147]      David’s accountant prepared a schedule showing that with the exception of 2016, David’s companies have not been profitable since 2014.

[148]      David submits that his companies show a net loss over the last six years from their business operations.  I am attaching a copy of the accountant’s handwritten schedule (as set in Exhibit 47) as Schedule “B” to this judgment to illustrate the points David raises.

[149]      In 2015, the companies sold some long-owned land near Lake Ontario that was basically redundant to the apple growing operation.  The land was sandy making it of poor quality for growing apple trees.  The sale netted a profit of $908,000.  Although the land was sold in 2015, it was not until 2017 that David declared a capital dividend of about $526,000.

[150]      David submits that because the sale of land was a one-time, non-recurring event, it should have no bearing on his income for support purposes.

[151]      He also submits that when he redeemed the proceeds of the dividend, he simply reinvested it in the companies.  David states that this was prudent practice because of the companies’ recent poor financial performance.

[152]      David submits that most of his personal earnings have been financed by debt, not corporate earnings, and that this fact should be taken into account when assessing his income.

[153]      David started the fiscal 2017 year owing the sum of $87,500 on his shareholder’s loan account.  As a result, he proposes that his 2017 earnings (income) could be set at $315,000 calculated as follows:

1.                  $87,860 being the debt owed to his shareholder’s account at the start of the year;

2.                  $102,000 representing his monthly draws;

3.                  $2,932 for the income tax paid by Big “A”;

4.                  $339 paid to David’s accountant by Big “A” for the preparation of his income tax return;

5.                  $5,420 for personal use propane paid by Big “A”;

6.                  $4,375 for personal use Hydro paid by Big “A”;

7.                  $652 for personal legal payments paid by Big “A”;

8.                  $111,450 for payment of personal expenses by Knight’s Appleden.

[154]      The total of all payments for David then is $315,028, which David submits should be his 2017 income.  However, David also recognizes that as the amounts set out are net amounts, it would not be unfair to gross-up the total by his personal tax rate, raising his 2017 income to the equivalent of $602,000.

[155]      David also argues that his income on an ongoing basis should be set at $190,000, which is the rough equivalent of his income in 2015 and 2016.

[156]      As an alternative, David proposes an income of $228,676, which is the average of his income from 2015 ($184,000), 2016 ($186,000) and 2017 ($315,028).

[157]      As a further alternative position, David argues that his income for support purposes could also be set at $324,330 as this is the average of his 2015 ($184,000), 2016 ($186,000) and 2017 ($602,000) income.

[158]      Finally, David also submits that his income for support purposes could be set at $236,333, which is the average of his income for the years 2014, 2015 and 2016. This would properly exclude the results of the 2015 capital asset disposition, which was taken as a dividend in 2017.

[159]      David cites the case of Brophy v. Brophy (2002), 2002 CanLII 76706 (ON SC)32 R.F.L. (5th) 1 (O.N.S.C.), in support of his position to ignore the 2017 capital dividend.

[160]      In that case Linhares de Sousa J. set out a list of factors to be taken into account when considering whether to impute corporate income to a support payor.  They are as follows:

(a)               As a result of the fact that a corporation is a separate legal entity, should there be a general reluctance by the court to automatically attribute corporate income to the shareholder?

(b)               Is there a business reason for retaining earnings in the company? 

(c)               Is there one principle shareholder or more?

(d)               What is the historical practice with respect to retained earnings?

(e)               What degree of control is exercised by the spouse over the corporation?

[161]      Finally, David points out that to include the capital dividend as 2017 income would offend the provisions of the parties’ marriage contract that sought to exclude corporate property.  The land that was sold was owned by the corporation; it was not personally owned.

Christine’s Position 

[162]      Christine makes the following points:

1.                  Averaging would be the fairest way to determine David’s income as his line 150 income on his tax return does not represent the income that is available to him to meet his ordinary living expenses.

2.                  Averaging is warranted because David’s spending supports a lifestyle that has little relationship to the profitability of the companies in any given year.  Christine is asking the court to average David’s income over a six year period.

3.                  Christine relies on the case of Punzo v. Punzo, 2016 ONCA 957 (CanLII)90 R. F. L. (7th) 304, to advance her position that in order to achieve a just result, the court may apply an average that is longer than three years in the right circumstances.  See also Harras v. Lhotka, 2016 BCCA 246 (CanLII)88 B.C.L. R. (5th) 322.

4.                  David, as the controlling shareholder of the companies, is able to take steps that materially affect the income he has available to him for meeting his expenses.

5.                  David’s income for support purposes should reflect the amounts available for spending regardless of characterization.  Looking to David’s spending patterns is a more reliable indicator of income than looking at other factors.  Over the years, no matter the profits of his companies, David’s pattern of spending remained high.  He takes his monthly draw and then credits many of his living expenses to his shareholder’s loan account.  A true measure of his income then is the total of his draws, and his spending charged to his shareholder’s loan account, plus whatever else the companies pay for his personal expenses.  It should also be noted that David clears his shareholder’s loan account regularly so as not to trigger action from the tax authorities.

6.                  Notwithstanding point three above, David, through the sale of assets from time to time, can increase the amount of money available to him.  This happened in 2015 when David cashed in the surrender value of a life insurance policy for a significant amount ($156,000) and again in 2017 when the capital dividend was declared.

7.                  Christine relies on Marinangeli v. Marinangeli (2003), 2003 CanLII 27673 (ON CA)66 O.R. (3d) 40 (C.A.), for the proposition that the capital dividend David took (which otherwise would have had to be taken as salary) should be included in income because the children should be able to benefit from these funds.

8.                  Christine spent a considerable amount of time, both during the trial and in her further oral submissions on February 23, 2018, attempting to prove that David’s income over the last few years is purposely low because his accountant expensed new trees instead of following the policy set out in the companies’ own financial statements that would have required a gradual write-down, as opposed to an immediate one.  This would have the effect of abnormally reducing income in the year that the new trees were purchase by increasing expenses dramatically.

9.                  The bottom line, Christine argues, is that the court should determine that David’s income for the 2017 year is at least $600,000 for support purposes.[4]

Discussion

[163]      Sections 16 and 17 of the Federal Child Support Guidelines, SOR/97-175 (“the Guidelines”) outline how to calculate a party’s income for child support purposes. 

[164]      Section 16 of the Guidelines makes line 150 of the T1 General form the starting point for determining income. This section reads as follows:

Calculation of annual income

16 Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.

[165]       Section 17 of the Guidelines allows the court to deviate from a party’s line 150 income by averaging their income over a period of years and by accounting for non-recurring losses. It reads as follows:

Pattern of income

17 (1) If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.

Non-recurring losses

(2) Where a spouse has incurred a non-recurring capital or business investment loss, the court may, if it is of the opinion that the determination of the spouse’s annual income under section 16 would not provide the fairest determination of the annual income, choose not to apply sections 6 and 7 of Schedule III, and adjust the amount of the loss, including related expenses and carrying charges and interest expenses, to arrive at such amount as the court considers appropriate.

[166]      Christine would have the court impute income to David, but I do not believe that is the exercise the court should engage in in this case.  David is not intentionally unemployed, nor is he working less than should reasonably be expected.  His income needs to be determined not imputed.  Granted, it is difficult to determine his income with great precision because he has such great control over what it is on a year-over-year basis.  Nonetheless, it is the court’s task to determine a spouse’s income for support purposes.

[167]      This case presented two very different ways of determining David’s income for support purposes. One method would be driven off a calculation of corporate profits. A second method, which I have chosen to adopt, is driven off spending. The income David has available to him has little to do with corporate profit or loss in any given year (or years).  His income is based on his spending habits.  He is able to rely on profits (to a point), but even in years in which the companies have losses, he is able to spend what he wants with the aid of the bank’s long-term debt.  It is important to remember that David’s companies have historically weathered many storms.  They have suffered through periods of losses and periods of profits.  Although David’s accountant testified about the fact that the companies had been through recent periods of losses and the fact that the bank’s covenants have been breached, his more important evidence was that David and his companies are “credit worthy” clients.  That is precisely why David’s bank has not forced him to close down and pay off debt, notwithstanding the fact that from time-to-time the bank’s covenants are breached.

[168]      David stresses that he finances his lifestyle by debt.  That might be so in the short term, but to this court, it does not seem so in the long term.  Nor, as pointed out above, does it seem so to David’s banker, who is more than satisfied to have David and his companies continue as a customer.

[169]      If David spends more than he prudently should in a year, his dependents should also be able to rely on his pattern of spending.

[170]      It might even be true that there are some dark clouds on the horizon.  The increase in minimum wage in Ontario and the fact that David’s companies have been reported to Service Ontario about issues affecting migrant workers, and resulting litigation might be factors that affect the financial bottom line of the enterprise.  However, David is in the apple business.  His companies have seen very strong years and weaker years.  Profits fluctuate.  The evidence led about the minimum wage and difficulty with Service Ontario, taken in isolation, is not determinative of income because from year-to-year, one cannot determine with any precision what the apple crop will yield.

[171]      I also dismiss David’s argument that the fairest way of determining his income is in hindsight, with a particular focus on the year of separation.  That has never been an accepted way of determining income for ongoing and future support.

[172]      I find that the fairest way of determining David’s annual income is to exclude the capital dividend he received in 2017 as a one-time payment.  It resulted from the sale of land in 2015.  That sale converted land for cash.  It had very little to do with David’s ongoing business, which is the growing, packaging and distribution of apples.  His business is not in land sales.  If it was, given the length of time his companies have owned the orchards he grows his crops on, he would likely be able to sell his land for millions of dollars in profit.  That, however, is not what this issue is about.  David and Christine signed a valid, subsisting marriage contract that excludes assets of this nature.  To allow Christine to successfully argue that the one-time declaration of a capital dividend arising from the sale of land be taken into income, would be getting through the back door what she could not get through the front door.

[173]      Similarly in 2015, David converted the cash surrender value of a life insurance policy he owned.  Once again, this was an asset of David’s that he cashed.  It had little to do with his income from his business.  It would, however, be reasonable to conclude that his income from the business would have been higher that year in order to meet his spending.  He met a number of his expenses by using the cash surrender value of the insurance policy.  It is highly likely that had he not structured his affairs this way, he may simply have taken the money in the usual manner and accounted for it at the end of the year.

[174]      The parties’ agreement on David’s income for support purposes for the years 2012 – 2016 (see Exhibit 83) more fairly reflects the concept of spending than it does corporate profit and loss.  The difficulty is that it fluctuates quite dramatically from year-to-year.  The fairest way to determine David’s income for support purposes, therefore, is to average it.  Based on the Ontario Court of Appeal decision in Punzo, and the recent fluctuations that are noted in Exhibit 83, I intend to average David’s income over a four year period beginning in 2014.  A four year average captures two high-income years and two lower-income years.  It also takes into account the fact that in 2015, David was able to use cash from another source (life insurance) to fund his spending.  His income over the course of these years is as follows:

1.      2014:         $338,000

2.      2015:         $184,000

3.      2016:         $187,000

4.      2017:         $600,000

TOTAL      $1,309,000 ÷ 4 = $327,250

The four year average is, therefore, $327,250.  I accept David’s income was $600,000 in 2017 as that figure represents his spending and a gross-up for income tax purposes.  In addition, it is a figure that both David and Christine had proposed in their final written submissions.  It does not take into account the capital dividend that was issued to David in 2017.  It is a fair amount of income based on lifestyle spending, as opposed to corporate profit and loss.

[175]       It is interesting to note that David applied for a personal line of credit from his bank shortly after the separation.  Although he knew that the former matrimonial home would be used as collateral, he failed to get Christine’s consent for this transaction.  He also approved of the fact that the bank set out his then current income (November 2014) as $388,308 a year.  David dealt with this evidence in a very cavalier manner – he stated, that, as his bankers knew him, all this information was bank generated and he just signed what the bank wanted him to sign without paying much attention.  I do not accept that a sophisticated businessman, as David is, would deal with an important matter such as a line of credit in such a way.

Income Going Forward

[176]      It is also important to use the average income figure on a go-forward basis for support purposes as to use the $600,000 amount would give David too easy an opportunity to manipulate his spending in order to lower his support obligations.

Quantum of Child Support to be Paid by David for Three Children

[177]      In this case, determining David’s income for child support purposes does not settle the issue of quantum because David takes issue with the amount and duration of child support that should be awarded for Cole and Tristyn under the contract.

Submissions of the Parties

David’s Position

[178]      David makes the following points:

1.                  The court should take into account the short duration of the parties’ cohabitation and marriage.  As David supported his non‑biological children during the relationship, and has, for the most part, continued to do so since separation, that support should be sufficient.

2.                  The proper amount of the biological father’s child support payments should be ordered before any award of child support is made for Cole and Tristyn.

3.                  The maximum amount of child support that should be paid for the non‑biological children is $2,543 a month, which is the amount set out in the marriage contract.  It is based on David’s then declared income of $197,500 a year.  This amount should be decreased either by the amount found properly owing by the biological father or at least by the amount that the biological father now pays.

4.                  Child support, if ordered for Cole, should be adjusted when Cole reaches 18 years of age.  It should then be fixed for one child, Tristyn, based on $197,500, David’s declared income in the marriage contract, and should terminate when she turns 18 years of age.

5.                  Alternatively, any child support granted for David’s non-biological children should be reviewed in one year, by which time Christine should be ordered to pursue her right to vary the child support being paid by the children’s biological father.

6.                  Finally, David should not have to share in the special expenses for Christine’s biological children.

Christine’s Position

1.                  David should pay full Guideline table support for all three children based on his income as found by the court.

2.                  Full table support is not inconsistent with the terms of paragraph 11 of the parties’ marriage contract.

3.                  Even if two interpretations of paragraph 11 of the marriage contract are possible, the court must choose an interpretation that reflects the parties’ intentions.  Paragraph 11 creates a floor (minimum amount) for David’s child support obligation.  It should not be interpreted as either fixing the level of support for all time nor should it be interpreted as creating a ceiling.

4.                  To award the full table amount under the Guidelines is consistent with the parties’ intent because this is the amount that would provide adequate support for the children.

5.                  David’s lifestyle is luxurious.  David has access to Scarlett pursuant to a consent court order.  The court, in setting support in a divorce case, should ensure that the lifestyle enjoyed by all of the children when in their different homes is not so disparate as to become an issue between them.

Discussion

[179]      In the case of MacDougall v. MacDougall (2005), 2005 CanLII 44676 (ON CA)262 D.L.R. (4th) 120 (C.A.), at para. 20, the Court of Appeal outlined how to apply the rules of contractual interpretation to domestic contracts. It quoted with favour a statement from the case of Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC)[1980] 1 S.C.R. 888, as follows:

 [T]he normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated … [in context]. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intention of the parties and their objective in entering into the … transaction in the first place should be discarded in favour of an interpretation of a policy which promotes a sensible … result. (p. 901)

[21]      In B.G. Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC)[1993] 1 S.C.R. 1299 D.L.R. (4th) 577, the Supreme Court provides further guidance:

It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole (pp. 23 - 24)

[180]      The Court in MacDougall, at para. 22, then went on to say the following:

[22] Applying that principle to domestic contracts, a court must search for an interpretation that is in accordance with the parties' intention at the time they entered into the contract. Where two interpretations are possible, the court should reject the one that would produce a result that the parties would not have reasonably expected at the time they entered into the contract. Instead, the court should favour an interpretation that promotes the reasonable expectations of the parties and that provides a sensible result in the family law context. To arrive at such an interpretation, the court must interpret the provision in the context of the entire contract, including the entirety of the section at issue, to discern the likely intention of the parties.

[181]      In applying these principles to the present case, the evidence is clear that David disclosed, through words and actions, to Christine that he was a wealthy person.  He promised that if she moved to Ontario, he would look after her family.  Closer to the wedding, he raised the subject of a marriage contract with Christine.  Although she was surprised by the suggestion, she did seek legal advice and freely entered into a bargain that protected David’s business assets from division upon separation.  In return, her pension would also be protected.  Further, and most importantly, David’s original promise to her about supporting her children would be committed to writing.

[182]      There was no real disclosure of the then present day value of David’s major assets.  Christine knew, however, that David was planning to build a new custom house and that he had sufficient funds to take lavish trips, buy her very expensive gifts and drive luxury automobiles.

[183]      Paragraph 11 of the marriage contract was never intended to set a ceiling on child support.  It was a broad attempt, by way of an estimate by David, to set out David’s then annual income (or, at least part of it) and relate it to the Guidelines.  In the context of the bargain made between David and Christine, it was to assure Christine that, at a minimum, there would be a figure under the Guidelines that she could rely upon.  I stress that the word “minimum” is used.

[184]      In determining the intention of the parties at the time the contract was signed, I find as follows:

1.   David agreed to support Cole and Tristyn in the event of a separation.

2.    The level of support would be dependent on David’s income for Guideline purposes.

3.     There was never any intention that support paid during cohabitation and marriage would be sufficient for them and could end in the event of separation.  No evidence was led during trial to suggest otherwise.

4.        The bargain as set out in the parties’ agreement, was that David’s business assets would be excluded from division. In return, Christine’s pension was also excluded and her children would receive support under the Guidelines.

[185]      At the time the parties entered into the marriage contract, David was fully aware that Cole and Tristyn’s biological father was paying child support or should have been paying child support.  No mention of this fact was made in the marriage contract.  I, therefore, reject David’s argument requesting either a delay or a reduction in child support because of the amount of child support the biological father is paying.  To take this into account would be engrafting a provision onto the marriage contract that the parties did not intend.

[186]      Throughout David’s submissions he argues that the children should receive no child support or a reduced amount of child support.  In my view, his submissions in support of this position conflate the issue of entitlement “in loco parentis” with either the contractual amount of child support David agreed to pay or with child support under the Guidelines.  I reject these submissions.

[187]      David will, therefore, be ordered to pay Christine child support for three children based on a yearly income of $327,250.  The amount of support to be paid is $2698 plus 1.46% of his income above $150,000 (calculated as: ($327,250 – $150,000) x 1.46% = $2587.85). The total, therefore, is $5,286 monthly, rounded up based on the most recent table amounts.

[188]      David’s income is in excess of $150,000. Section 4 of the Guidelines allows a court to order support in an amount that differs from the table amounts. Section 4 could be applied under the terms of the contract, but in this case, the amount determined under s. 3 of the Guidelines is not inappropriate, especially when one considers the possible disparity in David and Christine’s standard of living and the effect that might have on Scarlett. The amount calculated under s. 3 is also not inappropriate for Scarlett.

[189]      Section 5 of the Guidelines was not placed in submissions before the court.  This section gives the court some discretion to order appropriate support in situations involving a payor who stands in place of a parent.  The court can consider an applicable amount of support “having regard to these Guidelines” and any other parent’s legal duty to support the child.”  For the reasons stated above, this paragraph does not affect my decision to award Guideline support.

[190]      Paragraph 11 of the parties’ agreement contractually binds David to pay child support for Cole and Tristyn until they are 18 years old or until they are considered independent adults.  Therefore, his submission to terminate support for them when they turn 18 will have to wait for future events.  I note that the marriage contract does not contain a variation clause for child support.

[191]      Scarlett’s child support is governed by the child support provisions under the Divorce Act as her support is not covered by contract.

[192]      If I am incorrect in deciding that support is owing for Cole and Tristyn as a contractual obligation, then I would still order that David pay the full table amount under the Guidelines for all three children.  

Section 7 Expenses

[193]      I heard some evidence at trial that each of the children might be entitled to special expenses.  Evidence with respect to Cole’s hockey, Tristyn’s dance lessons, and Scarlett’s psychological care was touched upon.  However, no specific costs were covered, nor were receipts presented.  No mention of special expenses was made in Christine’s submissions.  As a result, there will be no order made for special expenses at this time.

Retroactive Child Support

[194]      Paragraph 11 obligates David to pay retroactive child support for Cole and Tristyn from the date of separation.  The parties separated on August 1, 2014.  Retroactive support should be paid from that date forward.  Scarlett too, is entitled to child support from that date.  Child support on a retroactive basis should be paid from the date of separation in 2014, and for the years 2015 and 2016, in accordance with David’s income as set out in Exhibit 83.  These amounts are $338,000, $184,000, and $187,000 respectively.  

[195]      I decline to accept Christine’s argument that David’s income for retroactive purposes should be the average I have found.  My reason for so doing is that the parties themselves, with the advice of counsel and other professionals, came to an agreement on income for the period of time for which child support should have been paid.  I will not interfere with that.

[196]      Income for 2017, for the purpose of the retroactive support issue, is $327,250.  I do not think the $600,000 figure should be used to calculate retroactive support owing for 2017.  While I have used it to calculate David’s income for 2017, I used it in order to arrive at a fair income for 2017 by averaging. It would be illogical to find that David’s income for 2017 is $600,000 for retroactive purposes but different ($327,250) for ongoing purposes.  

[197]      David is to get credit for any amounts of child support he has already paid to Christine.  If the parties cannot calculate the amount of outstanding retroactive support owing, I may be spoken to.

SPOUSAL SUPPORT

Entitlement

[198]      The parties’ dispute whether Christine is entitled to spousal support under the three conceptual bases for spousal support laid out in Bracklow v. Bracklow, [1991] 1 S.C.R. 420.

Submissions of the Parties

David’s Position

[199]      David takes the position that Christine is not entitled to spousal support.  The reasons he advances for this submission are:

1.    Christine did not feel it necessary to proceed with a motion for temporary support.

2.     Christine will gain financially from the marriage as she left Nova Scotia to move to Ontario with nothing but debt.

3.      Christine was able to transfer her Yellow Pages employment from Nova Scotia to Ontario and maintained her previous level of remuneration.

4.     Christine only left her employment in 2013 after her maternity leave,  against David’s wishes.

5.     Christine was able to secure gainful employment after her maternity leave, but after three months, simply quit her job without a good excuse.

6.     Christine is currently working but is underemployed and, therefore, income should be imputed to her in the amount of $100,000 a year as that is what she is capable of earning.

[200]      Finally, David submits that if Christine is awarded support, it should be clearly defined and time-limited given the short length of the parties’ cohabitation.

Christine’s Position

[201]      Christine submits that she has proven an entitlement to support, especially if the court takes into account the conditions, means, needs and other circumstances of the parties, and other factors enumerated in s. 15.2(4) of the Divorce Act.

[202]      Christine also relies on the case, Bracklow v. Bracklow, which established three conceptual bases for support – compensatory, non-compensatory (needs based), and contractual.

[203]      In relying on Leskun v. Leskun, 2006 SCC 25 (CanLII)[2006] 1 SCR 920,  Christine submits that income is not the only factor that the court should consider in taking into account a party’s conditions, means, needs and circumstances.  She points out that the court in Leskun, directed that a party’s means and ability to pay spousal support broadly includes “all pecuniary resources, capital assets, income from employment or earning capacity, and other sources from which the person receives gains or benefits” (see Leskun, at para. 29).

[204]      Christine sets out a number of factual matters she wants the court to take into account in determining the issue of entitlement.  They are:

1.       The respective position of the parties prior to the marriage.

2.       Christine’s current needs, means, and circumstances.

3.      David’s financial position when he entered into the marriage, and now.

4.           Christine’s economic disadvantage as a result of the marriage.

5.     Christine’s right to receive compensation as a result of the marriage.

Discussion

[205]      The difficulty I have had with each party’s submissions on Christine’s entitlement to support is the fact that each has conflated issues of entitlement with issues of quantum and duration, making the analysis somewhat more difficult.  However, in deciding whether or not Christine is entitled to receive spousal support, I must, as Christine submits, have regard to Bracklow, which set out the conceptual bases for spousal support.  I note that other than making a bald statement that Christine is not entitled to spousal support, David did not make any attempt to analyze the evidence with reference to the issues.

Compensatory

[206]      Christine and David have a child that they parent.  As Christine has custody of Scarlett, Christine has a compensatory claim – not only for past parenting, but for the future care and parenting of Scarlett.

[207]      Also, David promised to support Cody and Tristyn.  He takes no part in their upbringing now, leaving almost all of that care solely to Christine (although the biological father exercises access). She has a compensatory claim for this as well.

[208]      Christine moved away from the East Coast where she was settled in society and close to her family.  This should be recognized.  This was a choice she made freely, but David was part of it.  The compensatory strength of this claim is, however, not as strong as her compensatory claim for raising and caring for the children, which would be strong even if David were participating more than he does.

Contractual

[209]      Paragraph 12 of the marriage contract dated June 24, 2011 states as follows:

(12)      David acknowledges that this marriage contract is not intended to bar Christine from making a claim for spousal support in addition to his child support obligations as noted in paragraph (10) above, in accordance with the laws in effect in the Province of Ontario on the date of separation.

[210]      On the issue of entitlement, the above paragraph should be taken into account even though it is not as strong as obligations in contracts that deal with a specific award of support upon separation. It is the court’s task to attempt to determine what the parties meant when they signed the contract. To include a clause of this nature signifies that the parties understood that Christine had or could acquire a claim for support, which she could advance in the event of a separation. Otherwise, the paragraph is quite meaningless and unnecessary. To me, it is a recognition that Christine has the right to advance a support claim upon separation. The court then has the duty of determining whether the claim is strong or weak – but, at least, she is entitled under this contract to bring it. 

Needs

[211]      David is a very wealthy man.  As his counsel conceded during final submissions, his companies are worth millions of dollars.  He earns a good income from his business.  He lives a lifestyle that most would envy.  Christine was introduced to this lifestyle during the period of courtship, cohabitation and marriage.  While she is receiving some child support now, she is making minimal income.  She will not receive a very large equalization payment, partially as a result of the contract, and will be left with a substantial amount of debt (much of it as a result of litigation with David).  She is not now self‑sufficient.  The fact that she is not self‑sufficient results from the economic consequences of the marriage.

[212]      While I am mindful of the fact that the period of cohabitation and marriage was short, I also believe Christine’s entitlement to support includes an element of need in order to help promote self-sufficiency.  During the marriage she was supported by David in a luxurious way.  He showered her with expensive jewellery, designer handbags and expensive vacations.  However, due to the short length of the parties’ marriage, her needs-based claim to support is not as strong as her compensatory claim, which limits the significance the court attributes to it, but it does exist.

[213]      Since I have determined that Christine is entitled to support, quantum and duration will be addressed after a determination of the parties’ income for support purposes.

Christine’s Income for Support Purposes

[214]      The parties dispute the amount of income that should be attributed to Christine for the purposes of determining spousal support. 

Submissions of the Parties

David’s Position

[215]      David seeks to impute an income of $100,000 to Christine given that it is close to what she was earning when working for Yellow Pages before coming to Ontario.  Alternatively, David seeks to impute an income of $70,000 a year to Christine given that an income of $70,000 was what Christine was able to negotiate for a position she held in 2016.

[216]      David raises the following points:

1.      Christine did not proceed with an interim support motion after the separation.  She has been paid no spousal support since the separation.

2.       Christine had a lucrative, demanding job at Yellow Pages in Halifax even while parenting Cole and Tristyn.

3.     Christine was able to transfer from Yellow Pages in Halifax to a similar position with similar pay when she moved to Ontario.

4.       Christine left her employment voluntarily when her maternity leave ended (after Scarlett’s birth) in 2013.

5.       David always wanted Christine to return to work.  This is evidenced by the fact that David and Christine both met with Mr. Machon, David’s accountant, in 2013.  Mr. Machon prepared notes at that meeting.  The notes[5] in fact, demonstrate that if Christine earned a gross income of $63,000, she would net an income of $28,000 after paying income tax and child care expenses.

6.        On or about June 2016, Christine obtained a position in sales with a company called Dannyco.  The position was similar to the position Christine had been in at Yellow Pages.  The base salary was $70,000 plus commission. Up until this point, a court order prevented Christine from changing Scarlett’s residence from the region in which Christine resided (the Cobourg area).  David consented to a move to Oshawa as part of the overall custody/access settlement reached before the custody/access trial scheduled for June 2016. 

7.       About three months after obtaining this employment, Christine quit the job.  David asserts that her reasons for leaving are not credible.  She took the job to support her mobility claim and then left shortly after getting David to agree to a move to Durham.  She has now started a new job selling healthcare products and makes very little income.  As a result, she is underemployed and should be found to have an imputed income of at least $70,000.

8.        David  relies on s. 19(1) Schedule B of the Guidelines, which allows the court to impute income in certain circumstances, including if a spouse is intentionally underemployed.  He relies on s. 19(1)(a) and the Ontario Court of Appeal decision in Drygala v. Pauli (2002), 2002 CanLII 41868 (ON CA)61 O.R. (3d) 711 (O.N.C.A), as authority for the proposition that Christine is intentionally underemployed in her current position because she has chosen to earn less than she is capable of earning.

9.            With respect to the argument that Christine can only work part-time from home because Scarlett may be a child with special needs, David points out that Christine called no medical or other professional evidence to support this claim.  David submits that Christine earned over $100,000 a year at Yellow Pages in Halifax when she was looking after Cole and Tristyn who are now at school full-time.  David also relies on other cases that set out the many factors a court should consider when deciding whether or not to impute income.  See Thomas v. Thomas (2003), 2003 CanLII 64346 (ON SC)50 R.F.L. (5th) 416 (O.N.S.C.); Weeks v. Weeks, 2003 PESCTD 33 (CanLII); Beck v. Beckett, 2011 ONCA 559 (CanLII)4 R.F.L. (7th) 48; and Szitas v. Szitas, 2012 ONSC 1548 (CanLII).

Christine’s Position

1.   Christine submits that the language in s. 19(1)(a) is permissive and enables the court to use discretion.  As her decision to work selling healthcare products is reasonable in the circumstances, the level of income to be imputed should not be arbitrarily decided, but should be based on the evidence.

2.    At separation, Christine left with the children to live with her parents who reside in Newfoundland.  She was offered full-time work in Newfoundland, but was court ordered to return to Ontario with the children.

3.     From her return onwards, she has done everything she can to obtain an income.

4.   Christine was court ordered to remain in Northumberland County where there was less opportunity for employment than she would have had if she had been able to move either to Durham or the Greater Toronto Area.  It was not until the eve of the custody/access trial that David consented to an order allowing Christine to move to Durham.  Christine submits that this two year delay put her at a disadvantage.  She further argues that David should accept some responsibility for her limited prospects.

5.   Christine submits that the employment position she received at $70,000 a year was unsustainable because it became too onerous.  Within a short time of obtaining the position, her employment responsibilities increased to such an extent that she felt she could not parent the children effectively.  Her work expanded to include weekends and some evenings.  This was not part of the original terms of employment.

6.    Christine also pointed out that Scarlett is a special needs child.  Christine testified that she was often called to Scarlett’s school to address various behavioural problems.  Christine also stated that she had to spend time trying to get professional help in Peterborough.  At the time of trial, Christine had arranged an appointment for Scarlett with a behavioural therapist in Peterborough to start in the new year.

7.    Christine feels very positive about her new position selling healthcare products.  In the short time she has been doing this job, she has grown her client base.  She has already won some business-related awards.  She is fairly confident that this position will prove to be as luctrative as her Yellow Pages job even though at the moment, she is not making very much money from it.

8.      Christine also points out that she still continues to look for employment that will give her more income.

Discussion

[217]      As may be seen from the parties’ various submissions about Christine’s income, much time at trial was spent on this issue.  As the judge trying to decide what is often a difficult issue, I wonder why.  I say this given that Christine states in paragraph 140 of her written submissions, that it would be appropriate to fix her income for support purposes at $65,000.

[218]      As both parties agree that income should be imputed, the proper approach is for the court to accept that proposition and fix the quantum at either $100,000, $70,000, $65,000 or some other amount that the court considers appropriate.

[219]      I find Christine’s income to be $67,500, which is the mid-range point between David’s alternative number and the number advanced by Christine.  I am aware that Christine transferred her position from Yellow Pages in Halifax to Toronto.  While she was earning over $100,000 a year, her base salary was far closer to the $65,000 she is asking this court to impute.  She had no clients when she moved to Ontario and, therefore, had to build a base to obtain commission income.  The evidence clearly shows that Christine was able to obtain employment at the $70,000 level together with benefits and commission.  That is very close to the figure I have chosen to impute.

[220]      I do find that Christine has made significant efforts to obtain employment and do not fault her in that area.  I do, however, agree with David that the evidence she raised about Scarlett being a special needs child was ineffective.  This is because her evidence could have easily been easily corroborated through the evidence of professionals and/or teachers, but was not.  I am sure Scarlett is not an easy child to parent.  David in his evidence, while not acknowledging special needs, testified that Scarlett had social and learning difficulties.  Whatever the problems, the evidence necessary to make a finding that Christine needs to work from home or be at home to look after Scarlett was not well-developed.

[221]      In any event, no particular findings of fact on this issue are required because, as stated above, both parties agree that it is appropriate to impute income.  I have, therefore, done so at $67,500 a year.

David’s Income for Support Purposes

[222]      David’s income for support purposes will be $327,250 as determined above.

Duration and Quantum of Spousal Support

[223]      Based on the above income levels, the duration and quantum of spousal support payable to Christine can be calculated in accordance with the directions below.

[224]      Christine has custody of Scarlett.  Having a child and caring for a child results in a valid compensatory support claim.

[225]      Having imputed income to Christine and having heard her evidence about her chances of success in the workforce, the compensatory claim she has is strong (because of Scarlett), but not as strong as it would be if she could not return to the workforce.  That is not the case.  However, there is evidence before me to find that had Christine continued to work at Yellow Pages, her income would, in all likelihood, have been significantly higher than the amount I have imputed to her.

[226]      While recognizing that Christine has a needs-based support claim as outlined above, it is not strong enough to put too much emphasis on. Although much evidence was presented on the rather lavish lifestyle that the parties adopted, at three years of marriage and under one year of cohabitation, there simply was not the time required to enable Christine to argue that a merger over time had occurred (as that term is understood in the SSAG).  While Christine certainly was introduced to a wealthy lifestyle for a short time, it cannot be expected that she must now adopt the spending habits of the lifestyle she enjoyed during the brief marriage.

[227]      The fairest way to take this into account is either to fix Christine’s spousal support (using the SSAG) at the low range for an indefinite period or, at the high range for a fixed period.  To award spousal support at the low range would not fully recognize Christine’s strong compensatory claim, but to award support for an indefinite term (or until there is a material change in circumstances) would not adequately recognize the obligation that Christine has to become self-sufficient, especially after such a short marriage.  Therefore, spousal support should be paid to Christine for a five year period (60 months) at the high range of the SSAG beginning on the first day of the month following the release of this judgment and monthly thereafter until the term has elapsed.  By awarding Christine spousal support at the high range of the SSAG, I have also taken into account her needs (especially over the short‑term) and David’s ability to pay support.  The high range payment will also adequately account for the fact that the equalization payment is low and likely will be consumed by debt.  The parties should calculate the amount owing at the income ranges found in this judgment.  If there is any difficulty with this calculation, I may be spoken to.

[228]      I am mindful of the fact that Christine did not move for temporary support.  That does not prejudice, nor weaken her claim for spousal support.

Lump Sum Spousal Support

[229]      Christine has requested that I order lump sum spousal support.  Her submissions on this point were not well-developed. While there may be other reasons to award lump sum support, the only ones brought to my attention in this case were the short length of the marriage and David’s resistance to pay her spousal support until court-ordered.  There is no indication in the evidence that David will not abide by a court order.  While Christine may wish to purchase a new house, there was no evidence or at least insufficient evidence on this point. As well a lump sum order in this case will not solve the issue of finality.  As a result, there will be no order for lump sum support.  A lump sum can be negotiated by the parties if they are so inclined.

DIVORCE

[230]       The parties have each requested an order that they be divorced.  They have been separated for more than one year with no hope of reconciliation.  A divorce is therefore granted on David’s amended Application.

LIFE INSURANCE

[231]      Christine has provided the court with a draft order which requests that the court order David to provide and keep in force 2.5 million dollars of life insurance in order to fund his support obligations.  While I understand the importance of this issue, I do not believe that any evidence was led at trial about insurance nor were any submissions made on the point.  Under the circumstances, I cannot make the order requested.  In the event I am incorrect about this finding, I am prepared to allow Christine to make further written submissions about it within 21 days of the release of this judgment with response by David within 9 days thereafter.

SUMMARY OF ORDERS MADE IN THIS JUDGMENT

[232]      In summary, the court finds as follows on the above mentioned issues:

Division of Property

[233]      The marriage contract signed by the parties on June 24, 2011 is a valid and subsisting domestic contract. 

[234]      The following assets are excluded from NFP:

a.      The 2014 Jeep Wrangler;

b.      The 2008 Ford F-150 Custom vehicle (Harley Davidson Edition);

c.      The trailer;

d.      Taxidermy Mounts and other related items.

[235]      The following assets are included in David’s NFP:

a.      Watersports equipment and other related items. 

[236]      There will be no deduction in notional costs of disposition related to the matrimonial home. 

[237]      David will be allowed a deduction of $2358.53 for notional tax costs on his RRSPs.

[238]      David’s submission that there should be an unequal division of NFP fails. 

[239]      David’s $70,000 prepayment to Christine may be taken into account by the court when it deals with costs. At this point, it will not be characterized as an advance on equalization, nor will it be a non-accountable payment of interim disbursements.  

Child Support

[240]      Christine is entitled to receive child support for Cole and Tristyn. 

[241]      Section 33(4) of the Family Law Act does not apply in the circumstances of this case. Even if it did, the child support paragraph of the marriage contract does not result in unconscionable circumstances. 

[242]      David’s income for support purposes is as agreed upon by the parties in Exhibit 83 for the years 2012 – 2016. 

[243]      For the year 2017 and ongoing, David’s income for support purposes is $327,250.

[244]      David shall pay child support to Christine for Cole, Tristyn and Scarlett in the amount of $5,286 a month in accordance with the federal child support guidelines for his income level. 

[245]      There will not be an order for s. 7 expenses at this time. 

[246]      Christine is entitled to receive retroactive child support from David from August 1, 2014 less credits for amounts paid by David.

Spousal Support

[247]      Christine is entitled to receive spousal support from David. 

[248]      Christine’s income for spousal support purposes is $67,250.

[249]      David shall pay spousal support to Christine at the high end of the SSAG scale for a period of 5 years. Spousal support starts on the first day of the month following the release of this judgment. 

COSTS

[250]      Costs in this case have been extensive.  Ordinarily, after a trial, I would set a timetable for costs submissions and deliver my order in due course.  Before doing that, however, I would urge the parties to convene a settlement conference with another judge of the Family Court Branch in Newmarket in order to see if the parties might use that opportunity to settle the issue.  There have been many difficult and complex issues that the parties have been able to settle previously.  It strikes me that it would be worth the effort to attend at a further conference.  That can then be arranged through the Trial Coordinators’ Office or through me if there is any difficulty.

[251]      As far as scheduling of written costs submissions, if this proves necessary, I shall, as I did with the written submissions, allow counsel for the parties to set their own schedules, provided the date is fixed within six weeks of the delivery of this judgment.  This will give the parties an opportunity to schedule a settlement conference on the issue of costs.

 

 

 

 

_____________________________

Justice C.S. Nelson

© John P. Schuman 2012-2018