Bewza v. Bewza, 2012 BCSC 1736

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bewza v. Bewza, 2012 BCSC 1736 Date: 20121122 Docket: D33930 Registry: Kamloops Between: Alan John Bewza Claimant And Frances Anne Bewza Respondent Before: The Honourable Mr. Justice Meiklem in Chambers Reasons for Judgment Counsel for the Claimant: M.J. Keim Counsel for the Respondent: R. Lammers Place and Date of Hearing: Kamloops, B.C. November 8, 2012 Place and Date of Judgment: Kamloops, B.C. November 22, 2012 The Application [ 1 ] The respondent, Ms.

Bewza, is applying to vary upwards the spousal support granted by the July 14, 2011 order of Harvey J. retroactively to January 1, 2012. The following facts are set out in the application: 1. The parties were married on May 16, 1981 and separated in about April 2002. They were divorced on August 26, 2004. 2.

The parties entered into Minutes of Settlement in November 2003 which provided, amongst other things, that the claimant pay spousal support to the respondent on a decreasing scale as follows: a.$3,500.00 per month to January 14, 2004; b. $2,500.00 per month from January 15, 2004 to December 15, 2004; c. $2,000.00 per month from January 15, 2005. 3. The Minutes of Settlement provided that either party could apply for a review as of January 6, 2006. 4. The provisions from the Minutes of Settlement were included in a Consent Order granted July 26, 2004. 5.

In March 2010 the claimant applied to reduce or cancel the spousal support payable under the Order of July 26, 2004. His application was heard July 12, 2011 with judgment given July 14, 2011. The Court ordered that the support be decreased from $2,000.00 per month to $1,000.00 per month. The Issue [ 2 ] The main issue is whether Ms. Bewza has established that the increased profitability of Mr.

Bewza’s logging business since the last order is a sufficiently material change of circumstances to justify a variation, bearing in mind the case law to the effect that such a change must be substantial, unforeseen and continuing. [ 3 ] Counsel for Mr. Bewza argues that the claimant’s company has only subsequently had one good financial year, which does not amount to a substantial, unforeseen and continuing change; that it is only just over one year since the order sought to be varied was

granted, and that the standard of material change is high to ensure that this type of annual review is not continually occurring. Counsel for Mr. Bewza also argues that the nature of the logging business is such that it is financially prudent not to strip the company of its retained earnings. The Factual Background and the July 14, 2011 Order that the Respondent Seeks to Vary [ 4 ] Harvey J.’s 17-page reasons for judgment, delivered orally on July 14, 2011, are appended to Ms. Bewza’s affidavit on this application.

Those reasons set out some pertinent background facts and findings, including the following: [10] At the time the Minutes were signed, the respondent had retrained and obtained her present employment. As close as I can tell from the evidence available, she was earning something in the order of $20,000 annually working in a clerical position with Capri Insurance on a close to full-time basis.

The claimant's stated income in his 2002 property and financial statement was $160,000, comprised of a mixture of employment income and dividends from the Company. ... [13] No terms of reference were set for the review contemplated to occur as early as 2006. There is no suggestion in the Minutes the support is either indefinite or time limited; merely, that the claimant was to pay $2,000 a month until further order and that either party might have support reviewed as early as 2006. [14] The claimant paid as per the order of the court until 2009. He continues as the owner/operator of the Company.

The respondent has maintained her employment at Capri lnsurance. She now earns just under $36,000 annually. [15] ln the intervening years, the Company has had good years. ln 2007, the Company had pre-tax profits of over $158,000. The retained earnings in that year were $124,000 after payment of a dividend to the claimant of $96,000. [16] lt is noteworthy that at the time of separation, no value was attributed to the Company.

The claimant assumed ownership; it would appear, by assuming some debt which might otherwise have been properly shared between the parties. [17] During the salad days of the company, the claimant did not invoke the review clause in the Order, nor did he share the information of the Company's success with the respondent. I note that the business's year-end is April 30th. [18] The claimant's 2007 Line 150 income was in excess of $186,000. The Company was profitable. lts retained earnings increased by over $70,000, even after payment of the dividend I have referenced. [19] ln 2008, the situation was not so rosy.

Pre-tax profit fell to $39,000. Nonetheless, in addition to his salary of $61,000, the claimant paid himself a dividend of a further $96,000, but this latter step had the effect of reducing the retained earnings of the company by the approximate difference between the dividend and the pre-tax profit. [20] The claimant says his circumstances have changed for the worse since the downturn in the U.S. economy. Following the year-end April 2008, the revenues of his business have dropped significantly. In 2009, the revenues of the company plummeted.

The company lost almost $102,000 despite paying the claimant a salary in fiscal 2009 of only $15,000. [21] In 2009, he says that he had cashed in RRSPs to meet his and the company's obligations, His earnings were under $15,000 for the year. He cashed in $54,000 in RRSPs to fund his obligations, injecting some $47,000 into the company through the vehicle of his shareholder's loan account. [22] He contacted the respondent and explained the situation, and she agreed to a temporary suspension. There is no suggestion she agreed to the termination of her support.

Between February 2009 and November of 2009, the claimant paid nothing. [23] By the fall of 2009, when the claimant had not resumed payments, the respondent pressed him for a resumption of payments and he began paying her $300 a month. He has done so since. The respondent, while accepting those cheques, has never agreed to the unilateral reduction in the amount ordered by Truscott J., that which is contained in the Minutes of Settlement. [24] This application was originally brought in March of 2010, but for a variety of reasons it has not been heard until this date.

It is not the fault of either party that there has been delay between the cessation of the payment of support as per the order and the filing of this application. [25] The Company's financial statements indicate that the last two years, particularly, have been difficult financially. In 2010, the last complete year for which there are complete financial statements, the Company had a pre-tax profit of $4,000, and had by then resumed paying the claimant an annual salary of $61,000. Despite the poor performance of the company, the claimant took out a dividend of some $57,500 for the calendar year 2010.

The evidence discloses that he has been able to pay down debt, or some of it, since the disastrous year of 2009. [26] It was not provided, although it would have been helpful, if operating statements could tell me the current state of the company. [27] The Minutes of Settlement and resultant order happened before two significant events in the development of matrimonial law. First was the creation of the Spousal Support Advisory Guidelines ("SSAG"), and the second, albeit perhaps not in that order, was the decision of the Supreme Court of Canada in Leskun v.

Leskun, 2006 SCC 25 . [28] I will discuss the significance of each later in these reasons.

[29] Although originally founded on s. 17 of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), an application for variation of the current order, I allowed, with the acquiescence of respondent's counsel, an amendment to the application that was to include reference to s. 15 of the Divorce Act . [30 The respondent is content to see the existing order continue despite, she says, the fact that upon review, the SSAG would entitle her to a higher figure for support than the existing order provides for. [31] The claimant says the order ought to be varied retroactively to the date of default and support set at $300 a month commencing November 2009, and zero for the months of February through October of that year. [32] I have been asked to terminate support for the respondent or, alternatively, set a further term of three years at $750 a month and thereafter terminate the claimant's obligation. [ 5 ] Harvey J. discussed the parties’ intentions and found no guidance in the minutes of settlement or resulting order as to the scope of review.

He compared the nature of a review and a variation application, and decided that he would consider the application to be a review entailing a reconsideration of the matters of entitlement, together with the quantum and duration of support payable, if applicable, but he held in the alternative that he found that the material change test to be applied on a variation application had been met. [ 6 ] Harvey J. noted that no serious argument had been advanced in respect of continuing entitlement, considering the 21-year length of the marriage, which disadvantaged the respondent, together with the fact that under the Spousal Support Advisory Guidelines [ SSAG ] an indefinite order would have been indicated. [ 7 ] After reviewing the history of the profitability of the claimant’s wholly owned corporate logging business and the claimant’s income from salary and dividends, and the declining profitability in the fiscal years ending on April 30 in the years 2008, 2009, and 2010, Harvey J. stated, in para. 60: [60] Clearly the level of income I have found amounts to a material change in the circumstance of the claimant, requiring a recalibration of the support obligation to reflect the parties' current circumstances.

His income is less than half of which it was, while the respondent's has effectively doubled. [ 8 ] In paras. 54-57 of his reasons, Harvey J. concluded that the claimant’s income for support purposes in 2008 was $100,000, comprised of $61,000 in salary, plus $39,000 in pre-tax corporate profit (pre-tax profit being down from $158,000 in the 2007 year end). He concluded that Mr.

Bewza’s income in 2009 was effectively zero, because his severely reduced salary and dividend payments totalling approximately $15,000 came at the expense of incurring further loss within the company (the pre-tax corporate income was minus $101,772 in the fiscal year ending April 30, 2009), and RRSP withdrawals ought not to be included in his income.

He concluded that the claimant’s income for support purposes in 2010 was $65,000 comprised of $61,000 in salary, plus $4,000 in pre-tax corporate profit, and he then imputed an additional sum of $5,000 for the personal use of corporate assets. [ 9 ] In para. 65, Harvey J. varied support to the sum of $1,000 per month, retroactively to January 1, 2011, based on his conclusion that the parties’ incomes on a “go-forward basis” should be set at $71,000 and $36,000 respectively.

He also retroactively varied the support payable for the months of May to December of 2010 to the amount of $300 per month actually paid by the claimant, “based upon the 2009 performance of the company” and “in keeping with my finding that his income during that period of time was zero” [para. 70]. [ 10 ] The July 14, 2011 reasons of Harvey J. concluded with the following: [73] As noted, under the SSAG, the respondent's entitlement, given the over 20 years of marriage, remained indefinite. Both her need and the effects of the disadvantage which occurred during the relationship linger to this date.

The claimant's situation has declined, but that is reflected in the reduction of the amount payable by him. There is no reason, from the evidence available to me, to suggest that the parties' situation will change hereon between now and the claimant's retirement, save and except for the vagaries of the Company's income. [74] Accordingly, I decline to set a date for the termination of support. The claimant is 56. The suggestion that he will retire in three years is somewhat optimistic, in view of his current circumstances.

If he does, that will presumably amount to a material change in the circumstances, entailing a revisitation on the obligations that I have set. [75] Henceforth, the parties are to exchange their financial information on June 30th of each year. The claimant will provide the respondent with a copy of the financial statement for the Company once it has been prepared, and that includes for the year-end 2011, which I presume will be prepared shortly.

Either party, of course, is entitled to vary the support payable under the terms of this order upon a material change in the circumstances of either of them, which include, of course, a return to more greater fiscal success of the Company. Evidence of Profitability Subsequently Available [ 11 ] The April 30, 2011 year-end financial statements revealed that the claimant’s company had actually rebounded significantly in profitability in that fiscal year. These statements were prepared by July 22, 2011, as appears by the date on the covering notice to reader. They were not provided to Ms.

Bewza until October 18, 2011, following her counsel’s request addressed to Mr. Bewza’s counsel. [ 12 ] In the fiscal year ending April 30, 2011, the claimant’s company had pre-tax corporate income of $192,914, even after payment of $55,000 in management wages to the claimant. Dividends were declared in the amount of $131,500 in the 2011 fiscal year, of which $46,000 was declared May 1, 2010 and $85,500 in 2011. Retained earnings rose to $48,740 at fiscal year-end 2011.

[ 13 ] It is patently obvious that if the 2011 financial statements had been in evidence at the review/variation hearing on July 12, 2011, the court could not have reached the conclusions it did in respect of the likelihood of a reduced income continuing. [ 14 ] In the fiscal year ending April 30, 2012, pre-tax corporate income was $63,693 after management wages of $52,500.

Dividends of $40,000 were declared and retained earnings rose to $62,970 at year end 2012. [ 15 ] If, as urged by the applicant, the same approach taken by Harvey J. were to be applied in determining the claimant’s income for support purposes in 2011 and 2012, namely adding management salary and pre-tax corporate profits, his income in 2011 would be $247,914, and in 2012 it would be $116,493, (plus the imputed $5,000 per year in respect of company perks). [ 16 ] Mr.

Bewza’s 2010 income tax return reported employment income of $61,015 and dividend income of $58,597 (after gross-up of the $46,000 mentioned above in para. 9 by 25%) for a line 150 total of $119,612. [ 17 ] His 2011 income tax return reported employment income of $58,571 and dividends after gross-up of $107,949 for a line 150 total of $166,520. [ 18 ] Assuming he does not receive any additional dividends in 2012, his line 150 income for 2012 should be approximately $110,000, comprised of salary of $60,000 (according to his financial statement estimate) and $50,000 in grossed-up dividends.

Discussion [ 19 ] It should be noted that while grossing up dividends by 25% in computing line 150 income overstates actual income, lower tax rates apply to dividends. The lessened tax burden means that a given line 150 total, including grossed up dividend amounts, may actually provide more after-tax disposable income than an equivalent amount of pure employment income, depending on the relative proportions of dividend income and employment income. This is recognized in s. 19(1)(

h) of the Federal Child Support Guidelines (the “ Guidelines ”), which describes the circumstance of a spouse deriving a significant portion of income from dividends as one where amounts of income may be imputed for child support purposes. [ 20 ] The same reasoning obviously can apply when considering income available for spousal support. In this case, a very high proportion of Mr. Bewza’s income usually comes in the form of dividends. I did not receive the type of expert evidence that would be needed to support a specific imputation, so I will not impute additional income.

Nevertheless, reference can be made to several web- based publications of marginal federal and provincial tax rates which clearly demonstrate that Mr. Bewza is certainly not disadvantaged by the inclusion of grossed-up dividends in his line 150 income. [ 21 ] I do not agree with the import of Mr. Bewza’s counsel’s argument that just one year after the last order, we are looking at one good year of profitability and an insufficiently continuous pattern to constitute a material change. It is true that the order that Ms.

Bewza seeks to vary was made only 16 months ago, but that order was made on the basis of corporate financial data that was over a year old at the time, and provided an unduly pessimistic impression. At this time, we are able to see a three-year progression of recovery from a poor 2007-2008 year and a disastrous 2008-2009 fiscal year. Mr. Bewza’s company became modestly profitable in 2009-2010, then very profitable in 2010-2011.

It maintained reasonable profitability in 2012, and further increased retained earnings, which stood at $62,970 on April 30, 2012. [ 22 ] While Harvey J. found, in para. 73, no reason, from the evidence “available to [him]”, to suggest that the parties’ situation would change prior to Mr.

Bewza’s retirement, except for the vagaries of the company’s income, he had previously noted (in para. 26) that it would have been helpful if current operating statements were in evidence, and his order for exchanges of financial information on June 30 th of each year was obviously intended to ensure that current financial information was always available to the parties in the future. Paragraph 75 of Harvey J.’s reasons, quoted above, anticipated that the greater fiscal success of Mr.

Bewza’s company could constitute a material change of circumstances. [ 23 ] If one looks at the last three fiscal years of the company (i.e. 2010, 2011 and 2012) and the calendar year salaries for those years, the totals of management salary and pre-tax corporate income are $66,367 for 2010, $251,485 for 2011, and $123,693 for 2012. Only the 2010 amounts were known to the court at the time of the review/variation order sought to be varied.

Conclusions [ 24 ] In my view, the company’s profitability has improved substantially since 2010, and that change is continuing sufficiently enough to meet the test for a material change of circumstances. The company has increased its retained earnings by over $50,000 since the 2010 year end while paying Mr. Bewza a salary and increased dividends. A variation of spousal support back into the range previously agreed upon by the parties is, therefore, just and appropriate at this time. [ 25 ] Counsel for Mr.

Bewza urges me to not order any current variation, but to provide some guidance and direction to the parties regarding future variation if the company’s profitability proves continuing, in order to avoid further costly applications. Ms. Keim argues that because the fortunes of Mr. Bewza’s logging company are affected by industry market conditions and weather fluctuations, it is Ms. Bewza that has the more positive financial picture. Her presently reduced spousal support of $1,000 per month, together with her wages, is still sufficient to cover her stated expenses, and she is debt free, while Mr.

Bewza has had to deplete his RRSPs to pay personal debt, most of which was incurred to put monies into the company during the bad years. [ 26 ] Ms. Keim repeated an argument advanced on Mr. Bewza’s prior application to the effect that further income should be imputed to Ms. Bewza because she has not undertaken further training which she had previously deposed might have the potential to increase her earnings with her insurance broker employer. The evidence presented does not establish that Ms. Bewza is failing in her duty to enhance

her self-sufficiency. She works 38 hours per week, which is far fewer hours than Mr. Bewza says he devotes to his business, but that strikes me as probably standard in the insurance business, and there is no evidence that she has an opportunity to work more hours or that further education would increase her income. [ 27 ] Mr. Bewza deposed in his recent fifth affidavit that he initially expected the current year (2013 year-end) to be another great year as he was able to get an early start at the end of May, but then a wet June and a fire hazard in a hot July and August caused difficulties in accessing the forest.

From that it appears that at least the market downturn of 2008 is no longer a significant factor, and the major impediment so far this year has been the weather. The company’s financial performance in the first quarter of the 2013 fiscal year has been disappointing to him, but as I stated at the hearing of this application, I think it is unrealistic and inappropriate to parse business performance into quarters or months when considering variation applications.

The weather during the remainder of the fiscal year may yet permit a good year, or at least an average year, and I am not prepared to infer the worst case scenario based on the first quarter. [ 28 ] Mr. Bewza had the benefit of several good years where Ms. Bewza did not seek greater support and abided by their agreement. He received her acquiescence in paying no support at all during the darkest days and a reduced obligation for a number of months by Harvey J.’s retroactive variation. The parties agreed to spousal support based on a compensatory model. Ms.

Bewza’s compensation has already been reduced by necessity of circumstances, but in my view, that necessity expired with the improved profitability of his logging company. [ 29 ] Turning to the quantification of support, I must consider the SSAG . I need not necessarily follow the Guidelines as a matter of law, but I must take them into consideration and if I make an award outside the Guidelines I should provide reasons for doing so. In order to consider the application of the SSAG , I first must determine the parties’ respective incomes. [ 30 ] Counsel for Ms. Bewza urges me to calculate Mr.

Bewza’s current income by adding his salary of $58,571 during the 2011 calendar year to the 2011 fiscal year pre-tax corporate profit of $63,693, for a total of $122,264, then adding the amount of $5,000 imputed by Harvey J., for company perks, for a total of $127,264. [ 31 ] Over his last five filed personal income tax returns, (i.e. 2007 to 2011), after deducting from Mr. Bewza’s total line 150 income the amounts of RRSP withdrawals in 2008 and 2009, he still averaged approximately $129,000 per year in income.

That five-year period includes the 2007 banner year, the 2008 and 2009 bad years, the turn-around year of 2010, and the 2011 banner year. [ 32 ] As stated previously, I infer that Mr. Bewza’s 2012 return will report line 150 income of not less than $110,000, assuming he continues to maintain his current salary and does not receive any more dividends before the end of 2012. In my view, the most reasonable determination of Mr.

Bewza’s income for the purposes of consulting the SSAG is $115,000, which is equivalent to this anticipated line 150, plus an imputation of $5,000 for company benefits, as previously determined by Harvey J. on the previous variation. I think this is reasonable because I find that Mr. Bewza’s payment of approximately two-thirds of last year’s pre-tax income as dividends was consistent with prudent management of his business.

I find it reasonably likely that his business will continue to perform at more or less the level it did in fiscal 2012, although there will always be fluctuations from year to year. [ 33 ] At the $115,000 income level, the SSAG low is extremely close to the agreed spousal support amount of $2,000 per month.

I find that the low end of the range is consistent with the objectives of the parties at the time of the original consent order; it sufficiently addresses the respondent’s needs, and it partly addresses the claimant’s concerns that he earns his income in an industry vulnerable to variable markets and variable weather. I, therefore, vary spousal support to the amount of $2,000 per month. I do not find it appropriate to make the variation retroactive to any point prior to the date of the application, so it will be effective September 1, 2012. [ 34 ] In response to Ms.

Keim’s suggestion that I consider a mechanism to avoid annual reviews or repetitive variation applications, I can only suggest that the parties might consider a consensual provision for automatic annual or bi-annual variations based on an agreed formula tied to corporate profitability while Mr. Bewza’s income comes from that source.

This is a mechanism that the courts might be hesitant to impose, in light of the established test for material change of circumstances in spousal support cases, but it is not an uncommon mechanism in separation agreements dealing with child support where divorcing couples have deemed it suited to fluctuating income circumstances and have entered into agreements to that effect. Examples of such agreements can be seen in R.M.V.S. v. D.S.S. , 2003 BCSC 1022 and E.M.M. v. J.I.M ., 2012 BCSC 372 . [ 35 ] Counsel have requested that I defer making a cost order at this time. Costs may be spoken to if necessary. “I.C.

Meiklem J.” MEIKLEM J.