2020 NBCA 46, 2020 NBCA 46

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK M.G.H. APPELLANT 44-19-CA M.G.H. APPELANT - and - - et - K.L.D.H. RESPONDENT K.L.D.H. INTIMÉE M.G.H. v. K.L.D.H., 2020 NBCA 46 M.G.H. c.

K.L.D.H., 2020 NBCA 46 CORAM: The Honourable Justice Green The Honourable Justice Baird The Honourable Justice French CORAM : l’honorable juge Green l’honorable juge Baird l’honorable juge French Appeal from a decision of the Court of Queen’s Bench: March 29, 2019 Appel d’une décision de la Cour du Banc de la Reine : le 29 mars 2019 History of case: Decision under appeal: Unreported Preliminary or incidental proceedings: [2019] N.B.J. No. 187 Historique de la cause : Décision frappée d’appel : inédite Procédures préliminaires ou accessoires : [2019] A.N.B. n o 187

Appeal heard: January 14, 2020 Judgment rendered: July 9, 2020 Appel entendu : le 14 janvier 2020 Jugement rendu : le 9 juillet 2020 Reasons for judgment by: The Honourable Justice Baird Concurred in by: The Honourable Justice Green The Honourable Justice French Counsel at hearing: For the appellant: Kimberly A. McCurdy For the respondent: Jacqueline Marie Boucher Motifs de jugement: l’honorable juge Baird Souscrivent aux motifs : l’honorable juge Green l’honorable juge French Avocats à l’audience : Pour l’appelant : Kimberly A. McCurdy Pour l’intimée : Jacqueline Marie Boucher THE COURT The appeal is allowed.

The corollary relief order is amended to uphold the child support provisions set out in the separation agreement. The cost award in the court below is set aside. The mother is ordered to pay costs of $5,000 plus HST for the proceeding in the Court of Queen’s Bench and $3,000 on the appeal. LA COUR L’appel est accueilli. L’ordonnance de mesures accessoires est modifiée en fonction des dispositions alimentaires pour enfants énoncées dans l’entente de séparation. Les dépens accordés dans l’instance inférieure sont annulés.

La mère est condamnée à des dépens de 5 000 $ plus TVH pour l’instance devant la Cour du Banc de la Reine et de 3 000 $ en appel. The judgment of the Court was delivered by BAIRD, J.A.

I. Introduction [ 1 ] This appeal requires the Court to determine whether a separation agreement reached through the collaborative law process, in which there was a deviation from the Federal Child Support Guidelines , SOR/97-175 (“ Guidelines ”), and s. 15.1(5) of the Divorce Act , R.S.C., 1985, c. 3 (2nd Supp .) (“ Act ”), should be upheld.

This appeal requires the Court to determine whether terms concerning child support, reached by parents with the advice of legal counsel and accountants, should be pierced in circumstances where the mother contends the father’s income should be imputed at a higher amount than what was agreed. In the result, the mother persuaded a judge to increase the father’s personal income by adding back capital cost allowance deductions, business expenses and corporate pre-tax income, obligating the father to pay $142,280 in child support.

It is this order he appeals, arguing his income available for child support has not changed since the execution of the separation agreement. [ 2 ] Both parents have self-employment incomes which fluctuate annually. In a pragmatic attempt to avoid litigation, they agreed to impute income for child support purposes. The father is the sole shareholder of three companies, and he has an interest in a fourth company. The mother is a self-employed real estate agent who works for a company owned and operated by her mother.

While the separation agreement provides for an annual exchange of income information, it is my view this provision should not be interpreted so as to permit the recalculation of Line 150 income in this case where there has been no evidence to support a change in corporate accounting practices and where a judge was satisfied that adequate arrangements had been made for the support of the children, in keeping with the objectives of the Guidelines . II.

Pleadings [ 3 ] In the mother’s application for divorce, filed August 11, 2016, less than fifteen months after the separation agreement was signed, she claimed: iii) [P]ursuant to s. 15.1 and 26 of the Divorce Act and pursuant to the Child Support Guidelines , an order that the Respondent pay to the Petitioner child support consistent with the Respondent’s Child Support Guidelines income which is unknown to the Applicant at present, inclusive of any appropriate imputation of income to the Respondent pursuant to s. 18 and s. 19 of the Child Support Guidelines . [ 4 ] The father replied: 6. (

a) The parties entered into a separation agreement on the 1 st day of June 2015, setting out all relief to be granted by virtue of the Divorce Act . (

b) The claims being made [by] the Applicant in her claim and affidavit are erroneous and I would place her to the strictest proof thereof. (

c) There has been no material change in the circumstances of the parties to warrant the changes to the agreement being sought by the Applicant herein […]. [ 5 ] The mother’s financial statement, filed with her application, records Line 150 annual income for child support purposes, of $100,366.37. The father’s financial statement records Line 150 annual income of $97,895.12. In the agreement the parents agreed to impute income of $130,000 to each. The mother argued that income should be imputed to the father for capital cost allowances (amortization), and pre-tax income his companies had historically deducted.

The mother also contended that income should be imputed for cash benefits and business expenses received and deducted by the father, some of which were known business practices when their separation agreement was signed. [ 6 ] The judge acknowledged: “[t]he parties’ Separation Agreement was negotiated through an extensive

collaborative law process. It is dated the first of June 2015. The mother and father were represented by separate counsel. Professionals in the field of accounting also provided advice relating to the division of their personal and business assets and debts” (para. 5); however, without considering the agreement further, the judge varied the s. 3 child support payments to September 1, 2016, under ss. 18 and 19 of the Guidelines , and she ordered a pro rata sharing of s. 7 expenses commencing April 1, 2019. III. Background [ 7 ] The parties were married in 2002 and separated in 2014.

There are two children, who were aged 9 and 6 on the date of separation. During the marriage, the father operated several companies. H. Inc. offers services such as landscaping, snow removal, repairs, restoration, renovation, maintenance, disaster clean up, property management, plumbing, electrical services, and it acquires, restores and sells real property. It has a workforce of approximately 60. P. Inc., owns residential and commercial rental properties, employing roughly six to ten employees who also work for H. Inc. Both were medium-sized companies at the time of separation.

The father testified he had slowly built them up over several years through long hours of hard work. The mother was also an active partner in their development. [ 8 ] Throughout the marriage, the mother was employed as a commissioned real estate agent, working for a company which is owned and operated by her mother. [ 9 ] Following the separation in 2014, the parents entered a collaborative law process which, as noted, resulted in the signing of a comprehensive separation agreement on June 1, 2015.

The separation agreement resolved all issues pertaining to the custody and access of the children, child support, and spousal support. There were also comprehensive provisions concerning the division of marital and non-marital property and debt. The mother received an unequal division in her favour. The separation agreement provided for shared custody of the children with a straight set-off for child support.

Section 7 expenses were to be shared equally. Annual financial disclosure was required by both parties. The agreement contemplated that the terms and conditions concerning child support would form the basis of a Corollary Relief Order should either parent file an application for divorce in the future. [ 10 ] At trial, the mother argued the father was underreporting his income on the basis his companies deduct capital cost allowances, his corporate and personal debt load increased due to further real estate acquisitions, and he was building his equity at the expense of his child support obligations.

In addition, the mother testified to the father’s historic business practices. She contended additional income should be imputed to him for capital cost deductions, and on the basis the father received corporate and cash benefits, including vacations, meals, gift cards, the use of corporate vehicles, including a camper. She claimed the $130,000 agreed in the separation agreement was well below his true Guidelines income.

The judge agreed and imputed income to the father in the amount of $511,338 in 2016, and $454,484 for the years 2017 and 2018. [ 11 ] The father replied that his accounting practices were known to the mother at the time the separation agreement was negotiated, and his financial situation had not changed other than his companies were carrying more debt, and the “calls” on his cash flow were higher.

He submitted the child support agreement, reached through the collaborative process, was final and binding, in the absence of material changes to their respective incomes which were not within their contemplation at the time the agreement was executed. The father asserted the mother’s income was under-reported for the same reasons.

He argued that she too received benefits as a real estate agent, and that she unreasonably deducted items such as office expenses, meals, car allowance, office supplies, gift cards, and advertising expenses, and that she and her mother had negotiated an unreasonable commission arrangement that was designed to significantly reduce the mother’s income.

More significantly, and despite those benefits, he contended the imputed income of $130,000 to each was negotiated in consideration of the above factors, and it was a fair compromise, due to the fact their incomes fluctuated from year to year. [ 12 ] The judge heard conflicting evidence from two chartered accountants concerning whether there was a “call” on the father’s corporate income, and whether there were unreasonable business expense deductions being taken by him. In the end, she made the following determinations:

a) She confirmed the parties’ agreement that they would have shared custody of the children under s. 9 of the Guidelines ;

b) The father’s income for 2016 was assessed at $511,338, generating a monthly child support payment of $6,442. The mother’s income was assessed at $71,276, generating a monthly child support payment of $1,014. The judge applied a straight set-off and concluded the husband should pay $5,428 monthly in 2016, commencing September 1, 2016;

c) The father’s income for 2017 was assessed at $454,484, generating a monthly child support payment of $5,484. The mother’s income was assessed at $82,582, generating a monthly child support payment of $1,179. The judge applied the straight set-off and concluded the husband should pay $4,306 monthly in 2017;

d) The 2017 income assessment formed the basis to calculate the child support payments for 2018;

e) Special expenses that qualified for reimbursement under s. 7 of the Guidelines would be shared on a pro rata basis;

f) Arrears in child support were calculated from September 1, 2016 to March 1, 2019, and were fixed at $137,974, as per a corrigendum to Judgment, payable before June 30, 2019;

g) The pro rata sharing of special expenses was calculated as 85% for the father and 15% for the mother, payable from April 1, 2019;

h) The father would continue to maintain health and dental insurance coverage for the benefit of the children; and

i) Costs were ordered against the father in the amount of $10,000 plus HST, together with “allowable” disbursements. [ 13 ] The judge correctly examined the respective household budgets and she conducted an analysis under ss. 9(a), (b), and (c). With respect to s. 9 (c), she wrote: I also need to consider the means of both parties regarding their ability to meet the needs of the children considering their shared arrangement. On the evidence, I am satisfied both parents have means to meet the needs of their children. The children live in comfortable homes, take

part in various activities, their educational needs are addressed and being met. They vacation with both parents. The children have allowances. The evidence establishes that the children do not experience a decline in their standard of living when changing households. The parents have the ability and the wealth to meet the needs of the children and offer them similar lifestyles. Considering the whole of the evidence and applying the criteria set out in

section 9 of the Guidelines I conclude that the appropriate amount of child support is the set-off amount in accordance with

section 9 (

a) of the Guidelines . [para. 174] [ 14 ] The judge did not find the terms of the settlement to be:

a) Unconscionable;

b) Inequitable;

c) Obtained without proper legal advice;

d) Based on incomplete or erroneous financial disclosure;

e) Obtained by fraud, misrepresentation or as a result of undue influence. See Miglin v. Miglin , 2003 SCC 24 , [2003] 1 S.C.R. 303 . IV. Grounds of Appeal [ 15 ] The father’s Supplementary Notice of Appeal advances numerous grounds. He contends the judge:

1) failed to consider and apply ss. 15(5) , (7) and (8) and s. 9(2) of the Act , more significantly, in light of her finding that reasonable arrangements had been made for the support of the children; 2) did not properly apply the objectives of the Guidelines set out in s. 1 ; 3) erred in her imputation of incomes to both parties (s. 19); 4) failed to properly consider s. 9 (

c) of the Guidelines ; 5) did not properly apply s. 18(1) of the Guidelines ; 6) failed to properly apply

Schedule III of s. 16 of the Guidelines , particularly ss. 11 and 12 in the context of corporate income; 7) failed to consider s. 7 of

Schedule III of the Guidelines when she imputed corporate income under s. 18(1) and s. 16,

Schedule III, s. 11 of the Guidelines ; 8) failed to properly apply s. 17 of the Guidelines ; 9) did not properly consider s. 4 of the Guidelines ; 10) should not have imputed income for 2018, based on the 2017 financial disclosure. [ 16 ] As some of the grounds are duplicative, and therefore redundant, they will be collapsed and dealt with in the way they were argued. V. Standard of Review [ 17 ] This appeal raises issues concerning contractual

interpretation which involve questions of fact and law, and, in the absence of extricable questions of law, they are reviewable on the standard of palpable and overriding error (see Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633 , at paras. 50-53 ). In Directcash ATM Management Partnership et al. v. Maurice’s Gas & Convenience Inc. et al. , 2015 NBCA 36 , 437 N.B.R. (2d) 292, this Court states: Thus, in applying Sattva , I conclude that contractual

interpretation in an ordinary appeal is now primarily a question of mixed fact and law, which involves ascertaining the objective intentions of the parties, through an analysis of their commercial dealings or the “surrounding circumstances”. These interpretive questions are reviewable on a correctness standard only when there is an extricable question of law. The circumstances under which a question of law can be extricated from the

interpretation process are “rare”: Sattva , at para. 55. The Supreme Court identified the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor as possible extricable errors of law. This principle was recently discussed in Northwest Territories (Attorney General) v. Association des parents ayants droit de Yellowknife , 2015 NWTCA 2 , [2015] N.W.T.J. No. 4 (QL) , per Slatter J.A. [para. 17] See also Keough v. Sandfire Capital Limited Partnership , 2016 NBCA 50 , 452 N.B.R. (2d) 233 . [ 18 ] In addition, this appeal raises questions of statutory

interpretation. In Province of New Brunswick v. Grant Thornton , 2020 NBCA 18 , [2020] N.B.J. No. 70 (QL) , at para. 90 , Drapeau J.A. writes that the meaning of a particular legislative provision “[…] stand[s] to be determined on its

interpretation in accordance with the contextual approach adopted in Rizzo & Rizzo

Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2 (QL). In that case, the Court agreed ‘the words of anAct are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the objectof the Act, and the intention of Parliament’ (para. 21).” The required interpretive approach is informed by the

Interpretation Act,R.S.N.B. 1973, c. I-13, notably s. 17, which provides as follows: 17. Every Act and regulation and everyprovision thereof shall be deemed remedial,and shall receive such fair, large and liberalconstruction and

interpretation as best ensuresthe attainment of the object of the Act,regulation or provision. 17. Toute loi, tout règlement et toutedisposition de ceux-ci sont réputésréparateurs et doivent faire l’objet del’interprétation large, juste et libérale, la pluspropre à assurer la réalisation de leurs objets. See also: the

Interpretation Act, R.S.C., 1985, c. I-21, s. 12. [19] No deference is owed to a judge’s decision when reviewing a question of law and interpreting a statutoryprovision (Minister of Justice and Consumer Affairs v. J.R. and C.R. and Minister of Social Development, S.M.R. and R.M., 2010 NBCA81, 365 N.B.R. (2d) 377). See VSL Canada Ltd. v. Workplace Health Safety and Compensation Commission and Duguay et al., 2011NBCA 76, 376 N.B.R. (2d) 292; Noron Inc. v. City of Dieppe, 2017 NBCA 38, [2017] N.B.J. No. 231 (QL); Dykstra v.

New BrunswickCattle Producers, a body corporate under the Natural Products Act, S.N.B. 1999, c. N-1.2, 2018 NBCA 5, [2018] N.B.J. No 6 (QL);Northrup v. Windsor Energy Inc. et al., 2017 NBCA 37, [2017] N.B.J. No. 219 (QL); The Town of Rothesay and Bird ConstructionGroup v. Fundy Bay Holdings Ltd., 2019 NBCA 15, [2019] N.B.J. No. 37 (QL). VI. Analysis A. Discretionary authority [20] In my view, the “one size fits all” approach to the

interpretation of the Guidelines was rejected by Parliament.As will be discussed further, if it were not the case, discretionary authority to deviate from the Guidelines, when a court determinesreasonable arrangements have been made for the care of children, would not have been granted.

In cases where the custody of a child isshared, incomes are imputed, incomes exceed $150,000, or closely held corporations are involved, there are opportunities for a court toapprove a child support agreement in which incomes have been imputed, provided the objectives of the Guidelines are met and a courtrecords its reasons for so doing.

In my view, agreements should be respected unless they do not meet the objectives of Guidelines, orthey are tainted on the Miglin criteria. [21] I agree that a court may set aside a provision for support, or a waiver of child support, if failure to do so wouldresult in child support provisions that do not meet the objectives set out in the Guidelines and the Act. A court is not bound by the childsupport provisions of an agreement, even when they are incorporated into a court order, when it concludes such provisions areinadequate (see Willick v. Willick, (SCC), [1994] 3 S.C.R. 670, [1994] S.C.J. No. 94 (QL)).

Finally, I agree that judgesshould not rubber stamp agreements (see A.S.L. v. LS.L., 2020 NBCA 15, [2020] N.B.J. No. 63 (QL)), however, that is not thecircumstance in this case. In this case, the judge, in spite of her finding that adequate arrangements had been made for the support of thechildren, and in the absence of evidence the father’s accounting practices had changed from the date the separation agreement wassigned, substantially increased the father’s Line 150 income and varied the child support payments. [22] As Wilson J. observed in Richardson v. Richardson, (SCC), [1987] 1 S.C.R. 857, [1987]S.C.J.

No. 30 (QL): Child maintenance, like access, is the right of the child […]. For this reason, a spouse cannot barter away his or her child’s right tosupport in a settlement agreement. The court is always free to intervene and determine the appropriate level of support for the child […][p. 869]. [23] In L.S. v. E.P., 1999 BCCA 393, [1999] B.C.J. No. 1451 (QL), the court writes: A fundamental tenet of the modern law of child maintenance is that the right to maintenance is a right belonging to the child, not the

parent. […] As the right belongs to the child it cannot be waived or bargained away by the custodial parent or lost due to that parent'sneglect, delay, or lack of diligence in enforcing the right. [para. 58] See also Bastarache J. in D.B.S. v. S.R.G.; L.J.W. v. T.A.R.; Henry v. Henry; Hiemstra v.

Hiemstra, 2006 SCC 37, [2006] 2 S.C.R. 231. [24] A parent seeking to benefit from an exception to the Guidelines is required to meet a two-part test: first, theymust satisfy the court the current provisions directly or indirectly benefit the child, or that special provisions have otherwise been madefor the benefit of the child; second, if part one is met, they must satisfy the court it would be inequitable to apply the Guidelines. See Eppv. Robertson, [1998] S.J.

No. 684 (Q.B.) (QL). [25] In Epp, Wilkinson J. concludes: Once a finding has been made that special provisions exist, it must be determined whether, given those provisions, the amount of childsupport determined under the Guidelines would be inequitable. As stated in Wang v. Wang (1997), (BC SC), B.C.J.No. 1678 (QL) (B.C.S.C. [In Chambers]) and Eilers v. Eilers, [1998] B.C.J. No. 1021 (QL) (B.C.S.C.), the term “inequitable” relates tothe parties and requires a consideration of both the circumstances of the parties giving rise to the order or agreement and theircircumstances at the time of the application. Such an

interpretation recognizes the give and take of settlement discussions and theinterrelationship of terms which will be reflected in a settlement agreement or order. [para. 20] [26] Similar considerations apply when one parent seeks to vary an agreement, when it was contemplated the termswould form the basis of a court order. Quigg J.A., writing for the Court in Q.D.T. v. H.L.D., 2020 NBCA 19, [2020] N.B.J. No. 71 (QL),cited Dedes v. Dedes, 2015 BCCA 194, [2015] B.C.J. No. 883 (QL): […] The relationship between Gordon and Willick was addressed by this Court in Turpin v.

Clark, 2009 BCCA 530 (leave to appeal refused,[2010] S.C.C.A. No. 5), which considered the proper test to be applied on a variation of a consent order made under the Divorce Act: [46] The test for establishing a material change of circumstances was articulated in Willick, in the context of a variation application forincreased child support, as a change that, if known at the time the prior order was made, would likely have resulted in a different order(at 688). In Carter v.

Carter (1991), (BC CA), 58 B.C.L.R. (2d) 45, 34 R.F.L. (3d) 1 (C.A.), a material change incircumstances was described, in the context of a variation application to rescind spousal support, as a change that was “substantial,unforeseen and continuing.” In Gordon v.

Goertz, (SCC), [1996] 2 S.C.R. 27, it was described, in the context of avariation application for custody of a child, as a change “which was either not foreseen or could not have been reasonably contemplatedby the judge who made the initial order” (para. 13). [47] In an attempt to reconcile these differing articulations of the test, Lambert J.A. in Stones v.

Stones, 2004 BCCA 99, 48 R.F.L. (5th)223, redefined the “foreseeable change” version, focussing on unanticipated changes that were not within the contemplation of theparties when they made their agreement: [15] In my opinion, the question of what is a material change of circumstances may vary from one case to another. That is particularly soin relation to foreseeability.

There are a group of cases which decide that retirement from employment, even at the retirement age set bythe employer, or by collective agreement, can be a material change of circumstances, although clearly it would be foreseeable. [16] I suppose that the question should really be asked in each case of whether the circumstance in question was one which the partiesmust have had in contemplation and built into the framing of their agreement.

Perhaps it is a change that the parties were prepared toleave out of contemplation in the agreement because of complexity or some other reason, so that when it occurs it is a material change ofcircumstances, even though the parties knew it must be going to happen at some time or another. [Emphasis added in Turpin.] [para. 21] [para. 13]

B. Legislative history [ 27 ] Since 1985, with the proclamation of the amended Act , there has been a move towards alternative dispute resolution in family law.

Section 9(2) imposes a duty on legal counsel to “[…] discuss with the spouse the advisability of negotiating the matters that may be the subject of a support order or a custody order and to inform the spouse of the mediation facilities known to him or her that might be able to assist the spouses in negotiating those matters.” [ 28 ] In Miglin , the Supreme Court concluded that s. 9(2) of the Act demonstrates Parliament’s intention that negotiated settlements are to be encouraged.

It is not enough for a party to argue that a trial judge would have awarded a different order, before a court should jettison an agreement, where there is no evidence of fraud, undue influence, misrepresentation, incomplete financial disclosure or child support provisions that are clearly inequitable. [ 29 ] Following the proclamation of the Act in 1985, mediation services for this purpose became more available across Canada. Couples were encouraged to settle their disputes. This objective has been further entrenched in recent amendments to the Act .

Under Bill C-78, not yet in force, legal advisers will be obligated by the Act to inform clients about the family justice services that might assist them with the resolution of their issues, and they will be required to encourage clients to use those services, unless it would be clearly inappropriate to do so. As a matter of public policy, consensual resolution saves both the administration of justice, as well as the litigants, precious time and money. [ 30 ] This evolving approach to family litigation was embedded in the Guidelines , which came into effect on May 1,

Section 1 sets out the legislative 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. 1 Les présentes lignes directrices visent à :

a) établir des normes équitables en matière de soutien alimentaire des enfants afin de leur permettre de continuer de bénéficier des ressources financières des époux après leur séparation ;

b) réduire les conflits et les tensions entre époux en rendant le calcul du montant des ordonnances alimentaires plus objectif ;

c) améliorer l’efficacité du processus judiciaire en guidant les tribunaux et les époux dans la détermination du montant de telles ordonnances et en favorisant le règlement des affaires ;

d) assurer un traitement uniforme des époux et enfants qui se trouvent dans des situations semblables les unes aux autres. [ 31 ] Professor Julien D. Payne and Marilyn A. Payne, in their text, Child Support Guidelines in Canada, 2017 (Toronto: Irwin Law, 2017), write: As of May 1, 1997, child support rights and obligations under the Divorce Act underwent a radical change. The previous child support regime applying under the Divorce Act , which was premised on the exercise of an unfettered judicial discretion, was rejected by the government as unpredictable, inconsistent, costly, and unfair to children. [p. 1]

[32] Entrenched in the Guidelines, as noted, is the authority to uphold negotiated settlements which deviate fromthem, provided the settlement is true to the exceptions set out in s. 15.1(5) of the Act. This occurs when a court is satisfied that specialprovisions in an order, judgment, or written agreement respecting the financial obligations of the spouses, or the division or transfer oftheir property, directly or indirectly benefit a child, or that special provisions have otherwise been made for the benefit of a child, and theapplication of the Guidelines would be inequitable (Payne and Payne, at p. 5). Consent orders are included. [33]

Section 15.1(5) of the Act permits a court to award an amount that is different from the amount that would bedetermined in accordance with the applicable Guidelines if it is satisfied: (

a) that special provisions in an order, ajudgment or a written agreement respectingthe financial obligations of the spouses, or thedivision or transfer of their property, directlyor indirectly benefit a child, or that specialprovisions have otherwise been made for thebenefit of a child; and (

b) that the application of the applicableguidelines would result in an amount of childsupport that is inequitable given those specialprovisions.

a) que des dispositions spéciales d’unjugement, d’une ordonnance ou d’une ententeécrite relatif aux obligations financières desépoux ou au partage ou au transfert de leursbiens accordent directement ou indirectementun avantage à un enfant pour qui les alimentssont demandés, ou que des dispositionsspéciales ont été prises pour lui accorderautrement un avantage ;

b) que le montant déterminé conformémentaux lignes directrices applicables seraitinéquitable eu égard à ces dispositions. [34] There is a paucity of cases in New Brunswick where this

section has been applied; however, Guerette J.considered it in McIllwraith v. McIllwraith (1999), (NB KB), 210 N.B.R. (2d) 391, [1999] N.B.J. No. 129 (Q.B.)(QL). He wrote: “When parties request a court to confirm their private support arrangements because they deem them to be satisfactoryfor their situation, a court should be loath to change them. Such arrangements, when freely entered into, are an important manifestationof their wishes to resolve issues between themselves and should accordingly be given appropriate weight by the court” (para. 20). Seealso Trafton v. Trafton, [1999] N.B.J.

No. 239 (Q.B.) (QL); Koot v. McLaren, 2003 SKQB 129, [2003] S.J. No. 214 (QL). In this case,only one party sought to change the support arrangements, however, the same principles apply. When s. 15.1(5) is in play, a court isrequired to satisfy itself that adequate arrangements have been made for the support of the dependant children. [35] In the late 1990s, conditions in Canada were ripe for the introduction of the Collaborative Family Law Process(“CFL”). In Noble and O’Brien v.

Arsenault and Arsenault, 2014 NBCA 39, 420 N.B.R. (2d) 133, Quigg J.A. tracks the history andparameters of CFL, writing: The collaborative family law (CFL) process has gained popularity in Canada in recent decades because it purports to take a holistic, non-confrontational approach to separation and divorce. CFL is intended to be a conflict resolution process through which clients and theirlawyers meet privately and attempt to reach a settlement through cooperation and dialogue.

Wanda Wiegers and Michaela Keet, authorsof “Collaborative Family Law and Gender Inequalities: Balancing Risks and Opportunities” (2008) 46 Osgoode Hall L.J. 733, succinctlydescribe the Collaborative Law (CL) process: In this article, we examine whether and how the distinctive features of CL affect the impact and salience of gender inequalities in thenegotiation of family law disputes. First developed by lawyers in the United States, the emergence of CL has been described as a“paradigm shift” in legal practice. One of the key distinguishing features of CL is the role lawyers play in the settlement process.

CLseeks to realize the benefits of client participation and interest-based negotiation through the active involvement of lawyers as bothfacilitators and advocates. Unlike in traditional negotiation or litigation, CL lawyers commit to a set of transparent values thatemphasizes the importance of the emotional and participatory needs of their clients, the possibility of creative outcomes, and theinterdependence of the parties. In another departure from most settlement processes, CL requires that both lawyers and clients worktogether in open fourway sessions toward the resolution of their dispute.

The CL process is also typically structured according to rules of engagement and disengagement that are set out in agreements enteredinto by both clients and their lawyers. The content of these agreements varies between provinces and/or regions, but generally these

agreements require open disclosure of all material information within the four-way session and demand that lawyers cease representingtheir clients if the process fails to generate a settlement.

To date, the CL process, in both Canada and the United States, has beenrestricted largely to the family law area. [p. 735] Many litigants have chosen CFL over standard litigation because of its emphasis on client participation and building consensus, asopposed to the adversarial system found by many to be antagonistic and alienating: Cristin Schmitz, “Collaborative Lawyers MustObserve Same Standard as Family Law Litigators: Alta. CA” (2011) 30 The Lawyers Weekly 38 (QL).

The parties agree to negotiate in“four-way” meetings (meetings comprised of both parties and their lawyers) in which all parties are expected to participate actively. InCFL, lawyers do not litigate the dispute; they are supposed to help shape and guide the process. Clients are required to make importantdecisions regarding their settlement instead of relying on their lawyer to represent their interests. Parties generally enter into CFL bysigning a Participation Agreement or Collaborative Law Contract, committing to forego litigation and follow the CFL process.

Theprocess ends abruptly if either party sues or threatens to sue, and neither lawyer may be retained for litigation: Donalee Moulton,“Collaborative Family Law and Mediation are Similar but Different” (2002) 22 The Lawyers Weekly 5 (QL). Under CFL theory, “CLcreates a metaphorical ‘container’ around the lawyers and clients to help focus on negotiation.

CL creates this container through a mutualwithdrawal agreement that disqualifies both lawyers from continuing to represent their clients if either party chooses to discontinue withCL and proceed in litigation”: John Lande, “Possibilities for Collaborative Law: Ethics and Practice of Lawyer Disqualification andProcess Control in a New Model of Lawyering” (2003) 64 Ohio St. L.J. 1315 at 1322.

The lawyer’s role in this process involves facilitating dialogue, seeking mutually beneficial settlement, and information gathering, whichcan require parties to disclose various types of information (e.g. financial) or hire financial or psychological specialists: Ann Osborne,“The Shift Required of the Family Lawyer is from Zealous Representation to Problem Solving, Educating, Role Modeling andFacilitating” (2005) 24 The Lawyers Weekly 34 (QL).

However, though CFL lawyers are committed to coming to an agreement that benefits both parties they are, unlike mediators, not neutralactors in the process and have a fundamental responsibility to provide legal counsel to their client throughout the process. CFL lawyersmust participate in the process and advise their clients to the best of their abilities while striving to maintain an atmosphere ofcooperation and integrity that fosters a mutually beneficial solution for both parties: Webb v. Birkett, 2011 ABCA 13, [2011] A.J. No. 54(QL).

The CFL practice varies among jurisdictions but the broad parameters of the process are usually set by participation agreements, whichare entered into by both clients and lawyers before the process begins. [paras. 19-23] [36] There are legitimate public policy objectives behind settlements in family law cases. In Gordon v. Goertz, (SCC), [1996] 2 S.C.R. 27, [1996] S.C.J. No. 52 (QL), McLachlin J. states: Parental agreements should be the rule and must be encouraged since parents are generally in the best position to assess the best interestsof the child.

In addition, such agreements minimize ongoing parental conflict and litigation, which are clearly not in the best interests ofchildren. Research on the emotional impact on children of such conflict, notwithstanding its limits, widely supports this common senseobservation. See Young, […], at p. 80 (per L’Heureux-Dubé J.); N. Weisman, […], at pp. 54-61; R. Krell, “The Emotional Impact onChildren of Divorce and Custody Disputes”, in R. S. Abella and C. L’Heureux-Dubé, eds., Family Law: Dimensions of Justice (1983),175. [para. 114] [37] This case prompts the Court to consider the judicial role in this context.

Both parents received accountingadvice concerning the deductions taken by the husband’s companies, based on the asset base that existed at the time their agreement wasnegotiated. They entered the agreement with extensive financial disclosure. They each had independent legal counsel. They agreed toreciprocally impute income in the amount of $130,000, an amount that did not represent the true incomes of either, given the changingnature of their self-employment incomes. Financial statements were exchanged, and budgets were prepared for this purpose.

As stated bythe judge, reasonable arrangements were made for the support of the children. Although the agreement provided for adjustments to childsupport on an annual basis, those adjustments were income driven. Should either parent experience material changes to their incomes,from that imputed in the separation agreement, they could request a change in the agreed child support. There was no barrier to eitherparent seeking a change to the child support amount in those circumstances; however, as will be explained, what happened in this case,was quite different from what was contemplated in the agreement.

Less than fifteen months following the execution of the agreement,the mother asked the court to impute income to the father on the basis he was deducting capital cost allowances from his businessincome, a practice which was known to the mother when the agreement was executed, and which had been factored into the globalsettlement. [38] The mother’s case was framed not as one of material change in income, but as one of statutory

interpretationfrom the beginning: “The issue here is simply the

interpretation of the Guidelines as they relate to the existing financial statements.” She

added: “[…] we’re not here to reassess what went on in terms of the resolution of the property division; that is done. What we’re here to do is simply analyze the financial situation at present, based upon the financial statements that the parties have from Mr. Neal.” In other words, this was not a case concerning financial disclosure. The question that should have been posed was whether there had been a change in the parties’ incomes to justify a change in child support. [ 39 ] In my view, the application judge did not turn her mind to the question of whether the father’s sources of income had changed.

She applied a mechanical approach to the Guidelines , without considering whether the terms of the agreement met the objectives of the Act and the Guidelines . To alter such agreements, when a court is satisfied there has been full financial disclosure, and when adequate arrangements have been made for the support of the children, defeats the public policy objectives of the Act and the Guidelines , insofar as settlements are concerned. The financial statements showed the father had not changed the way his companies reported their incomes.

These practices were within the knowledge of the mother when the agreement was negotiated, as evidenced by her testimony at the hearing. There had been some changes in their respective business expenses. As examples, the mother’s financial arrangement with her mother concerning the payment of commissions had changed, as did her some of her business expenses. The father admitted to having taken new business expense deductions as well. He was paying his friend, S.D. a salary, and provided her a company vehicle. These changes will be examined under s. 19 of the Guidelines . C.

The agreement [ 40 ] As noted, the parents agreed to share the custody of the two children in accord with a specific schedule. Paragraph 2(

c) of the separation agreement provided that “for the year 2014,” their incomes were imputed at $130,000, and they would equally share special expenses. Based on the imputed income, in paras. 6(

a) and (b), child support was assessed on a straight set-off basis in the amount of $1,789. Paragraph 6(

g) provided that, in consideration of the condition, means, needs and special expenses of the children, each parent would assume his or her own childcare costs. Special expenses were set out in para. 6(k). The agreement acknowledged the parents’ means were relatively equal. Of course, this would have included the asset division. [ 41 ] Paragraphs 6(

m) and (

n) provided that, for the purposes of adjusting child support payments, the parents would exchange their income tax returns along with their Notices of Assessments on or before May 15 of every year, and “any change necessary to the child support payment or

Section 7 expenses ratio shall be agreed to and become effective” as of June 1 of that year. Failing agreement, either parent could seek a court order. [ 42 ] The agreement provided for a detailed division of marital and non-marital assets and debts. The father is the sole shareholder and operator of the two companies, P. Inc. and H. Inc., as noted. He is also a joint owner of O. Ltd., which operates in a deficit position. He incorporated S.W.S. Inc., following the separation. At para. 12 of the agreement, the father agreed to pay the mother $1,324,000 for her interest in P. Inc. and H. Inc.

He paid an additional sum to the mother as an equalization payment for the division of all assets. An elaborate payment

schedule was set out in para. 12 (c). [ 43 ] The father assumed approximately $237,687 of debt which included the mortgage on the marital home and an RBC line of credit associated with his business. An amending agreement dated August 28, 2015, altered the terms with respect to the transfer of the marital home, providing for a payment to the mother of $423,000 no later than September 30, and a further payment of $61,000 on “completion of renovations” and an additional payment of $61,000 upon the sale of the house “or” not later than one year from the date the father took ownership of the home. D.

The evidence [ 44 ] In 2016, the father purchased land, later sold to P. Inc. for development. In 2017, P. Inc. acquired commercial property for $5.7 million. The latter purchase was financed by: 1) BDC mortgage: $4,500,000; 2) VTB loan: $825,000; 3) Shareholder loan: $200,000; 4) Advance from H. Inc.: $85,000.

[ 45 ] The mother contended the father continued to increase his equity position at the expense of child support. She focused, firstly, on the capital cost allowance deductions, arguing they created an artificial understatement of the money really available to him for child support. In her affidavit at para. 19, she anchored this argument on the fact the father had subsequently opened “several new businesses” for which she had no details. [ 46 ] Secondly, the mother submitted that income should not be imputed to her from her holding company, S.

Inc., other than potential interest income, on the basis it would represent a double recovery to the father. S. Inc. holds the funds received by the mother as a result of the settlement. Her net assets at trial totalled $1,300,000, and she had a mortgage on her home, with no other increase in her investments or her debts following the settlement. [ 47 ] As noted, Mr. Neal was retained to provide the parents with accounting advice during the collaborative law process. He was qualified as an expert in the field of accounting.

His evidence was restricted to the pre-separation services he provided to the parents, as well as his involvement in their settlement negotiations. Mr. Neal continued to provide accounting advice to the father and his companies. He assisted the father in his corporate financing and long-term strategic planning following the settlement, and he prepared the personal income tax returns for both parties. During the negotiations, Mr. Neal was retained to assist them with the valuation of corporate assets. Notably, Mr. Neal testified that P. Inc. was the most significant business asset, and O.

Ltd. was operating in a deficit position. Book values of corporate assets were assessed at fair market value, as agreed by the parties. [ 48 ] Mr. Neal testified that throughout the negotiating process, and during the preparation of the financial statements, legal counsel for both parties actively contacted him and consulted with him. The H. Inc. evaluation did not include an adjustment for fair market value, due to the depreciated value of equipment. It was assessed on a book value basis, as agreed. All corporate documents and valuations were reviewed by legal counsel, and Mr.

Neal advised it was the parties who instructed him concerning the division. Mr. Neal was tasked with the job of structuring the father’s financing, so he could pay the mother her share of the equity, as agreed. This was accomplished through a butterfly transaction that allowed for the payments to be made to the mother’s holding company, S. Inc., on a tax-deferred basis, so as not to trigger a capital gain to the mother. Mr. Neal confirmed that legal counsel prepared the documents. In the agreement, the wife received the “vast majority” of the personal assets.

The “vast majority” of the debts were assumed by the husband. Mr. Neal confirmed this represented an unequal division of assets in the mother’s favour. He provided extensive evidence concerning the financing arrangements, the amount of capital cost allowance deducted on real estate holdings, as well as the debts held by the companies and the personal guarantees given to lending institutions by the father.

He testified he did not believe that capital cost allowance would be an issue, as the parties had the benefit of both legal and accounting advice when they reached their agreement, and if it had been an issue, it should have been “flagged.” [ 49 ] Mr. Neal confirmed P. Inc. purchased a commercial property in 2017 for $5.7 million which was mortgaged with BDC for $4.5 million. He also testified concerning the father’s 2016 land purchase. The land was transferred to P. Inc. for $200,000. In August 2017, P. Inc. recorded retained earnings of $54,910.

In a twelve-month cycle, the companies are required to pay $320,770 to cover the principal payments on the mortgages. Interest payments were deducted as corporate expenses. [ 50 ] The unaudited fiscal year-end financial statement for P. Inc., dated August 31, 2015, when compared with 2016, showed increased receivables, a significant increase in payables and debt, as well as a significant capital deficiency in retained earnings of $147,600. In 2017, long-term debt had risen. Net income was reported at $202,510, less the prior year’s deficit, leaving retained earnings of $54,910. H.

Inc. recorded a significant reduction in retained earnings between 2015 and 2016 which it partially recovered in 2017. [ 51 ] Mr. Neal confirmed the “calls” on corporate income included the accounts receivables, property taxes, pay rolls, maintenance, lines of credit and principal payments on the mortgages. He stated the mother’s company, as a holding company, was a passive corporation, has no “calls”, or external restrictions, on the use it makes of its assets.

He testified that corporate funds were not available as income to the father, as asserted by the mother, because of the debts. [ 52 ] Two other accountants, Mr. Jamie Whittaker for the mother, and Mr. Peter Logan for the father, offered differing opinions concerning the

interpretation of the income attribution rules set out in ss. 18 and 19 of the Guidelines , and s. 11 of

Schedule III of the Guidelines . On this, the mother asked the judge to answer the following questions: “The questions are simply how we interpret what we have before us – in particular s. 11 – that would be the capital cost adjustment for real estate – the depreciation that’s not, in fact, a real number – it’s allowable for tax purposes.” She observed: “No one is disputing the agreement that the parties had with respect to these numbers. It is solely the

interpretation of what – in these financial statements, and what other evidence will be elicited – should be used in accordance with the Child Support Guidelines .” The mother did not base her case on material change when she argued the capital cost allowances. [ 53 ] From the outset, the mother submitted that, despite the separation agreement, the capital cost allowance had to

be added back to the pre-tax income of the operational corporations under

Schedule III, s. 11 of the Guidelines , without exception; or, in the alternative, income should be imputed to the father under s. 19 for unreasonable business deductions. [ 54 ] The mother’s accountant, Mr. Whittaker, reviewed the unaudited Financial Statements for P. Inc. and H. Inc. from 2012 to 2017 and prepared a four-page report. He opined the capital cost allowance was required to be added back to corporate income, on the basis that s. 11 of

Schedule III applies the same way to real estate owned by individuals and corporations. He disagreed that the current portion of long-term debt of $330,770 should be deducted from corporate income on the basis this practice, as a matter of public policy, would allow payers to utilize the financing of purchases of real estate as a way to reduce their child support obligations. This was an opinion that clearly strayed into the realm of statutory

interpretation. [ 55 ] On page 2 of the report, Mr. Whittaker writes: “

Section 18 of the Guidelines ensures that utilizing a corporate structure does not shelter any income that is available to the spouse ([the father]), and therefore the same provisions with respect to capital cost allowance need to apply to corporations owned by [the father].” This is a true statement; however, there was no evidence the father was intentionally diverting income when he availed himself of the amortization deduction in this case, a known accounting practice when the agreement was negotiated. [ 56 ] Mr. Whittaker did not express an opinion concerning

Schedule III, s. 12, nor did he consider the economic and operational needs of the companies. In the end, it was his opinion the judge followed. [ 57 ] The father’s expert, Mr. Logan, prepared a two-page report. He took the father’s Line 150 income for 2017, $55,246; he then added $15,000, plus a gross up for income tax, for personal benefits the father receives from his companies, and he calculated the father’s income on that basis. He testified that P. Inc. had pre-tax net income of $245,311, with long-term debt of $320,770, which, as he stated, was being repaid monthly. It was his opinion that H.

Inc.’s net income of $40,149 was not available for child support, because it was needed to finance receivables and there was a shortfall in working capital. His opinion was consistent with that of the father, who stated he would not be able to finance the amount requested by the mother. He argued the Financial Statements did not consider certain debts payable, such as the H. Inc. line of credit of $186,000 and bank debt. The health of both P. Inc. and H. Inc. was described as “very leveraged.” It was Mr.

Logan’s opinion that capital cost allowance should not be added back. [ 58 ] Before us, the father submits the judge erred in her

interpretation of the Guidelines . He contends the court should not have mechanically added back 100% of the capital cost allowance to his pre-tax corporate income for child support purposes without considering corporate debt and the fact he is operating companies which have a “call” on their incomes for operational purposes.

The father argues the issue of capital cost allowance was considered when he and the mother settled their claims, and that any analysis concerning his ability to pay child support, should take the following into account: the mother received an unequal division of assets, the father has assumed significant debt, there is a shared custody arrangement which the judge observed was providing an above-average standard of living for both children, and the mother’s income as a self-employed real estate agent is under-reported.

He states there has not been a change since the execution of the agreement in the treatment of capital cost allowance, nor has there been a change in the business expenses, his income for taxation purposes has not increased, the imputed income in the agreement exceeds his Line 150 income and the mother was aware of these historical deductions when the separation agreement was signed. [ 59 ] The judge did not consider the fact the mother had full disclosure of the corporate financial statements during the collaborative law process. The business deductions for capital cost allowance was a known accounting practice.

It was the mother’s burden to establish a material change in the father’s accounting practices, which reduced his income available for child support. [ 60 ] For the reasons that follow, I would allow the appeal. I would not vary the imputed incomes of the parties as agreed.

I agree with the judge’s analysis under s. 19 ; however, even if I were to add back the disallowed business expenses to the parties’ Line 150 incomes, there still would be no material change of income, sufficient to persuade me that their mutual agreement to impute income of $130,000 was unreasonable and did not meet the objectives of the Guidelines . The judge found that the children’s standards of living were the same in each household.

In the absence of persuasive reasons justifying judicial intervention into agreements that meet the statutory objectives for child support, in the absence of evidence that would persuade a court to set aside an agreement on the Miglin criteria, and when there is no evidence of a material change in income, these agreements should not be set aside or varied, unless there is evidence of a material change in income. E. Determination of Guidelines income

(1) Pre-tax corporate income – s. 18

[ 61 ]

Section 18 of the Guidelines reads as follows: Shareholder, director or officer 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 consider the situations described in

section 17 and 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. Adjustment to corporation’s pre-tax income

(2) 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.

Actionnaires, administrateurs ou dirigeants 18(1) Si l’époux est un actionnaire, administrateur ou dirigeant d’une société, le tribunal peut, s’il est d’avis que son revenu annuel déterminé conformément à l’article 16 ne correspond pas fidèlement aux sommes disponibles pour payer une pension alimentaire pour enfants, tenir compte des situations visées à l’article 17 et inclure dans le revenu annuel :

a) soit tout ou

partie du montant de profit avant impôt de la société, et de toutes autres sociétés avec lesquelles elle est liée, pour la dernière année d’imposition;

b) soit un montant correspondant à la valeur des services qu’il fournit à la société, jusqu’à concurrence du montant de profit avant impôt de celle-ci. Rajustement du profit avant impôt

(2) Aux fins de la détermination du profit avant impôt d’une société en application du paragraphe (1), les montants qu’elle paie, au

titre notamment des salaires, rémunérations, frais de gestion ou avantages, aux personnes avec lesquelles elle a un lien de dépendance, ou au nom de celles-ci, sont ajoutés au profit avant impôt de la société, à moins que l’époux n’établisse qu’ils sont raisonnables dans les circonstances. [ 62 ] The Guidelines begin with the assumption that a payer’s income for child support purposes will be assessed based on Line 150 of the T1 General Income Tax Return.

Section 16 directs that Line 150 income can be adjusted in accord with

Schedule III, s. 11, when there is a closely held corporation. To go further, before a court departs from the Table amount, it must be satisfied that the s. 16 income is not the “fairest” determination. In this case, a comparison of the Line 150 incomes of the parties from 2014 shows: Year Father Mother 2014 $125,814.00 $126,539.65 2015 $97,895.95 $101,806.37 2016 $124,129.51 $65,643.87 2017 $55,046.99 $74,168.90

[63] In Milton v. Milton, 2008 NBCA 87, 338 N.B.R. (2d) 300, Larlee J.A. adopted the reasons from Wildman v.Wildman, (ON CA), [2006] O.J. No. 3966 (C.A.) (QL), where the court concluded the husband had intentionallystructured his business enterprises in such a way as to divert money for his personal use, and income was imputed to him on that basis.The result in that case is distinguishable on its facts. The court found the father was intentionally diverting corporate income to reducethe income available for child support, and this was an order in the first instance.

There was no agreement. [64] In Wildman, the court writes: The purpose of s. 18 is to enable the courts to conduct a fair accounting of the money available for the payment of child support. JusticeMartinson commented in Baum v. Baum (1999), (BC SC), 182 D.L.R. (4th) 715 at para. 128 (B.C.S.C.): Valid corporate objectives may differ from valid child support objectives. The purpose of s. 18 is to allow the court to “lift the corporateveil” to ensure that the money received as income by the paying parent fairly reflects all of the money available for the payment of childsupport.

This is particularly important in the case of a sole shareholder as that shareholder has the ability to control the income of thecorporation. […] [para. 27] [65] In this case, the application judge made no such finding. Although argued, there was no evidence the fatherwas intentionally diverting income that would otherwise be available for child support. There was evidence, however, that both partiesinflated some of their business expenses.

The judge added back to the incomes of both parents, specific business expenses she deemed tobe unreasonable both under ss. 18 and 19, in addition to her findings of unreasonable capital cost allowance deductions. [66]

Schedule III, s. 11, distinguishes between capital cost allowances taken in respect of real property, whicharguably appreciates in value, and that taken in respect of personal property, which depreciates in value. This distinction was noted inEgan v. Egan, 2002 BCCA 275, [2002] B.C.J. No. 896 (QL). Egan set out twelve factors to be considered prior to determining whether acapital cost allowance should be imputed (see also Rudachyk v. Rudachyk, [1997] S.J. No. 314 (Q.B.) (QL)).

A court should notmechanically add back into pre-tax income the capital cost allowances, where there is evidence the deduction is reasonable foroperational purposes (Gosse v. Sorensen-Gosse, 2011 NLCA 58, [2011] N.J. No. 331 (QL), at para. 74). Part of this examinationincludes a consideration of the pre-separation pattern of income of the corporation, comparing it to the post-separation pattern, to see if aparent is intentionally reducing his or her income through this deduction. The goal is not to strip the company of capital reasonablyrequired to function: see Richardson v.

Richardson., 2013 BCCA 378, [2013] B.C.J. No. 1846 (QL). In Kowalewich v. Kowalewich,2001 BCCA 450, [2001] B.C.J. No. 1406 (QL), the court identified the emerging presumption that pre-tax corporate income would beassumed to be available for child support purposes, in the absence of evidence to the contrary. It is generally accepted the onus rests withthe payer to provide that evidence. See Hausmann v. Klukas, 2009 BCCA 32, [2009] B.C.J. No. 121 (QL), at paras. 51-52. Even if therehad not been a separation agreement in this case, it is my view the father met that burden. [67]

Schedule III, s. 12, states that where a spouse earns income through a partnership or sole proprietorship, he orshe may deduct any amount included in income that is properly required by the partnership or sole proprietorship for capitalization. Inmy opinion, the father, both through his evidence, and that of his accountants, established the operational needs of his companies, andthat the capital cost allowance was not being used as an attempt to divert funds. In my view, the judge failed to take the operational needsof the companies into account when she defaulted to the opinion of the mother’s accountant.

In doing so, she ignored the corporateeconomic realities, she attributed corporate income to the father personally, in a manner inconsistent with the economic day-to-day“calls” on corporate income, and she conflated corporate income with personal income. The judge decided the mother’s applicationwithout considering the parties’ intention when they negotiated their agreement.

Simply put, there was no material change that wouldhave permitted a court to re-engineer the agreement. [68] In other words, as stated in Epp, when s. 18 is argued, the Guidelines require a court to first determine whetherthe child support order is reasonable, and, in the case of an operating company, there is an examination of the “call”, or debt position foroperational purposes. It would not be reasonable to strip a company of its operational income, hence the discretionary nature of s. 18. InMilton v.

Milton, 2007 NBQB 363, 326 N.B.R. (2d) 324, French J. (as he then was) observed that the analysis is different when dealingwith a professional corporation as opposed to a true entrepreneurial business or enterprise for this purpose (paras. 49-52). I agree. [69] As noted, the pre-tax income analysis kicks in when a court determines the Line 150 income does not representthe income truly available for child support purposes.

Schedule III, s. 12, is concerned with “capitalization”. In Ghosn v. Ghosn, 2006NSSC 2, [2006] N.S.J. No. 33 (QL), capitalization was described as the “cash” needed to operate on a day-to-day basis (para. 24). InBoniface v. Boniface, 2007 BCSC 1543, [2007] B.C.J. No. 2303 (QL), the court determined that capitalization, in the sense used by theGuidelines, is money paid out-of-pocket for the day-to-day expenses needed to generate gross income for the owner/operator of a

business, and it correctly, in my view, distinguished those expenses from expenditures incurred for future acquisitions of income- generating properties. There are differing opinions with respect to this latter point. Some courts have concluded there is an inherent unfairness in not treating capital cost allowance as income due to the fact it is tax-deferred until the divestment of the asset, thus allowing for the potential manipulation of income ( see Grant v. Grant , 2001 NSSF 13 , [2001] N.S.J. No. 100 (QL) ). The court in Gosse disagreed. See also Murphy v. Bert , 2007 NSSC 376 , [2007] N.S.J.

No. 543 (QL) ; Richardson v. Richardson ; Nesbitt v. Nesbitt , 2001 MBCA 113 , [2001] M.J. No. 291 (QL) . The father argues that, in this case,

Schedule III, s. 12, applies, because capitalization for P. Inc. includes the “call” he needs for its day-to-day operations, which includes interest on the mortgage payments, financing the accounts receivables and paying the corporate bills. [ 70 ] The mother submitted the father’s real estate investments were depleting his personal income. On this, the judge writes: “Rather it is the father who has decided not to maintain a healthy debt-to-equity ratio by continuing to ‘squeeze out’ of his companies any money he can in order to continue to build his own equity” (para. 110).

She concluded that, following the execution of the separation agreement, most of the corporate funds were used to subsidize the “desired” corporate projects (para. 110). She found there was no “cogent” evidence presented to establish “calls” by the bank on the various lines of credit and the purpose for which the funds were used. She writes that the O. Ltd. financial statements made no reference to corporate debts, only those with people or entities that were not at arm’s length, and that the father had not met his burden of proof.

I disagree. [ 71 ] The judge, in this case, found “[…] the fact that it does not deal with CCA on corporate real estate does not preclude the exercise of the court’s discretion to make a fair determination of a payer’s Guidelines income by examining the CCA deducted as a corporate expense. The court can, under

section 18 of the Guidelines , determine the reasonableness of such an expense as it directly affects the income of the corporation” (para. 96). This is a correct statement of the law; however, in defaulting to Mr. Whittaker’s opinion, it is my view the judge did not properly exercise her judicial function. It is judges who interpret legal principles, not experts (see White Burgess Langille Inman v. Abbott and Haliburton Co. , 2015 SCC 23 , [2015] 2 S.C.R. 182 ). [ 72 ] Cromwell J. wrote in White Burgess Langille Inman , concerning the admissibility of expert opinions.

The report of a chartered accountant that sets out his or her opinion concerning a parent’s income will be ascribed the weight a court believes it is due, on the facts; however, an accountant who expresses his or her legal opinion concerning the application of a particular rule or legislative authority, exceeds his or her jurisdiction and his or her opinion should be given no weight. In this case, the judge did not explain why she preferred Mr. Whittaker’s opinion over that of Mr. Logan, nor did she consider whether the separation agreement met the objectives of the Act and the Guidelines , as noted.

(2) Section 19 analysis [ 73 ] Section 19(1)(

g) provides that income may be imputed when it is concluded a spouse is unreasonably deducting business expenses from business income – sometimes referred to as the lifestyle analysis. In this case, s. 19 was pleaded in the alternative. The mother submitted:

a) the father’s business expenses were inflated;

b) the father paid his partner, S.D., a salary, provided her with a cell phone and a vehicle, and those expenses should be added to his income; and

c) that cash income either in kind, or through gift cards should be added to his income. It was the mother’s position that up to $90,000 should be imputed to the father under s. 19 of the Guidelines as a result. The mother testified that when they were together, the father transacted some of his business in cash which he used for vacations, gambling, recreational purposes and special purchases. However, much of the evidence on this issue was historic and was known to both parties at the time of separation.

The judge added back these expenses under s. 18 and then arbitrarily added a further amount under s. 19 . [ 74 ] The father submitted that, if income were to be imputed to him on this basis, it should also be imputed to the mother, due to the fact the mother inflated her business expenses, changed the commission arrangement she had with her mother’s real estate company post separation, was paying her mother an inflated commission, and was underutilizing her settlement funds by sheltering them in her holding company. [ 75 ] The reasonableness of an expense for the imputation analysis falls under s. 19(2) of the Guidelines , which reads:

Reasonableness of expenses

(2) 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 . Caractère raisonnable des dépenses

(2) Pour l’application de l’alinéa (1)g), une déduction n’est pas nécessairement considérée comme raisonnable du seul fait qu’elle est permise en vertu de la Loi de l’impôt sur le revenu . [ 76 ] The mother deducted office space, equipment, a computer, TV screens, marketing, promotion, fees and dues, website costs, and social media costs. There was no breakdown, nor were there receipts, for certain expenses such as t-shirts, decorations, signs, frames, jars, magazine subscriptions, bathroom items, sponge towels and ice cream. There was a deduction for an at-home office in the amount of $831.

There were deductions for closing costs, gift cards, advertising, meals and entertainment, professional dues and business use of a motor vehicle. As noted, the mother altered her commission arrangement in a non-arm’s length relationship with her mother after the separation agreement was signed. [ 77 ] In 2016, the mother had a gross commission from real estate sales of $181,937.63, from which she paid brokerage fees of $12,735.63 and $84,601 in fees to her mother’s real estate company.

In 2017, the mother’s commissions were $193,923.80, from which she paid 7% in brokerage fees and 50% of the balance to her mother’s real estate company. The mother’s assets, which totaled $1,156,028.55 in August 2016, had grown to $1,471,063.08 by 2018. By December 2017, the mother’s holding company had $475,000 in assets. The father submitted the mother’s income should be imputed at $186,279.31, consisting of $144,274.31, plus investment income from the holding company which he calculated at $42,000 per year. In the end, the judge determined:

a) the at-home office deduction was disallowed;

b) office supplies were not allowed on the basis these items were provided by the real estate company;

c) advertising expenses were not allowed for the same reason;

d) meals and entertainment expenses were allowed;

e) professional dues were disallowed as they were paid by the real estate company; and

f) the mother’s personal use of her vehicle was allowed at 60%. In the result, the mother’s net business income was determined to be $71,276 for 2016, and $82,582 for 2017. [ 78 ] The judge rejected the father’s submission that the funds in the mother’s holding company were capable of earning 7% per annum on the basis the mother had no obligation to “make risky investments for the hope of a better return on investment” (para. 158). The mother’s income for 2018 was calculated based on the 2017 figures. [ 79 ] In adopting Mr.

Whittaker’s report, the judge added the amounts she determined to be tax-free benefits and ineligible business expenses taken by the father from his companies, including S.D.’s salary, cell phone and the car purchased for S.D., who had been hired by P. Inc. to act as a consultant. Those payments, broken down, total: (2016) $3,725 (income), $8,900 (cell phone); (2017) $5,200 (income), $8,900 (cell phone); (2018) best estimate – $14,100.

The judge added back to the father’s income the sum of $20,500 under s. 18 , which she estimated, based on his post-trial brief, were personal benefits he received from the companies. These benefits were calculated as:

a) gift cards: $8,500;

b) meals: $4,000; and

c) vehicles: $8,000; for a total of $20,500 plus tax gross up at 35% for a final total of $27,695. She added a further arbitrary amount of $15,000 under s. 19 . [ 80 ] Overall, I would not interfere with the judge’s decision to add back the above expenses; however, I would add them under s. 19 of the Guidelines , not s. 18 . She explained in detail how she arrived at her conclusions. This was a discretionary decision, and it was not unreasonable. Courts of appeal do not tinker.

In this case, although there may have been some smaller line items that could have been adjusted in the father’s favour, or added back to the mother’s income, as argued by the father, this is not the role of an appellate court, as there were no palpable errors that would be considered overriding for this purpose. The decision is consistent with the Court’s conclusion in Milton . As noted, however, even when one adds those amounts to the respective Line 150 incomes, the imputed income of $130,000 set out in the separation agreement still remains reasonable, in my view.

(3) Failure to properly apply s. 17 of the Guidelines [ 81 ]

Section 17 allows a court to have regard to a spouse’s income over previous years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. Before doing so, however, a court must be of the opinion the determination of income under s. 16 would not be the fairest for this purpose. [ 82 ] As noted, the judge reviewed the business expenses deducted by both parties for personal use items. It was her opinion that both were taking unreasonable deductions, and she added back some of those expenses under ss. 18 and 19 . The judge was

not asked to, nor did she provide an analysis under s. 17. I would therefore dismiss this ground of appeal.

(4) Section 9 [83]

Section 9 governs the analysis when there is a shared custody arrangement. The straight set-off is the startingpoint. The judge determined the set-off approach, which is what the parents had set out in their separation agreement, was reasonable,and she applied it without any further standard of living adjustment under s. 9(c). [84] In F.M. v.

T.H., 2016 NBCA 29, 449 N.B.R. (2d) 240, this Court wrote: Bastarache J. states in Contino: The framework of s. 9 requires a two-part determination: first, establishing that the 40 percent threshold has been met; and second, whereit has been met, determining the appropriate amount of support. With respect to the second part of the determination, the litigious issue in the case at bar, courts across the country have struggled todevelop an

interpretation of s. 9 that is consistent with the Guidelines’ objectives. While the approaches vary widely, they can be dividedin two categories. One approach, similar to the approach used by the motions judge, can be described as the “formulaic approach”. Theother approach, which may be described as the “discretionary approach”, eschews the use of formulae. The specific language of s. 9 warrants emphasis on flexibility and fairness.

The discretion bestowed on courts to determine the childsupport amount in shared custody arrangement calls for the acknowledgment of the overall situation of the parents (conditions andmeans) and the needs of the children. The weight of each factor under s. 9 will vary according to the particular facts of each case. I willnow consider each of the three s. 9 factors. [paras. 37- 39]. Bastarache J. concludes his analysis with the following: The determination of an equitable division of the costs of support for children in shared custody situations is a difficult matter; it is notamenable to simple solutions.

Any attempt to apply strict formulae will fail to recognize the reality of various families. A contextualapproach which takes into account all three factors enunciated by Parliament in s. 9 of the Guidelines must be applied. [para. 82] [Emphasis in original.] […] Professor Rollie Thompson, in “Case Comment: Contino v. Leonelli-Contino” (2004), (ON CA), 42 R.F.L. (5th)295, outlines the process a trial judge should follow for the s. 9 analysis once there is a finding the parents have a shared parentingarrangement.

In his view a trial judge is required to: i. determine the straight set-off amount; ii. review the child expense budgets; iii. consider the ability of each parent to bear the increased costs of shared custody and the standard of living for the children in eachhousehold; and iv. distinguish between initial orders or agreements, and variations. [paras. 18-19 and 26]

[ 85 ] The Supreme Court has recognized there is judicial discretion in s. 9 , consistent with flexibility and fairness, the objectives of the Guidelines , and a contextual and holistic

interpretation of them. Bastarache J. observed in Contino v. Leonelli- Contino , 2005 SCC 63 , [2005] 3 S.C.R. 217 : “Any attempt to apply strict formulae will fail to recognize the reality of various families” (para. 82). I agree. [ 86 ] Once the judge determined the respective incomes of the parents, she was obliged to do the s. 9 analysis, with the objectives of the Guidelines in mind. She referred to this Court’s decision in G.F . and started the analysis with the straight set-off. [ 87 ] The judge then reviewed the respective financial statements, with a particular emphasis on the parents’ monthly expenses.

In the end, the judge concluded that both parents had the ability and the wealth to meet the needs of the children, applying the straight set-off approach. I agree with her conclusion and I would not interfere with it. I see no error in her analysis on this issue. In my view, it was the correct result, in these circumstances, particularly, where the judge found the children were being properly cared for in both households and their respective standards of living were similar. I would dismiss this ground of appeal.

(5) Section 7 [ 88 ]

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