2010 NBCA 86, 2010 NBCA 86

COURT OF APPEAL OF NEW BRUNSWICK 144-09-CA M.W.M. (Appellant) APPELLANT M.W.M. (Appelant) APPELANT - and - - et - H.L.M. (Respondent) RESPONDENT H.L.M. (Intimé

e) INTIMÉE M.W.M. v. H.L.M., 2010 NBCA 86 M.W.M. c. H.L.M., 2010 NBCA 86 CORAM: The Honourable Justice Richard The Honourable Justice Bell The Honourable Justice Quigg CORAM : L’honorable juge Richard L’honorable juge Bell L’honorable juge Quigg Appeal from a decision of the Court of Queen’s Bench: September 30, 2009 Appel d’une décision de la Cour du Banc de la Reine : Le 30 septembre 2009 History of Case: Historique de la cause : Decisions under appeal: 2009 NBQB 263 - Unreported Décision frappée d’appel : 2009 NBBR 263 – Inédite Preliminary or incidental proceedings: Court of Appeal [2009] N.B.J.

No. 421 Procédures préliminaires ou accessoires : Cour d’appel [2009] A.N.-B. n o 421 Appeal heard: June 28, 2010 Appel entendu : Le 28 juin 2010 Judgment rendered: December 2, 2010 Jugement rendu : Le 2 décembre 2010 Reasons for judgment by: The Honourable Justice Quigg Motifs de jugement : L’honorable juge Quigg

Concurred in by: The Honourable Justice Richard The Honourable Justice Bell Souscrivent aux motifs : L’honorable juge Richard L’honorable juge Bell Counsel at hearing: For the appellant: M.W.M. appeared in person For the respondent: H.L.M. appeared in person Avocats à l’audience : Pour l’appelant : M.W.M. a comparu en personne Pour l’intimée : H.L.M. a comparu en personne THE COURT The appeal is allowed and the matter is remitted to the Court of Queen’s Bench, Family Division for the proper calculation of child support. There is no order as to costs.

LA COUR L’appel est accueilli et l’affaire est renvoyée devant la Division de la famille de la Cour du Banc de la Reine pour qu’elle procède au calcul adéquat de la pension alimentaire pour enfants. Aucune ordonnance n’est rendue quant aux dépens. The judgment of the Court was delivered by QUIGG J.A. I.

Introduction [ 1 ] This appeal raises the issue of whether payments made by a third party insurer toward two specific debts of the appellant father (a mortgage payment and an interest payment on a line of credit) constitute income to be taken into consideration in the calculation of child support, in accordance with the Federal Child Support Guidelines . II. Background and Procedural History [ 2 ] The appeal arises from a decision of the Court of Queen’s Bench, Family Division, which granted a retroactive variation in child support.

In calculating past income, the motion judge included disability insurance payments made by a third party insurer to the father’s financial institution to pay his bi-weekly mortgage payment and the interest on his line of credit. [ 3 ] The parties to this appeal were married in 1985, separated in 1991 and divorced in 1994. There are two children of the marriage, born in 1987 and 1990. At the hearing both children were found to be children of the marriage, entitled to child support. The father became ill in May, 2005, requiring surgeries and an extended period of hospitalization.

As a result, he suffered a substantial decrease in income. The father’s income from June, 2005, until June, 2006, was derived from employment insurance. Despite his reduced income, he continued to make his regular support payments until July, 2006. Following the exhaustion of his employment insurance benefits, the father paid one-half of the support payment from August, 2006, to March, 2007. The father testified that he paid the lesser amount because he believed the mother had agreed to accept that amount while he was disabled.

[ 4 ] The father continued to pay the amount of $192.50 per month (one-half of the original support) until March 1, 2007. He discontinued his payments after March 1, 2007, when his income tax refund was garnished. According to the father, the mother had not advised Family Division she had agreed to accept a lesser amount. (As an aside, the father had not filed a motion requesting a variation of support at the time nor had he filed a court order varying the existing support order.) The mother testified she had not agreed to any change in amounts.

According to the mother, she advised the father’s current spouse that if the father’s income was less than hers after his “bills” were paid, she would agree to a change, but she was not provided adequate information in that regard. [ 5 ] The father stopped making child support payments and, as a result, arrears accrued. Between April 1, 2007, and November, 2007, the arrears accumulated at the rate of $385 per month for a total of $3,017 by November 1, 2007. On November 27, 2007, he resumed payments of $385 per month. [ 6 ] The father returned to work in October, 2007, and began making child support payments.

In March, 2007, his income tax refund of $1,403 was garnished to satisfy the arrears. The father filed a notice of motion on March 15, 2007, requesting a review of the child support payments retroactive to June 6, 2005, when his income had decreased due to his illness. He asked that the arrears be adjusted accordingly. The mother filed a responding document dated May 9, 2007, which was not a sworn affidavit. A second, unsworn document was filed by the mother. It has the heading “Affidavit December 20 th ”.

The motion judge clearly discusses this document at para. 10 of his decision but explains that during the course of the trial the parties “recounted the substance of same and said document was ultimately marked as exhibit 2009-5”. In the May, 2007, document, the mother states the father could have been working if it were not for “self-inflicted” reasons. She further states in the document that the father did not pay support for seven years.

This statement is repeated in the December 20 th document, in which she adds that the father had only paid child support for four of the last sixteen years. [ 7 ] The matter was heard over the course of four hearings spanning two years. The motion judge granted a variation and set the amount of child support payable from June, 2005, to November, 2009, as $13,254. In calculating the father’s past income, the motion judge included insurance payments, which paid the father’s bi-weekly mortgage payments as well as the interest on his line of credit.

The motion judge executed a corrigendum dated May 28, 2010, which was filed with this Court on June 2, 2010, whereby he corrected the child support payable. This corrigendum changes dates and figures utilized by the motion judge in his original calculation of child support. III.

Issue [ 8 ] The sole issue to be determined on this appeal is whether the motion judge erred in imputing to the appellant’s income, for the purposes of calculating child support, an amount equal to that paid by a third party insurer to a financial institution to cover the cost of the appellant’s mortgage and interest on his line of credit, during the time he was disabled and unable to work. IV. Standard of Review [ 9 ] Larlee J.A. discusses the standard of review applicable in cases regarding family matters in P.R.H. v.

M.E.L. , 2009 NBCA 18 , 343 N.B.R. (2d) 100 : The appropriate standard of review to be applied in an appeal of this nature is discussed in Van de Perre v. Edwards , [2001] 2 S.C.R. 1014 , [2001] S.C.J. No. 60 (QL) , 2001 SCC 60 . The Supreme Court of Canada set out a standard of considerable deference for the decisions of trial courts in cases of family law . Intervention on appeal requires that there have been a material error, a serious misapprehension of the evidence, or an error of law….. See this Court's decisions on the application of the deferential standard: MacLean v.

MacLean (2004), 274 N.B.R. (2d) 90 , [2004] N.B.J. No. 363 (QL) , 2004 NBCA 75 at para. 18 ; J.P. v. R.R. (2004), 278 N.B.R. (2d) 351 , [2004] N.B.J. No. 467 (QL) , 2004 NBCA 98 at para. 27 ; Scott v. Scott (2004), 278 N.B.R. (2d) 61 , [2004] N.B.J. No. 468 (QL) , 2004 NBCA 99 at para. 32 and Boudreau v. Brun (2005), 293 N.B.R. (2d) 126 , [2005] N.B.J. No. 501 (QL) , 2005 NBCA 106 at para. 5 . [paras. 8-9] [Emphasis added.] [ 10 ] This is consistent with Richard J.A.’s comments in J.E.J. v. S.L.M. , 2007 NBCA 33 , 318 N.B.R. (2d) 119 :

I am mindful of the standard of review that governs appeals in custody, access and support matters, pursuant to which the decision in first instance must be given considerable deference. However, an appellate court is nevertheless empowered to set aside or vary a decision or order in these types of cases where it is the product of an error of law, an error in principle, a significant misapprehension of the evidence or if it is clearly wrong: see Hickey v. Hickey , 1999 CanLII 691 (SCC) , [1999] 2 S.C.R. 518 , [1999] S.C.J. No. 9 (QL) at para. 11 and Van de Perre v. Edwards , [2001] 2 S.C.R. 1014 , [2001] S.C.J.

No. 60 (QL) , 2001 SCC 60 . [para. 35] [ 11 ] In brief, no deference is owed to the motion judge’s decision when reviewing a question of law, including the proper

interpretation of the guidelines when determining a parent’s income for the calculation of child support.

Although the motion judge undertook a lengthy analysis of imputation of income in situations where a parent is underemployed, as well as the issue of hardship (both matters raised by the mother in this case), he does not provide any explanation as to how he reached the conclusion that the insurance payments to third parties constitute income. [ 12 ] I am of the opinion the motion judge made a reversible error when he determined disability insurance payments made to the father’s financial institution to be income, and as a result included the amount in his calculation of child support payable.

Furthermore, as a result of the corrigendum filed by the motion judge, I am unable to properly calculate the child support payable. V. Analysis A. Statutory Framework [ 13 ] In the present case, the motion was brought pursuant to provisions of the Federal Child Support Guidelines , for a retroactive variation of child support. The principles which govern the circumstances for variation of child support orders are set out in s. 17(4) of the Divorce Act , R.S.C. 1985, c. 3 (2nd Supp.) : VARIATION, RESCISSION OR SUSPENSION OF ORDERS

(4) Before the court makes a variation order in respect of a child support order, the court shall satisfy itself that a change of circumstances as provided for in the applicable guidelines has occurred since the making of the child support order or the last variation order made in respect of that order. MODIFICATION, ANNULATION OU SUSPENSION DES ORDONNANCES

(4) Avant de rendre une ordonnance modificative de l’ordonnance alimentaire au profit d’un enfant, le tribunal s’assure qu’il est survenu un changement de situation, selon les lignes directrices applicables, depuis que cette ordonnance ou la dernière ordonnance modificative de celle-ci a été rendue. [ 14 ] Section 17(4) of the Divorce Act instructs the court to “satisfy itself that a change of circumstances as provided for in the applicable guidelines has occurred since the making of the child support order” when varying an order. One must then turn to s. 14 of the Guidelines :

VARIATION OF CHILD SUPPORT ORDERS 14. For the purposes of subsection 17(4) of the Act, any one of the following constitutes a change of circumstances that gives rise to the making of a variation order in respect of a child support order: (

a) in the case where the amount of child support includes a determination made in accordance with the applicable table, any change in circumstances that would result in a different child support order or any provision thereof; (

b) in the case where the amount of child support does not include a determination made in accordance with a table, any change in the condition, means, needs or other circumstances of either spouse or of any child who is entitled to support; and (

c) in the case of an order made before May 1, 1997, the coming into force of

section 15.1 of the Act, enacted by

section 2 of

chapter 1 of the Statutes of Canada , (1997). SOR/97-563, s. 2; SOR/2000-337, s. 2. MODIFICATION DE L’ORDONNANCE ALIMENTAIRE 14. Pour l’application du paragraphe 17(4) de la Loi, l’un ou l’autre des changements ci- après constitue un changement de situation au

titre duquel une ordonnance alimentaire modificative peut être rendue :

a) dans le cas d’une ordonnance alimentaire dont tout ou

partie du montant a été déterminé selon la table applicable, tout changement qui amènerait une modification de l’ordonnance ou de telle de ses dispositions;

b) dans le cas d’une ordonnance alimentaire dont le montant n’a pas été déterminé selon une table, tout changement dans les ressources, les besoins ou, d’une façon générale, dans la situation de l’un ou l’autre des époux ou de tout enfant ayant droit à une pension alimentaire;

c) dans le cas d’une ordonnance rendue avant le 1er mai 1997, l’entrée en vigueur de l’article 15.1 de la Loi, édicté par l’article 2 du

chapitre 1 des Lois du Canada (1997). DORS/97-563, art. 2; DORS/2000-337, art. 2. [ 15 ] In order to determine a parent’s annual income one must look to ss. 15 and 16 of the Guidelines .

INCOME 15.

(1) Subject to subsection (2), a spouse’s annual income is determined by the court in accordance with sections 16 to 20.

(2) Where both spouses agree in writing on the annual income of a spouse, the court may consider that amount to be the spouse’s income for the purposes of these Guidelines if the court thinks that the amount is reasonable having regard to the income information provided under

section 21. 16. Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with

Schedule III. SOR/2000-337, s. 3; SOR/2007-59, s. 4. REVENU 15.

(1) Sous réserve du paragraphe (2), le revenu annuel de l’époux est déterminé par le tribunal conformément aux articles 16 à 20.

(2) Si les époux s’entendent, par écrit, sur le revenu annuel de l’un d’eux, le tribunal peut, s’il juge que ce montant est raisonnable compte tenu des renseignements fournis en application de l’article 21, considérer ce montant comme le revenu de l’époux pour l’application des présentes lignes directrices. 16. Sous réserve des articles 17 à 20, le revenu annuel de l’époux est déterminé au moyen des sources de revenu figurant sous la rubrique « Revenu total » dans la formule T1 Générale établie par l’Agence du revenu du Canada, et est rajusté conformément à l’annexe III.

DORS/2000-337, art. 3; DORS/2007-59, art. 4. B. Imputation of Income [ 16 ] In his decision, the motion judge found that, although the insurance payments would not have appeared as income on line 150 (total income) of the father’s T1 General Income Tax return, he could impute these payments to be income, pursuant to s. 19 of the Guidelines . In the case of Donovan v. Donovan , 2000 MBCA 80 , [2000] M.J.

No. 407 (QL) , Steel J.A. states: Section 19(1) of the Federal Child Support Guidelines provides that the court may impute such amount of income to a spouse "as it considers appropriate in the circumstances," which circumstance includes nine defined situations. The defined situations are not an exhaustive list and the

section gives the court a significant amount of discretion in imputing income. See Annotation, J. G. McLeod, A. (D.L.) v. A. (J.T.) (1999), 1999 ABQB 221 (CanLII) , 45 R.F.L. (4 th ) 1 at 5 (Alta. Q.B.) . [para. 13] [ 17 ] Justice Steel goes on to say: Any application of the provisions of the Federal Child Support Guidelines must be made in light of the objectives set out in s. 1, which provides as follows: Objectives 1. The objectives of these Guidelines are (

a) to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after separation;

(

b) to reduce conflict and tension between spouses by making the calculation of child support orders more objective; (

c) to improve the efficiency of the legal process by giving courts and spouses guidance in setting the levels of child support orders and encouraging settlement; and (

d) to ensure consistent treatment of spouses and children who are in similar circumstances. [para. 15] [ 18 ] In this case, the father argues the motion judge incorrectly treated the disability insurance payments as income. In his decision, the judge states: Of course on the evidence certainly Mr.

M may not have had any employment income during this period but as referenced herein he did have disability insurance through the bank that paid his mortgage and line of credit. [para. 137] [ 19 ] The father argues that during the period he was employed, and thus capable of making the payments on his mortgage and line of credit, he was not permitted to deduct the premiums he paid for this insurance in order to reduce his income for child support purposes. He says that the insurance payments during his period of disability are a benefit for which he paid with money that was net of his child support obligation.

He further argues the payments were interpreted by the motion judge to be a benefit, although they were merely applied to his debts, debts which did not reduce his income for support purposes. [ 20 ] In reviewing the jurisprudence respecting the imputation of income, I could find no cases directly on point. Although no analogy is perfect, I offer the following two cases in support of the position I have adopted. [ 21 ] In Bak v. Dobell , 2007 ONCA 304 , [2007] O.J. No. 1489 (QL) , separated parents had a daughter who was thirteen years of age.

The mother applied to increase the father’s obligation to pay child support from $117 monthly to $2,300 monthly by imputing income under s. 19(1) of the Guidelines based on the father’s lifestyle and his receipt of gifts from his own father. Mr. Dobell senior made extensive efforts to assist his son to find a means of becoming self-sufficient and supported him with funds for his day-to-day needs, including providing his son with a residence, which Mr. Dobell senior retained in his own name.

The father responded by requesting the termination of child support as he earned no income and was not capable of earning any income due to mental health issues. The trial judge dismissed the mother’s claim and vacated the existing child support order. The Ontario Court of Appeal found the trial judge had made no reversible error in exercising his discretion to refuse to impute income to the father and dismissed the appeal. Lang J.A. states: This conclusion is consistent with a model of child support based on a payor's income, not on his or her capital.

While income from investments is part of a payor's total income, his or her underlying investments are not. A payor is not expected to sell capital assets, such as a house and car, for the purpose of generating income from which to pay support, unless the "property is not reasonably utilized to generate income" (s. 19(1)( e )).

Even assuming the applicability of this provision, on the facts of this case, the respondent did and does not have the option to sell capital assets to generate investment income, particularly in the circumstance that the particular acquisitions were made by William Dobell for the specific purpose of encouraging the respondent's conventional conduct, with the overall objective that he achieve financial independence. This does not mean that capital is never relevant to the issue of support. In Jackson v. Jackson , 1997 CanLII 12392 (ON SC) , [1997] O.J. No. 4790 (Gen.

Div.) , support was awarded based on the receipt of capital, as opposed to income derived from capital. In Jackson , Pardu J. calculated support on the husband's receipt of trust funds, which included both capital and income. While capital is not usually considered income, the trial judge noted that the family standard of living, for almost four years prior to the parties' separation, had been based on the receipt of capital payments made at the rate of $105,000 annually.

Importantly, the order made was only an interim one and Pardu J. explicitly noted at para. 25 that the wife may "ultimately have to accept a lower standard of living".

The facts of the case before this court are quite different, including the important fact that the respondent had no control over the capital expenditures made by William Dobell. Further, the receipt of capital is not usually considered income because it is not taxed as income. In contrast to the receipt of capital, income that could be earned from capital is relevant to child support and will be included in income. For example, in both Ellis v. Carpenter , [1999] O.J. No. 934 (Gen. Div.) and St. Amand v. St. Amand , [2006] N.B.J.

No. 261 (Q.B.) , a payor parent accrued significant one-time, non-recurring sums of capital -- in Ellis, by way of inheritance and in St. Amand , by way of the sale of property. In determining the payor's obligation to pay child support from those capital amounts, the trial courts concluded that it was reasonable for the payor to spend portions of the sums on capital acquisitions, including the purchase of living accommodations, as well as for the payment of debt. However, investment income on the remaining capital was imputed to the parent for the purpose of calculating his child support obligation.

Thus, pursuant to Ellis, St. Amand, and s. 19(1)(

e) circumstances, part or all of the income that could be derived from capital may be imputed as income. However, in this case, because of the nature of the capital investments, they generate no income and the respondent is not in a position to sell them to generate income. Furthermore, if the shelter (and vehicles) had been provided for the respondent's use by his current partner, and not by his father, resulting "income" would likely not have been imputed to the respondent, except to the extent that the respondent's expenses were reduced as a result.

This is because it is the parent's obligation to provide support and not the obligation of the parent's new spouse. The result should not be different solely because the provider is the respondent's father, rather than his spouse. [paras. 52-57] [ 22 ] One may observe a similarity between Bak v. Dobell and this matter. In Bak v. Dobell , the Court found that the father had no control over the capital expenditures made by Mr. Dobell senior, nor was the receipt of capital usually considered income as it was not taxed as such.

In the case before us, the father had no control over the insurance payments being made on his behalf, nor were the payments taxed as income. [ 23 ] In Nielsen v. Nielsen , 2007 BCCA 604 , [2007] B.C.J. No. 2599 (QL) , the Court allowed an appeal by a father where the trial judge, while imputing income, included a yearly benefit of $42,000 because the father lived rent free.

After a lengthy analysis, the Court found the trial judge erred in imputing the father with income based on the rental value of his free accommodations, where his housing was unrelated to his employment and was not payment for any service provided by him. Tysoe J.A. says: In the present case, the free housing provided to Mr. Nielsen was unrelated to his employment and was not payment for any service provided by him. It was not of a nature similar to income, like gifts of money can be. It may be that Mr.

Nielsen would have earned additional income above his $100,000 salary if he did not have the free accommodation, but the chambers judge had already imputed $200,000 to him as the amount of employment income she believed he could reasonably obtain. In my opinion, the amount by which Mr. Nielsen was able to reduce his expenses by way of the free housing should not have been imputed as income to him. [ para. 43] The Court determined the free housing was not related to the husband’s employment, and was not payment for any service he provided.

Therefore, housing was not similar to income and was not to be included in the calculation of income. The matter before us is comparable in so far as the disability payments made on the father’s behalf were not “of a nature similar to income”. As such, I agree with the statements of law as set out above. [ 24 ] On the facts of this case, the father had no income. Before attributing income to a parent, we must review all of his or her financial circumstances including the source of any potential resources.

In this case, the father had procured an insurance contract to cover two particular debts in the event he became disabled. The father had no right or discretion to direct where the payments were to be applied. The disability payments were paid directly by the insurer to the financial institution for a particular purpose. As an aside, it is important to make the distinction that the disability insurance discussed in this case is not employment related disability insurance which replaces income.

A review of the jurisprudence respecting employment related disability insurance, which replaces income, indicates that it is generally considered income for the purpose of calculating child support. VI. Disposition [ 25 ] For the above reasons, I would allow the appeal on the basis that the motion judge erred in including the disability insurance payments made by a third party directly to the father’s financial institution when calculating his income for the

determination of child support payments. As such, I would remit the matter to the Court of Queen’s Bench, Family Division, for an assessment of the amount of child support to be paid. The assessment shall exclude the amount paid by the appellant’s third party insurer for his bi-weekly mortgage payments as well as the interest on his line of credit. I would make no order as to costs, as both parties were self-represented. ______________________________ KATHLEEN A. QUIGG, J.A. WE CONCUR: ________________________________ J.C. MARC RICHARD, J.A. ________________________________ B. RICHARD BELL, J.A.