Spiess v Spiess, 2021 ABQB 730

Court of Queen’s Bench of Alberta Citation: Spiess v Spiess, 2021 ABQB 730 Date: 20210913 Docket: 4803 182567 Registry: Edmonton Between: Tegan Anne Spiess Applicant/Cross Respondent - and - Garrett Allen Spiess Respondent/Cross Applicant _______________________________________________________ Judgment of the Honourable Mr. Justice M. J. Lema _______________________________________________________ A.

Introduction [ 1 ] Separated spouses (who share parenting equally) disagree about the husband’s Guideline income for 2019, 2020, and 2021, the impact of s. 9 of the Child Support Guidelines (“Shared parenting time”), and whether the matrimonial home (plus an adjacent parcel), currently occupied by the father and the children (half the time), should be sold. [ 2 ] The background is partly outlined in TAS v GAS , 2020 ABQB 761 , where I found as follows:

I find that shared parenting should continue and same for joint decision-making , that the father is in arrears of child support for 2018 and the first half of 2019 , that his income is largely as calculated by him in those periods , that I cannot determine whether the father is in arrears of child support since mid-June 2019 to the present or set ongoing support (in light of further disclosure needed from the father in respect of his second corporation and missing information from both parties on s. 9(

c) Guideline elements), and that the properties should be listed for sale after an appraisal and an opportunity for the father to buy out the mother’s interest . [para 4] [emphasis added] [ 3 ] In the lead-up to the follow-up application on August 30, 2021, the father provided some disclosure of the “second corporation” income, and both parties provided budgets and other evidence bearing on the

section 9 exercise. [ 4 ] They also provided updates and their current positions on the property sale. [ 5 ] I find that the father’s 2019 income is as determined below, that determination of his 2020 and 2021 income shall be made after he provides further disclosure (as discussed below), that

section 7 expenses shall be borne proportionately (post-application of any benefit programs), that the matrimonial home and an adjacent property shall be valued, that the father shall have an opportunity to buy out the mother’s interest, and that (as necessary) the property shall be listed for sale, all on terms outlined below. B.

Father’s 2019 income [ 6 ] In my earlier decision, I found the father’s 2019 income to be $87,800, albeit noting that that figure excluded income derived from a second corporation (Spiess Industries Ltd.) to which he began transitioning his business activities (away from 1373782 Alberta Ltd) in mid-2019. (Note: the formal order reflecting the earlier decision stated the father’s income to be $80,000 for both 2018 and “up to an including June 1, 2019.” However, as reflected in the paragraphs cited below, I had actually set his full-year 2019 income at $87,800, albeit subject to the “second corporation” adjustment discussed below.) [ 7 ] The mother approached this issue as though the father’s 2019 income was to be adjusted to factor out certain perceived double-counting (dividends being counted as income for the father when the corporate income out of which the dividends had been paid had already been attributed to him) and to factor in income from SIL. [ 8 ] However, I accept the father’s “narrow gauge” reading, as confirmed by paras 4, 92, 98, 117-120, and 127(2) of my earlier decision, that I contemplated only one adjustment i.e. that for any income arising from SIL during the second half of 2019. [ 9 ] The father provided disclosure of those earnings for the period ending September 30, 2019, which (for simplicity’s sake) I will treat as covering the balance of 2019. (Any shortfall for October-to-December 2019 will be offset by the addition of income for that period to his 2020 income.) [ 10 ] He reported SIL revenue of $8,315, with various expenses (aggregating $14,871) yielding a net loss for 2019 of $6,556. [ 11 ] Even if all of the amortization, automotive, office, repairs and maintenance, and travel expenses (i.e. all the expenses sought by the mother to be backed out, at between 50 to 100 per cent) were factored out, the expenses would only reduce to $8,456, which would still wash out the reported revenue i.e.

SIL would still report a loss for the year. [ 12 ] I conclude that, when all the dust settles, the father’s income should, and will, remain at $87,800 for 2019. C. Father’s 2020 income [ 13 ] It is more complicated for 2020, which I did not explore in any detail in my earlier decision, and the parties differed sharply in their positions here. [ 14 ] The mother contends that, despite further disclosure by the father, his 2020 income remains murky at best.

She offered three alternative approaches to arriving at his true Guideline income for that year (see paras 8-10 and 12-18 of her concise letter), as discussed further below. [ 15 ] The father defended his disclosure and his asserted income ($70,964). He calculated as follows: The combined revenue for the two corporations in 2020 in $127,940, with the combined pre-tax income of the corporations being just $7,059. The income figure is skewed by [137] having a loss of over $14,000.

The father proposes that the [SIL] figure of $21,526 for pre-tax income be used as a starting point for 2020. [He] proposes that the following be added back to the pre-tax income of $21,526: • wages of $36,000 • half of: o amortization ($4,716) i.e. $2,358; o office expenses ($9,578) i.e. $4,789; o telephone ($807) i.e. $404; and o travel ($11,774) i.e. $5887 o [total of these expense adjustments: $13,438]

• total of pre-tax income ($21,526), wages ($36,000), and expense adjustments ($13,438) = $70,964. Appropriate treatment of corporate expenses [ 16 ] The expense adjustments (i.e. the noted add-backs) were proposed by the father’s counsel in her concise letter. As I understood it, these proposed adjustments were put forward as pragmatic, common-sense adjustments, more reflecting typically-adjusted corporate expenses and typical adjustment ratios than an actual defence, by the father, of the residual (net-of-adjustment) corporate expenses.

As the father’s counsel explained it, these parties cannot afford “forensic-level” Guideline-income experts, and their income and expense ranges do not warrant microscopic examinations of every dollar of expense. [ 17 ] I agree that such scrutiny is not always practical, and also that the father’s “Guideline-income-focused” disclosure was somewhat sparse. Here is what he submitted about his 2020 income (July 30, 2021 affidavit): Attached … as Exhibit “C” are my personal tax return and the financial statements form [my] two corporations for 2020. My line 150 income is $52,000.

The corporate statements from [SIL] includes income to me of $36,000. I believe that my 2020 income should be set at no more than $52,000.

Attached .. as Exhibit “D” are the corporate financial statements from 2020. … [ 18 ] He did not address the various expense line items for either corporation e.g. showing or even trying to show what portion (from zero to 100 per cent) of a given expense should be treated as an actual and defensible corporate expense e.g. “half of the amortization expense should be recognized as a legitimate corporate expense because I am actually setting aside a reserve, out of cash on hand each year, to replace [machine X], etc.” [ 19 ] Graesser J. held that practicality and common sense are often the answer to the scrutiny of relatively small-scale corporation- source Guideline income inquiries: This [analysis outlined in paras 27-41] is a somewhat rough-and-ready approach.

Neither party can afford to spend money on lawyers or accountants to arrive at mathematical certainty, and determining personal benefits from corporate or business expenses should not become a “time- and expense-wasting exercise”, as feared by the Court of Appeal in Cunningham . Assessment by the trial judge or application judge would appear to be what is contemplated by Sweezey and Cunningham .

There are alternatives to doing this, such as requiring full production of all receipts and invoices, having the payor cross-examined on them, having a viva voce hearing, or involving an expert to assess the personal benefits. In cases where the difference is not going to be that great, an expedited process that provides a practical result in an inexpensive way seems appropriate. [para 42 from Tymko v Gilbert , 2020 ABQB 773 ] [ 20 ] The question becomes whether the father’s approach is too rough-and-ready i.e. with no real attempt at defending the remaining corporate expenses.

Per the mother, the father effectively failed to discharge his onus to show what his Guideline income should be. [ 21 ] Before turning to the mother’s three alternative approaches to calculating the father’s Guideline income, I turn to what the Guidelines say about the reasonableness of corporate expenses. [ 22 ] Subsections 19(1) and (2) of the Guidelines state (in part) that: The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (

g) the spouse unreasonably deducts expenses from income[.] For the purpose of paragraph (1)(g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act . [ 23 ] Section 18(2) adds that: In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances. [ 24 ] As these provisions show, it is not every corporate expense that the Guidelines effectively factor out unless the corporate- income-earning spouse can justify them, instead only the subset identified in ss 18(2), which (aside from the already factored-out wages) does not have any application in this case.

I infer from this that, unless some evidence flags that a particular corporate expense may have a personal component or otherwise be unjustified, the corporate-income-earning parent is not obliged to effectively present a full-on audit or any other justification of every category of expense i.e. other than those identified in ss. 18(2). [ 25 ] I turn then to the mother’s three suggested approaches to the father’s 2020 income. [ 26 ] Mother’s option #1 (factoring out all of the corporate expenses ): there is no precedent or other justification for this severe approach. [ 27 ] Option #2 is aimed at verifying corporate revenue (in light of the mother’s bank-account-review-generated comparison of reported corporate revenues with (higher) corporate bank deposits – note 2 in her bank-account chart).

If any “excess deposits” actually constitute unreported corporate revenue, the father’s “monies available to pay child support” position will necessarily be enhanced. [ 28 ] Here I also note that the father’s counsel reported at the recent application that such a reconciliation would likely be a manageable exercise.

[ 29 ] On the subject of directing a “bank account and revenues” reconciliation, see Rolinger v Rolinger , 2021 ABQB 474 (paras 51-75 and 165-166 ). [ 30 ] In line with that analysis, I direct that the father reconcile, or try to reconcile, the “note 2” differences between reported corporate revenues and corporate bank deposits, via materials presented (in affidavit form) to the mother’s counsel, with a copy to me (via my assistant Stacy Adams), by 4:30 pm on September 24, 2021. [ 31 ] As for the mother’s option #3, it effectively amounts to seeking to back out three additional corporate expense items (amortization, repairs and maintenance, and automotive) at the percentages reflected in her concise letter. (The parties agree on three other expense types and the associated back-out percentages.) [ 32 ] The father will have until the same deadline above, and also via affidavit, to provide justification for his proposed treatment of the three identified expense categories i.e. to justify why the mother’s proposed adjustments should not be made. [ 33 ] Once I receive the above information from the father, I will be able to set his 2020 Guideline income. [ 34 ] I will also then set his Guideline income for 2021. [ 35 ] As for the mother’s income, I am proceeding on the basis that her income is as reported in her concise letter and associated materials.

D.

Section 9 adjustments [ 36 ] Once the father’s 2020 and 2021 Guideline income figures are set, we will have the necessary information to perform the first step of the s. 9 exercise. [ 37 ] As for the second step, which largely focuses on incremental expenses associated with shared parenting, I find that the parties did not present sufficient information.

They presented comprehensive budgets, but I could not see any basis to infer the noted incremental expenses. [ 38 ] I find that no “second step” adjustments are possible here. [ 39 ] As for the third step (largely focused on a comparison of household incomes), I accept the father’s core argument, namely, that, whereas the mother receives large-scale financial contributions from her new partner (who effectively carries the entire financial load in their household, with some student-loans-for-her injections), the father does not have another source of income, despite contributions by one or both of his parents. [ 40 ] Even if the details of those contributions to the father are not crystal-clear, I am not satisfied that they are in the nature of gifts, instead being amounts required to be repaid at some point, one way or another. [ 41 ] Accordingly, I am left with a picture (on the numbers reported in the parties’ respective concise letters) of the mother’s household income, largely reflecting her new partner’s sizeable income, producing a standard of living equal to, if not far exceeding, that in the father’s household. [ 42 ] The narrow question becomes whether the father can effectively piggyback on the mother’s new partner’s income i.e. to carry the full weight of child-care expenses in the mother’s household i.e. with no contribution from him. [ 43 ] That is his position i.e. no

section 9 support payable by him to the mother. [ 44 ] The mother rejects this “full off-load” position. [ 45 ] I decided to give the parties the opportunity to make further submissions on this narrow point, via two-page-maximum submissions (with relevant case law attached) by 4:30 pm on September 10, 2021. [ 46 ] Once I receive those submissions, I will be able to complete the

section 9 analysis and determine what child support is payable, by which party, and for what periods. E.

Section 7 expenses [ 47 ] I direct that the parties bear the standard (per-Guideline)

section 7 expenses on an income-proportionate basis for 2019, 2020 and 2021, with the initial load to be borne by any available insurance or other benefit program i.e. with the parties bearing the net-of- reimbursement load proportionately per their incomes. [ 48 ] As for certain non-section-7 expenses, and per the parties’ submissions at the recent application, I ask them to see if they can agree on which categories of expenses each will bear. [ 49 ] If they are unable to agree, each shall prepare a proposal about the expenses to be borne by each, and I will decide who will bear what expenses (submissions due by September 24, 2021 or such other date as counsel may agree).

F. Sale of the matrimonial home and adjacent property

[ 50 ] I have already (per my earlier decision) decided that these properties shall be sold. [ 51 ] My current directions (building on a case-management-meeting direction made this summer that the parties obtain a realtor evaluation of the properties and, if either finds it unsatisfactory, that party shall arrange and pay for an appraisal of the properties, and having been reminded that a realtor evaluation was obtained, which the father accepted and the mother did not) are as follows: • the mother shall have an opportunity to arrange for a further realtor evaluation, to be completed by no later than September 30, 2021; • if the parties agree that the properties shall be so valued or otherwise come to agree on a valuation, that valuation will govern for the steps below; • if they are unable to agree, the mother shall have the opportunity to arrange, and pay for, a formal appraisal of the properties, to be completed by October 31, 2021.

The valuation per that appraisal will then govern for the steps below; • however a valuation results, the father shall have sixty days from when the valuation is reached to tender the net equity in the properties (valuation minus then-prevailing mortgage balance equals total equity, divided by two, to represent the mother’s apparent share of the equity) into Court or into either counsel’s trust account, to be held pending agreement between the parties (if other property issues remain to be determined) or Court order; and • if the father fails to meet the sixty-day deadline, the property shall be listed for sale at the valuation amount on such terms as the parties may agree.

Failing such agreement, I will set the terms after receiving suggested terms from each party. G. Seizing [ 52 ] I am seizing myself of all further applications, of whatever nature, involving these parties. H. Costs [ 53 ] If the parties cannot agree on costs by September 24, each can send me maximum-two-page submissions by October 1, 2021. I. Closing note [ 54 ] I thank both counsel for their helpful written and oral materials. Heard on th e 30 th day of August, 2021, via Webex. Delivered orally on the 1 st day of September, 2021 via Webex. Dated at the City of Edmonton, Alberta this 13 th day of September, 2021.

M. J. Lema J.C.Q.B.A. Appearances: Laura Bruyer Bruyer & Mackay LLP for the Applicant Barbara L. Acton Acton Law Office

for the Respondent