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Posts from the ‘Imputing Income’ Category

Must Support-Paying Father Abandon Music-Career Dreams?

Must Support-Paying Father Abandon Music-Career Dreams?

In a case called Caine v Ferguson, the court was asked to consider whether a support-paying father of a child, who now had additional children to support, should be relieved of paying $11,000 in support arrears, because he acted as a stay-at-home dad while pursuing a fledgling part-time music career.

The 29-year old father had been previously ordered to pay $332 per month for his first child, who was now 9 years old, based on what the court imputed to be his income of about $35,500. He paid no support whatsoever, and the Family Responsibility Office started taking steps to collect on about $11,000, representing the unpaid support arrears that had accumulated so far. The child’s mother was on social assistance.

The father was now married to another woman with whom he had two additional children. The court described his part-time musical endeavours this way:

He stated that he is a talented musician and that he is writing, performing and producing his own music. He showed the court his recent CD. He says that he is not making any money yet, but he is giving away the CD at no cost and performing at shows for free in order to become better known. He said that his music is being played on music stations. He also has made some music videos that are on the internet.

The father brought a motion asking the court to eliminate the arrears entirely, claiming that he earned no income in the two most recent tax years.

The court found that – despite his child care obligations to his new family – the father was deliberately under-employed, and his decision to stay at home was simply not reasonable in light of his obligations to support his first child. (And it did not help him for the court to learn that he quickly depleted a $10,000 personal injury settlement, obtained after a car accident, by traveling to St. Maarten with his new wife and making music videos).

Rather than try to pursue his music career part-time, the court found that the father could have been earning at least $21,300 per year at a minimum wage job, even taking into account his child care responsibility to his other children. As the court put it:

He is choosing to pursue a speculative music career at [his first child’s] expense. He has no desire to pay child support for [her] and appears quite content with the status quo

He refused to pay child support and completely ignored the order. He has financially abandoned this child. … The court cannot condone such behaviour and needs to send a clear message that there are consequences for acting this way.

… [The mother’s] social assistance entitlement has remained unchanged. It has been the taxpayer who has had to subsidize the [father’s] financial neglect of [his child]

The court concluded that he had made nominal efforts to seek work since 2008, when the order for support of his first child was initially made.  Nothing about his current situation called for a change to that order, other than to adjust the $35,500 that had been imputed to him at the time, since in all the circumstances it was unrealistically high.

The court retroactively imputed that amount of income to the father, and adjusted the arrears slightly to accord with the lower income figure that it imputed. The court also observed that the father could still pursue his musical aspirations on a freelance basis, if he remained adamant.

For the full text of the decision, see:

Caine v Ferguson, 2012 ONCJ 139 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Appeal Court Confirms: Dishonest Husband Required to Show “Scrupulous Care” for Wife’s Interests

care

Appeal Court Confirms: Dishonest Husband Required to Show “Scrupulous Care” for Wife’s Interests

Consider this scenario: Two spouses divorce after 20 years of marriage and three children. They enter into a separation agreement to establish the combined child and spousal support the husband should pay, and agree that a home they purchase after separation would be taken in the wife’s name alone.

However, in 2005 they decide to enter into an Amending Agreement: Among other things, it adjusts the support amount to reflect the husband’s declared income of $80,000 per year, and changes the split on the home’s ownership to 50-50 for each of them (with the title documents amended accordingly).

Years later, the wife later finds out that the husband’s income was not $80.000 as he claimed, but rather closer to $345,000. The vast majority of that income came from various contracting / home building businesses that the husband owned, which generated significant unreported income about which the Canada Revenue Agency was unaware.

The wife then asks the court to set aside the Amending Agreement as unconscionable, and to declare her the sole owner of the property. This is based mainly on the husband’s untruthfulness about his true income. In response, the husband complains that the wife should have raised her objections sooner in their proceedings, and that she should be barred from raising them now.

The questions for the court was this: Should the Amending Agreement be aside in these circumstances?
Not surprisingly, two different courts’ answer was a resounding “yes”. But what was interesting is that both courts concluded that the husband had a duty to act with “scrupulous care for [the wife’s] welfare and interests” in the circumstances.

The matter first came before an applications judge who found that the wife would not have signed the second agreement had she known of the husband’s true income. That judge set aside the agreement and declared her to be the sole owner of the home.

In doing so, the judge found there had been inequality between the parties and that the husband was preying on the wife, especially in light of her economic vulnerability. As such, he had a duty to act with her best interests in mind, and – as the later Appeal Court confirmed – his “failure to disclose that his income was roughly four times that which he represented it to be was a serious breach of that duty.”

There was no doubt on the evidence that the husband misrepresented his income as being $80,000, when in fact he had significant additional undeclared income. The wife did not find out about it until long after she began the court proceedings, so it did not lie in the father’s mouth to she should have raised it earlier in the proceedings.

Also, the Court of Appeal found no fault in the prior judge’s assessment that the Amending Agreement was unconscionable in law, based on both the husband’s non-disclosure of significant income, as well as the manner in which the parties purported to deal with their real estate. Although the concept of “unconscionability” in the context of domestic contracts is not the same as for regular contracts, one principle remains the same: where there are circumstances of oppression, pressure, or other vulnerabilities, and where there is evidence that one party exploits those vulnerabilities during the negotiation process to the point that the domestic contract deviates substantially from what the relevant family legislation would otherwise dictate, the contract need not be enforced.
The Amending Agreement was therefore set aside and the wife was declared the sole owner of the property.

For the full text of the decision, see:

Tadayon v. Mohtashami, 2015 ONCA 777 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

Did Son Work for Free in Father’s Company for Almost a Decade?

business

Did Son Work for Free in Father’s Company for Almost a Decade?

A recent Ontario decision demonstrates the down-side of family businesses – as well as the risks involved in allowing assumptions to remain unspoken. More importantly, it shows what can happen when business-operating family members fail to document important agreements, expectations and obligations in written form.

A company was founded and was being run by the father Larry. Six of his adult children were now holding key management positions. One of his sons, Emmanuel, initially went off to pursue his own business interests, but eventually returned to the fold in 1999 to assist the company in various capacities, including tax consulting in connection with the company’s application for federal and provincial tax credits for the years 1999 through 2010. Emmanuel’s efforts resulted in the company securing approximately $2.6 million in scientific research and experimental development (SRED) tax credits for a 20-year period.

The court introduced the facts this way:

While the claims are framed as traditional commercial disputes, the substance of these actions is really a story about the tumultuous relationship between a father and son. Emmanuel assisted the family business (LTM) without an expectation of compensation, admittedly, in order to acknowledge the debt of gratitude he felt he owed to his father and out of a sense of obligation he felt for his family.

Evidently that changed, because once the father died unexpectedly Emmanuel requested that the company pay him almost $420,000 to cover 25% of the tax benefits it received on account of his tax consulting efforts. Management denied his requests, so Emmanuel sued under an implied contract for what he considered was his entitlement. He also asserted a claim based in quantum meruit (i.e. a promise to pay a reasonable amount for work performed).

Emmanuel brought these claims despite the lack of any written contract or document to evidence the alleged agreement to pay him. He also conceded that he never requested payment for his services at all for 8 years, until 2011 when he presented the company with his invoice. He explained to the court that he decided to withhold asking for compensation because he was dealing with family, and because he believed he would eventually become an owner of the company. He also claimed that he knew that the company had insufficient cash to pay him during those years, and was relying on his father’s prior promise to pay him.

In considering his legal position, the court assessed Emmanuel’s evidence “disfavouably”, finding that some of it contradicted other evidence, or else was downright incredible. For example, his claim that he refrained from asking for compensation during times when the company had cashflow problems did not hang together well with the fact that he did not ask for payment even during those periods that the company was flush.

In the end, the court concluded that Emmanuel was not entitled to payment for his historic services to the company from 1999 through 2010, and in any event he had was too late: the 2-year limitation period for bringing any claims had expired by the time he got around to suing.

For the full text of the decision, see:

1318847 Ontario Limited v. Laval Tool & Mould Ltd., 2015 ONSC 2664 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Financial Disclosure to the Ex: Do I Have to Report All Self-Employment Income?

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Financial Disclosure to the Ex: Do I Have to Report All Self-Employment Income?

When your employment income comes from an employer in the traditional way – and when those amounts are recorded and provided by the employer for Income Tax purposes – there is little room for you as an employee to “fudge the numbers.”

But human nature being what it is, if you are self-employed you may feel some temptation, particularly when those income amounts are being used to calculate the support to be (begrudgingly) paid to an Ex in a separation or divorce proceeding. This is because when you run your own business, it is far easier to “forget” to include income amounts or do some “creative bookkeeping”, and generally low-ball your income when providing financial disclosure.

But tempting as it may be, my (free) professional advice is this: Don’t do it.
For one thing, there is a well-established general legal obligation on all parties to a family law proceeding to provide full, frank disclosure of their financial information; otherwise, the court is entitled to draw assumptions and make inferences that can (and probably will) work against you. This applies equally to those who are self-employed, as has been emphasized by the court in a case called Meade v. Meade:

It is inherent in the circumstances of those who are self-employed or have irregular income and expenses, that they have a positive obligation to put forward not only adequate but comprehensive records of income and expenses. That does not mean audited statements. But it does mean a package from which the recipient spouse can draw conclusions and the amount of child support can be established. Where disclosure is inadequate and inferences are to be drawn, they should be favourable to the spouse who is confronted with the challenge of making sense out of financial disclosure and against the spouse whose records are so inadequate or whose response to the obligation to produce is so unhelpful that cumbersome calculations and intensive or costly investigations or examinations are necessary.

The precise application of these principles, and the question of whether the self-employed spouse has fulfilled his or her obligations, will depend on the circumstances. In Squirrell v. Squirrell, for example, the court found it insufficient for the husband to merely refer the court to his and his company’s accountant, and expect the accountant to allocate income for the court’s calculations. The court said it “hardly sounds plausible and certainly is not sufficient to discharge the onus” on the husband to provide proof of the accuracy of his reported net income and expenses.

If you are self-employed and need to provide income figures for support-calculation purposes, the bottom line is this:

• You have the onus to clearly demonstrate the basis of your net income.

• This includes an inherent obligation to put forward adequate and comprehensive records of your income and expenses.

• The records must form a “package” from which your former spouse can draw conclusions, and from which the amount of child or spousal support you owe can be established.

• You must also prove that your claimed deductions from gross income should be taken into account in calculating your income for support purposes.

And most importantly: If a court finds that your disclosure is inadequate or that you are not being forthright, it is entitled to make assumptions and draw inferences that may actually work against you in setting the eventual support amounts.

For some illustrative cases, see:

Meade v. Meade, 2002 CanLII 2806 (S.C.J.)

Whelan v. O’Connor, 2006 CanLII 13554 (ON SC), [2006] O.J. No. 1660 (Ont. Fam. Ct.)

Carty-Pusey v. Pusey, 2015 ONCJ 382 (CanLII)

Wilson v. Wilson, 2011 ONCJ 103 (CanLII)

Squirrell v. Squirrell, 2012 ONCJ 284 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

Business Owners Beware: Court Can Force Your Hand to Compel Appropriate Child Support

wall street

Business Owners Beware: Court Can Force Your Hand to Compel Appropriate Child Support

Consider this scenario: A separated or divorced parent draws their entire income from a corporation for which he or she is single-handedly “running the show”. That means the parent has considerable discretion in deciding things such as salaries, bonuses, and retained earnings for the corporate entity.

But that parent is also obligated to pay child support, which we know is geared to income.

The question is this: How far should a court go to force the parent’s hand, in terms of withdrawing funds from the corporation to pay that child support?

This was the legal question underlying a case called VanSickle (Elms) v. VanSickle. Specifically, for the purposes of calculating the child support he owed the court had to grapple with whether to impute income to the father – who was the sole shareholder, officer and director of a company he ran from a home office – because he had kept too much of the available money sheltered in the corporation.

To make its ruling, the court undertook a detailed analysis of the finances, structure, and operations of the father’s business. The corporation had no significant debt, and it had a significant cash surplus of more than $150,000. That money, as the father made clear in his evidence, was available for his own personal use when needed. (For example, he took money out of the corporation and declared it as income when he needed funds to pay his legal fees). Also, the court noted the father’s lifestyle since the first child support order had significantly improved; yet he had not had a corresponding obligation to pay added support to his children.

Given that the father had displayed a liberal hand at drawing money out of the corporation for her personal needs, he was equally able to withdraw some money to pay retroactive child support, the court found. There was no unusual hardship to the father in this scenario.

The court also noted (perhaps sardonically) that since 2008, when the litigation between the father and the mother started, the corporation had suddenly and consistently had an upsurge in retained earnings (meaning money that the father kept in the business, rather than withdraw as income). To this observation, the court added:

Although I certainly accept the [father’s] evidence that his business is seasonal and fluctuates and that it is a prudent business practice to retain some earnings in the corporation to make sure monies are available when needed, I am also satisfied that one of the reasons the money remained in the corporation was so that his income was not increased for child support purposes. As I stated earlier, he had no difficulty in taking out additional money from the corporation to pay his legal fees, to purchase a roof, to pay his personal income tax liability or provide a bonus to either he or his wife. As the sole officer, director and shareholder of the corporation, he had sole decision-making authority and is able to access funds as he sees fit.

The court was also somewhat circumspect about the father’s practice of income-splitting with his new wife. While the father had done nothing illegal or inappropriate in choosing to income-split, the court took issue with the amount:

Although I do not doubt that the [father’s new] spouse works hard and is entitled to compensation from the corporation, the amount of that compensation is excessive when considered in relation to the income the [father] receives. For example, despite being the president and sole shareholder of the corporation and working incredibly long hours, the corporation pays the [father’s new] wife the same salary that he receives. In fact, in some years, she received more than he did. … It is also of note that prior to this marriage, the corporation did not employ anyone to do the job [the new wife] was hired to do. …

In the end, the court concluded that the father’s income for child support purposes had been understated. It imputed between $68,000 and over $90,000 in income for each of the three years that were the focus of the mother’s retroactive support claim, and attributed another $5,000 per year to the father’s income on account of the overly-generous income-splitting with his new wife. The court made a few other adjustments, including taking into account certain home-office expenses from which the father also benefited (e.g. meals, telephone, cell phone, internet, fuel, repairs, gas, and insurance).

The result was a court order for annual retroactive child support amount of between $10,000 and $15,000 for each of the three contentious years, to be remitted by the father a rate of $1,500 per month until paid in full.

For the full text of the decision, see:

VanSickle (Elms) v. VanSickle, 2012 ONSC 7340

 

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

Worried About Having Your Income Grossed-Up for Support Purposes? Here’s Some Court-Inspired Insight

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Worried About Having Your Income Grossed-Up for Support Purposes? Here’s Some Court-Inspired Insight

As we have written before (such as “Court Disbelieves Father Claims About Income for Support Purposes – Concludes Lack of Job Search Means Father Already Earns a Good Living”;  and “Husband Downgrades Job, Then Quits Altogether – But Support Stays the Same” about the concept of “imputed income” in spousal and child support calculations, where the court decides that a paying spouse is deliberately under-employed, all as a means of artificially reducing the income on which support obligations are calculated. The court’s remedy – which is authorized in Canadian family legislation – is to gross-up or “impute” income to the support-paying spouse, to bring it in line with the true reality of that person’s income or income-earning capacity (as the case may be).

Given the case-by-case, fact-driven nature of spousal and child support determinations, the precise mechanics of a court’s conclusion to impute income can be difficult to generalize. However, in a decision called Smith v. Smith, Justice Chappel took a stab at setting out some of the factors that should guide family courts in deciding whether to impute income in any given case.

Justice Chappel identified the following points and factors as being relevant:

General points:

• Where any party fails to provide full financial disclosure relating to their income, a court is entitled to draw an adverse inference of that lack of disclosure, and to impute income to him or her.

• Similarly, a court may impute income in a situation where it finds that a paying spouse is deliberately under-employed.

• In order for a court to impute income, it is not necessary to establish bad faith on the part of the paying spouse, nor that there was an attempt to thwart his or her support obligations.

• The amount of income that the court imputes is a matter of its own discretion; however, there must be some basis on the evidence for the amount that the court has chosen to impute.

Respecting under-employment by the paying spouse:

• A paying spouse has a duty to actively seek out reasonable employment opportunities that maximize his or her income potential in order to meet the needs of dependants.

• A self-induced reduction of income is not a basis on which a paying spouse can reduce his or her support obligations.

• Likewise, courts will not excuse or reduce the support obligations of an under-employed person who has persisted in un-remunerative employment, or who has pursued “unrealistic or unproductive career aspirations”.

• “Intentional under-employment” occurs where the paying spouse earns less than he or she is capable of, having regard to all the circumstances, and with the court assessing what is reasonable in the situation (taking account the age, education, experience, skills, health, and past-earning history of the paying spouse, as well as the amount he or she could reasonably earn if employed to full capacity).

For the full text of the decision, see:

Smith v. Smith, 2012 ONSC 1116

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

Recurring $50,000 Annual Gift – Should it be Included in Husband’s “Income”?

recurring gift

Recurring $50,000 Annual Gift – Should it be Included in Husband’s “Income”?

In a recent decision called Horowitz v. Nightingale, the key question for the court was whether, in calculating the husband’s annual “income” for equalization purposes, the total should include a regular gift of $50,000 he received each year from his wealthy parents.

The couple had been married about 16 years when they separated. They had three children together, each of whom had special needs. The wife was looking for about $35,000 per month in spousal and child support, based on the husband’s income which her experts estimated was about $1.7 million for 2013, and over $3 million for 2014, including certain withdrawals the husband made from his RRSP. The husband, in contrast, claimed that his overall income for 2013 was under $600,000, and that his support obligation should be adjusted downwards accordingly.

As part of the task of ascertaining the husband’s true income for these purposes, the court was accordingly asked to characterize the $50,000. The parties were at odds on whether the annual cash gifts were regular enough to be counted: The wife claimed that they had been consistently given in the past, and could be counted on to recur in the future. To bolster her position, she produced an excerpt from an e-mail she received from the husband in which he confirmed that the gift was regularly given each year. It read:

It’s a good thing my father gave me $50,000 each year to help with all your expenses (my parents have the cancelled cheques). Don’t expect to see that anymore. And the money many years I had to take out of my RRSP to pay for everything. Don’t expect that to happen anymore.

The husband refuted that the gifts were regular; moreover he pointed out that his father had had passed away recently. Since the gifts had come from both parents (rather than from either of them individually) there were no guarantees, he said, that his widowed mother would keep up the generosity now that the father was gone.

The court started the examination by pointing out that in law, both child and spousal support was governed by the provisions of sections 15.1 and 15.2 of the federal Divorce Act. Those sections provides a list of factors that the court must consider whether ordering the amount of temporary support the husband had to pay the wife in this case. One of them was the consideration of the husband’s means, and his corresponding ability pay support in all the circumstances.

Next, the court observed that for child support purposes, gifts received by a parent are not presumed to be part of part of his or her presumptive annual income; however, under the Child Support Guidelines, the court had discretion to impute income if it was considered appropriate in the circumstances. However, “gifts” was not among the non-exhaustive list of amounts/items a court could impute.

The court then considered prior law on this issue, which confirmed the receipt of gifts was not generally an appropriate circumstances in which to impute income to the recipient. However, that precedent also established a list of other factors, all of which could be considered in this case, including: how regular the gifts are (or whether there were circumstances that made them exceptional); how many years they had been given by the parents to the husband; whether they were part of the family’s income and lifestyle while the couple was together; the income generated by the gifts relative to the husband’s entire income; their true purpose and nature; and whether they are likely to continue.

With this in mind, the court turned to the present facts: The $50,000 gift had been given by the husband’s parents in each of the prior 8 years, since 2006, as confirmed in the husband’s e-mail. He testified that “every dollar” had been used for family purposes, which meant the funds were part of the family’s overall income, and contributed to the lifestyle they came to enjoy. Finally – while conceding that there was no obligation on the husband’s mother to continue making the gifts at all, in the same amount, or with the same regularly – the court concluded that they were likely to continue in the immediately foreseeable future. (Incidentally, the husband had given no specific evidence as to how his father’s death might affect whether there would be future gifts, nor had he presented to the court any copies of the cashed cheques, even though they were available to him. The court drew a particularly negative inference from this latter omission on the husband’s part).

The court therefore concluded that the annual $50,000 annual gift should indeed be considered part of the husband’s income, for the purposes of calculating both spousal support and child support.

For the full text of the decision, see:

Horowitz v. Nightingale, 2015 ONSC 190

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

More on the Splitting the Costs of Kids’ Hockey

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More on the Splitting the Costs of Kids’ Hockey

A few weeks ago I wrote about how courts allocate the costs for kids to play hockey, and as an example put forward a case where only certain hockey-related costs were considered “extraordinary expenses” that were subject to division between the separated parents, pursuant to s. 7(1)(f) of the federal Child Support Guidelines.

However, it is important to point out that there are no absolute rules in this regard – the treatment of hockey and other activity-related costs can vary even in terms of how they are categorized for child support purposes. Depending on the situation, they might be classified differently from one family to the next: – in some cases being classified as an “extraordinary expense”, while in others being included as a component of the monthly child support amounts.

This surprising dichotomy can occur because in some families, everyday, “ordinary” expenses associated with sports and other extracurricular activities are contemplated and anticipated because of the family’s overall lifestyle and means, and are therefore simply funded from the child support that is paid in connection with the child. This was the outcome in an Ontario decision called Watt v. Watt, where the costs for the children’s hockey and dance were not considered to be extraordinary expenses in the overall context of the particular family’s lifestyle.

In any event, the point at which hockey or similar costs stop being “everyday” expenses and start being “extraordinary” ones is a difficult one to identify. Fortunately, the Child Support Guidelines do offer some guidance in his regard, stating that the question of whether an expense has become “extraordinary” (for the purposes of s. 7(1)(f)) involves the court considering several things, (set out in s. 7(1.1)) namely:

1) whether the expenses exceed those which the support-paying parent can reasonably cover, bearing in mind his or her income and any child support received by him or her; or

2) if these first considerations are not applicable, then the court can consider:

a. the amount of the expense in relation to the income of the spouse requesting the amount, including the amount that the spouse would receive under the applicable table or, where the court has determined that the table amount is inappropriate, the amount that the court has otherwise determined is appropriate,

b. the nature and number of the educational programs and extracurricular activities,

c. any special needs and talents of the child or children,

d. the overall cost of the programs and activities, and

e. any other similar factor that the court considers relevant.

As a final point, it should be noted that in making the assessment the court will not consider the merits of the proposed extracurricular activity; rather, the court will look only at financial aspects, measured against the various family-specific factors set by the Guidelines.

For the full text of the decision, see:

Watt v. Watt, 2011 ONSC 1279 (CanLII)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

Ex-wife Lives with Male “Friend”, But Never Pays Him Rent; Should Ex-Husband Still Pay Her Support?

tenant

Ex-wife Lives with Male “Friend”, But Never Pays Him Rent; Should Ex-Husband Still Pay Her Support?

In a recent case called Colley v. Colley, Mr. Justice Quinn — who has an established history of writing interesting decisions  as judge for the Ontario Superior Court of Justice – expressed some healthy scepticism at the story by a wife who was now living with another man. In short, he did not buy her story that he was a “friend” from whom she was “renting” accommodation; he suspected she was living with him common law but still trying to maximize the spousal support she was getting from her ex-husband.

The parties had been married for 23 when they separated in 2000. Under their 2005 divorce, the husband agreed to pay the wife $3,100 per month in spousal support. The wife was earning about $29,000 as a dental assistant at the time.

After 12 years of paying, the husband applied to end his support obligations entirely, partly because his income had dropped by more than half after a catastrophic and debilitating stroke in 2011. He was on disability benefits, and would never return to work since half his body was paralysed and he was confined to a wheelchair needing 24-hour care and assistance.

But even aside from this, the husband also claimed his support obligations toward his 55-year old ex-wife should be reduced because she was now living with a male “friend”, and claimed she was his tenant. However, she never paid rent. In her court documents the wife purported to explain the situation this way:

The arrangement was that I would contribute $500.00 a month towards the housing expenses and I would pay all my personal expenses and for my food. I am indebted to him $6,000.005 for the back rent and he has told me quite bluntly this month that my living with him has become a financial drain and that he is tired of carrying me.

However, Justice Quinn was clearly not convinced. To this, he remarked:

[The wife] has alleged something in the nature of a landlord-tenant relationship with [the male “friend”]. Accordingly, she bears the burden of proving this fact, otherwise she must face the logical inference that, instead, it is a romantic or common-law relationship. She has not met that burden. The essence of a landlord-tenant relationship is the payment of rent. She is not paying rent.

The court said:

This means that [the wife], who, by this time, had been living with [the male “friend”] for 12 months, had not paid a penny toward “rent.” Am I really supposed to believe that this was some form of landlord-tenant relationship?

The court found instead that the wife was living common-law with the other man, and that it was her responsibility to provide evidence as to his income, so that the wife’s need for spousal support could be properly assessed in light of it. Without that information, the court was likely to draw unfavourable inferences.

The court also noted that it was not the sheer fact of her living with another man that potentially affected her spousal support entitlement; rather it was the financial impact of that re-partnering, and how it might affect her need for spousal support.

Having found that the husband’s reduced income was permanent and that it was a material change, the court granted his motion to vary; his support obligations were gradually reduced from about $800 per month down to about $500 per month over the next few years.

For the full text of the decision, see:

Colley v. Colley, 2013 ONSC 5666, [2013] O.J. No. 4055

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit our main site.

Court Sees Through Support-Paying Spouse’s Shell Game

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Court Sees Through Support-Paying Spouse’s Shell Game

We have written before that separated and divorcing spouses have an obligation to make full disclosure in connection with their financial affairs, and that courts will countervail attempts to reduce income to avoid support. This is vital to the family law process, since accurate financial information is what drives the calculation of each spouse’s respective support obligation to the other.

In a recent Ontario case, the court was asked to consider a situation in which one of the spouses had deliberately transferred away shares in a lucrative business in order to lower the income on which support would be based.

The parties had been married for almost 15 years when they split. The father worked full-time while the mother stayed home to care for their two children. Under a negotiated separation agreement, which was later incorporated into their divorce judgment, the parties agreed that the father’s income would be deemed to be $200,000 per year, and that he would pay child and spousal support based on that figure. His support obligations would remain at that level unless his income changed by more than 10 percent.

Ten months later, the father transferred the entirety of his shares in a business he owned to his new common-law spouse. Then – claiming that his income should be based on Line 150 of his federal income tax return, rather than the $200,000 agreed – he brought a court motion to have his support obligations reduced accordingly. At the time, he owed the mother more than $100,000 in arrears.

The court declined to make such an order, and the Court of Appeal later concurred. Clearly, the father had unilaterally and willingly reduced his income, by making what the court called a “voluntary non-arm’s-length transfer of an income-producing asset for nominal if any compensation “. In other words, the only motive behind the share transfer to the new spouse was to reduce the income on which the father’s support would be based. The lavish lifestyle that the father and his new wife continued to enjoy was at least partly the result of the lucrative business that was now in her hands.

Also, the parties had to stick with the contract they had made (and the subsequent divorce order incorporating it). The $200,000 figure that was agreed to represent the father’s income included money he would earn from the business; he had failed to show that his income had dropped more than the requisite 10 percent to trigger a variation.

For the full text of the decision, see:

Verschuren v. Verschuren (2014), 2014 ONCA 518

 

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit our main site.