Kimmerly v Henschel, 2016 ABQB 387

Court of Queen ’ s Bench of Alberta Citation: Kimmerly v Henschel, 2016 ABQB 387 Date: 20160707 Docket: 4803 148550 Registry: Edmonton Between: Sherri Lynn Kimmerly Plaintiff - and - Timothy Curtis Henschel Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J.M.

Ross _______________________________________________________ [ 1 ] The Plaintiff commenced an application on September 26, 2014, seeking a change in primary residency of the parties’ two children, a direction as to where the children would attend school, and a reduction in child support paid by the Plaintiff. The Defendant cross-applied seeking an order regarding schooling. [ 2 ] The applications were heard by me on January 16, 2015. I dismissed the application to change primary parenting and adjourned the schooling issue to June 1, 2015. Child support was also adjourned in the following terms:

The issue of child support for the year 2014 is adjourned to the 1st of June, 2015 and the parties shall exchange the relevant and required information on a timely basis. Effective January 1st child support shall be stayed. [ 3 ] The stay of child support was continued by Order of March 13, 2015. [ 4 ] On June 1, 2015, the application continued before me. The schooling issue was dealt with. The issue of child support was further adjourned, sine die, for negotiations between the parties. [ 5 ] Subsequently, the Plaintiff changed counsel and counsel for the Defendant withdrew.

Negotiations broke down. [ 6 ] The Order of June 1, 2015 did not deal with the stay of child support. It did order that the Defendant was entitled to costs. I am advised that amounts subsequently collected by Maintenance Enforcement have been approximately the amount of costs. [ 7 ] On June 3, 2016, the Plaintiff commenced a new application.

In this application she sought to terminate child support payable by herself, to recalculate child support payable by the Plaintiff to the Defendant retroactive to April 1, 2012, to direct reimbursement by the Defendant to the Plaintiff of overpayments is s. 3 child support and s. 7 expenses, and to direct payment of ongoing child support by the Defendant to the Plaintiff. [ 8 ] The application was heard on June 22, 2016. [ 9 ] The Defendant is now self-represented.

He took the position that he would incur undue hardship if he were required to pay child support based on the parties’ incomes as determined pursuant to s. 16 of the Federal Child Support Guidelines. However, he did not bring an undue hardship application in the proper form, and did not provide the required evidence. I advised the parties during the hearing that any order arising from the within application would be interim only, to allow the Defendant to bring an undue hardship application.

The Defendant advised that it is his intention to bring such an application. [ 10 ] The Defendant contested the retroactive aspect of the within application. Counsel for the Plaintiff advised that the application is essentially continuation of the September 2014 application. Counsel also advised that the issue of child support had been raised by the Plaintiff before September 2014, with unsuccessful attempts to reduce her child support obligation as her income had decreased. [ 11 ] The last Court Order dealing with child support is dated January 15, 2013.

In that Order, arrears of child support payable by the Plaintiff to the Defendant as of December 31, 2012 were set at $20,470. This aspect of the Order dealt with past amounts owing. It was not appealed. I can see no basis for revisiting this Order.

The application for retroactive relief regarding 2012 child support is dismissed. [ 12 ] The January 2013 Order also set the Plaintiff’s guideline income for 2013 at $183,789, and the Defendant’s guideline income at $83,677, resulting in set off child support payable by the Plaintiff to the Defendant in the amount of $1356 per month, and s. 7 expenses shared proportionally, with the Plaintiff’s share being 68.71% and the Defendants share being 31.29%. [ 13 ] The September 2014 application was understood by the parties to relate only to 2014 child support, as specified in the January 2015 adjournment.

Retroactive relief for 2013 was not raised by the Plaintiff until the June 2016 application. No reason has been given for the delay in applying to vary 2013 support. The Plaintiff would obviously have known, when she filed her September 2014 application, that her 2013 income of $157,169 was less than the amount set in the January 2013 Order. In my view it would be inequitable to revisit 2013 child support at this late date, in these circumstances.

However, I do accept that it is appropriate to consider child support from 2014 onwards, as contemplated in the January 2015 adjournment. [ 14 ] Until 2014, the Plaintiff was employed in the oilfield. In 2014, she remarried and incorporated a new business, Denali Corp. The Plaintiff’s line 150 income for 2014 was $108,300. [ 15 ] Denali commenced operations as a medical spa business in Edmonton in 2015. The financial statements for Denali show a net loss before taxes of $146,383 for its financial year ending March 31, 2015 and a further net loss of $165,074 for the year ending March 31, 2016.

Denali has now been sold, for a price which will not recoup third party debt, or the investment in the business by the Plaintiff’s husband. [ 16 ] The Plaintiff’s line 150 income for 2015 was $33,795.39, of which $30,000.00 was income from employment with Denali and another medical spa business, Vive, owned by the Plaintiff’s husband.

The financial statements for Vive show a net loss before taxes of $143,764 for its financial year ending September 30, 2014 and a further net loss of $192,735 for the year ending September 30, 2015. [ 17 ] The Plaintiff acknowledges that her employment income from the two companies was set at an “admittedly arbitrary” level, but states that this was “the most [she] could take given the income loss position of both Denali and Vive”. The Plaintiff’s affidavit sets out in detail the nature of expenses for both Denali and Vive. Her husband received no salary or commission from Denali or Vive.

Other than her own salary, all salaries, commissions and contract payments were paid to arms-length individuals. The only personal benefit that the Plaintiff received from business expenses was the use of an automobile owned by Denali. She estimates that she used it 60% for business and 40% for personal use.

Counsel for the Plaintiff proposes that her guideline income be set at $39,742 to account for this benefit. [ 18 ] Sections 18 and 19 of the Child Support Guidelines provide, in part: 18(1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under

section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may … determine the spouse’s annual income to include (

a) All or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or

(

b) An amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income. 19(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (

a) the spouse in intentionally under-employed … (

d) it appears that income has been diverted … (

e) the spouse’s property is not reasonably utilized to generate income… (

g) the spouse unreasonably deducts expenses from income. [ 19 ] These provisions also apply where the payor spouse is the controlling mind and de facto owner of the corporation: Goett v Goett , 2013 ABCA 216 . [ 20 ] On the evidence before me there is no basis to impute income to the Plaintiff under either s. 18 or 19. Neither Denali nor Vive had pre-tax income in 2015; both were in a loss position.

The Plaintiff’s services to the companies may have been worth more than $30,000, but even that amount exceeds the pre-tax income for both corporations. [ 21 ] There is no evidence that the Plaintiff was intentionally unemployed or not reasonably utilizing property to generate income. The Plaintiff and her husband made significant investments in Denali and Vive. They expected that the companies would be successful. Unfortunately, perhaps due to the downturn in the economy, the businesses failed. [ 22 ] There is no evidence that income has been diverted or that expenses have been unreasonably deducted from income.

The companies’ financial statements are unchallenged and supported by the Plaintiff’s sworn evidence. [ 23 ] I decline to impute income under s. 18 or 19 to the Plaintiff based on the evidence before me, other than the adjustment proposed by the Plaintiff to account for her personal use of a company vehicle. [ 24 ] The parties’ guideline incomes for 2014 to 2016 are summarized below: 2014: The Plaintiff’s guideline income was $108,300 and the Defendant’s guideline income was $88,414. 2015: The Plaintiff’s guideline income was $39,742 and the Defendant’s guideline income was $88,377. 2016: 2015 guideline incomes will be used pending actual information.

The Defendant’s income is stable from year to year. The Plaintiff is seeking employment, but at this time there is no better evidence regarding her expected income for 2016. [ 25 ] Counsel for the Plaintiff is directed to calculate revised s. 3 child support amounts for the years 2014 through 2016, employing a straight set off approach, as has been the practice of the parties. However, the Order varying child support will be stayed for 90 days to permit the Defendant to bring an undue hardship application.

The Defendant is directed to file appropriate documents and to arrange a hearing before me, to be heard within the 90 day period. [ 26 ] The application also dealt with s. 7 expenses. The s. 7 expenses claimed by the Plaintiff include cellular phone plans, which I advised during the hearing I would not approve. The Defendant had not agreed to the plans, and the expense does not fit within the typical categories of s. 7 expenses under the Guidelines. Counsel for the Plaintiff is directed to recalculate the parties’ proportionate shares of s. 7 expenses from 2014 onwards, deleting the cell phone plans.

No exception was taken to s. 7 expenses claimed by the Defendant, which are approved. [ 27 ] As with the Order varying s. 3 child support, the Order varying s. 7 expenses is stayed for 90 days pending the Defendant’s undue hardship application. Heard on the 22 nd day of June, 2016. Dated at the City of Edmonton, Alberta this 7 th day of July, 2016. J.M. Ross J.C.Q.B.A.

Appearances: Mark H. Demas TC Family Law Group for the Plaintiff Timothy C. Henschel Self-Represented Litigant for himself