Decker v. Fedorsen, 2010 ONCJ 618

Toronto (North York) Registry No. D49476/09 DATE: 2010·XII·09 CITATION: Decker v. Fedorsen , 2010 ONCJ 618 ONTARIO COURT OF JUSTICE BETWEEN: REBECCA DECKER, Applicant, — AND — JEREMIAH FEDORSEN, Respondent. Before Justice Stanley B.

Sherr Heard on 7 December 2010 Endorsement inscribed on 9 December 2010 SUPPORT ORDERS — Assessment of quantum — Child support guidelines — Payor’s income — Attribution of income — Evidence — Onus on payor who is self-employed or director of closely-held corporation — Payor who is self-employed or who derives income from closely-held corporation has onus of clearly disclosing basis of his or her net income and deductions from gross income — In this case, court drew adverse inference against respondent payor who was unable to offer adequate explanation for calculation of his personal income on his income tax returns or for calculation of his business income in corporate financial statements — Because last year witnessed unexpected economic collapse and because business had rebounded this year, court fixed gross business income from 2 years ago ($227,864) as gross business income for current year — Court then tackled deductions of business expenses, finding that too many were exorbitant or inexplicable before finally ruling that expenses should be no more than 50% of corporate gross revenue, which left respondent payor with annual income of $113,932 — But because he was declaring and paying tax on substantially less income than he was actually earning, court “grossed up” his annual income to $137,143 as basis for support calculations.

SUPPORT ORDERS — Interim support — Grounds — Immediate needs and ability to pay — Provided that dependant can make out prima facie case for support, court should base interim support on parties’ means and needs with reduced regard for need to attain self- sufficiency — For interim spousal support, quantum should fall within ranges suggested by Spousal Support Advisory Guidelines . STATUTES AND REGULATIONS CITED Child Support Guidelines , O. Reg. 391/97 [as amended],

section 19 and clause 19(1)( a ). Family Law Act , R.S.O. 1990, c. F-3 [as amended]. CASES CITED Drygala v. Pauli , 2002 CanLII 41868 , 61 O.R. (3d) 711, 164 O.A.C. 241, 219 D.L.R. (4th) 319, 29 R.F.L. (5th) 293, [2002] O.J. No. 3731, 2002 Cars​well​Ont 3228 (Ont. C.A.). Fisher v. Fisher , 2008 ONCA 11 , 88 O.R. (3d) 241, 232 O.A.C. 213, 288 D.L.R. (4th) 513, 47 R.F.L. (6th) 235, [2008] O.J. No. 38, 2008 Cars​well​Ont 43 (Ont. C.A.). Kowalski v. Grant , 2007 MBQB 235 , 219 Man. R. (2d) 260, 43 R.F.L. (6th) 344, [2007] M.J. No. 386, 2007 Cars​well​Man 422 (Man. Q.B.). M.(D.R.) v.

M.(R.B.) , 2006 BCSC 1921 , 63 B.C.L.R. (4th) 331, [2006] B.C.J. No. 3299, 2006 Cars​well​BC 3177 (B.C.S.C.). MacKenzie v. Flynn , 2010 ONCJ 184 , [2010] O.J. No. 2145, 2010 Cars​well​Ont 3450 (Ont. C.J.).

Perino v. Perino , 2007 CanLII 46919 , 46 R.F.L. (6th) 448, [2007] O.J. No. 4298, 2007 Cars​well​Ont 7171 (Ont. S.C.). Rilli v. Rilli , 2006 CanLII 34451 , 151 A.C.W.S. (3d) 1130, [2006] O.J. No. 4142, 2006 Cars​well​Ont 6335 (Ont. Fam. Ct.). Robles v. Kuhn , 2009 BCSC 1163 , [2010] B.C.W.L.D. 1935, [2010] W.D.F.L. 1330, [2009] B.C.J. No. 1699, 2009 Cars​well​BC 2239 (B.C.S.C.). Sarafinchin v. Sarafinchin , 2000 CanLII 22639 , 189 D.L.R. (4th) 741, [2000] O.J. No. 2855, 2000 Cars​well​Ont 2640 (Ont. S.C.). Whelan v. O’Connor , 2006 CanLII 13554 , 28 R.F.L. (6th) 433, [2006] O.J.

No. 1660, 2006 Cars​well​Ont 2581 (Ont. Fam. Ct.). AUTHORS AND WORKS CITED Rogerson, Carol J. and D.A. Rollie Thompson: Spousal Support Advisory Guidelines , (Ottawa: Minister of Justice and Attorney General of Canada, July 2008). Rebecca Decker ................................................................................................... on her own behalf James H.G. Wallace ............................................................................... counsel for the respondent JUSTICE S.B. SHERR ( endorsement ):— 1: INTRODUCTION [ 1 ] This is a motion brought by the applicant, Rebecca Decker.

She seeks temporary child and spousal support from the respondent, Jeremiah Fedorsen, effective from 1 December 2009. The applicant asks the court to impute income of $225,000 per annum to the respondent for the purpose of calculating his support obligations. [ 2 ] The respondent agrees that he should pay temporary child and spousal support. His position is that temporary support should only be ordered on an ongoing basis as he has paid, in his view, more than adequate support to the applicant since 1 December 2009.

He proposed that his income be fixed at $75,000 per annum and that the applicant’s income (she currently earns no income) be imputed at $20,000 per annum for the purpose of calculating his temporary support obligations. [ 3 ] The parties each conducted out-of-court questioning of the other and the transcripts of the questioning were relied upon during this motion. The court also heard viva voce evidence from the respondent to clarify how he calculated his income. 2: BACKGROUND FACTS [ 4 ] The parties cohabited from 1 February 2001 until 5 October 2008.

The applicant is 41 years old and the respondent is 37 years old. [ 5 ] The applicant has one child from another relationship, Laurence, born on 5 November 1997. Laurence’s biological father pays child support of $188 per month. The respondent did not contest that he is a parent of Laurence as defined in the Family Law Act , R.S.O. 1990, c. F-3, as amended, or that he should pay the table amount of child support for Laurence as set out in the Child Support Guidelines , O. Reg. 391/97 [as amended]. [ 6 ] The applicant has not worked since she began cohabiting with the respondent. She has a grade IX education.

She worked part-time as a waitress prior to meeting the respondent. She went back to school in September of 2009 to obtain her GED. She has no source of income other than what she receives from the respondent. [ 7 ] The respondent is a financial planner. He is the sole shareholder of Fedorsen Financial Inc. Through his corporation, the respondent exclusively sells London Life investment products. London Life pays the commissions to the respondent’s corporation. T he respondent has one administrative employee. Through his corporation, the respondent essentially acts as an independent contractor.

He has been working in this field for fifteen years. 3: THE RESPONDENT’S INCOME [ 8 ] The applicant’s position is that the respondent has manipulated his financial records to declare taxable income that is far less than what he really earns. She claims that he is deducting unreasonable expenses from his business that should be added back to his income for calculating his support obligations. [ 9 ]

Section 19 of the Child Support Guidelines reads as follows: 19. Imputing income.—

(1) The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include,

(

a) the parent or spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of any child or by the reasonable educational or health needs of the parent or spouse; (

b) the parent or spouse is exempt from paying federal or provincial income tax; (

c) the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada; (

d) it appears that income has been diverted which would affect the level of child support to be determined under these guidelines; (

e) the parent’s or spouse’s property is not reasonably utilized to generate income; (

f) the parent or spouse has failed to provide income information when under a legal obligation to do so; (

g) the parent or spouse unreasonably deducts expenses from income; (

h) the parent or spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and (

i) the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

(2) Reasonableness of expenses.— For the purpose of clause (1)( g ), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act (Canada). [ 10 ] Imputing income is one method by which the court gives effect to the joint and ongoing obligation of parents to support their children. In order to meet this obligation, the parties must earn what they are capable of earning. If they fail to do so, they will be found to be intentionally under-employed. Clause 19(1)(

a) of the guidelines is perceived as being a test of reasonableness. See Drygala v. Pauli , 2002 CanLII 41868 , 61 O.R. (3d) 711, 164 O.A.C. 241, 219 D.L.R. (4th) 319, 29 R.F.L. (5th) 293, [2002] O.J. No. 3731, 2002 Cars​well​Ont 3228 (Ont. C.A.). [ 11 ] The test for imputing income for child support purposes applies equally for spousal support purposes. See Rilli v. Rilli , 2006 CanLII 34451 , 151 A.C.W.S. (3d) 1130, [2006] O.J. No. 4142, 2006 Cars​well​Ont 6335 (Ont. Fam. Ct.); Perino v. Perino , 2007 CanLII 46919 , 46 R.F.L. (6th) 448, [2007] O.J. No. 4298, 2007 Cars​well​Ont 7171 (Ont.

S.C.). [ 12 ] The respondent was unable to adequately explain how his personal income was calculated in his income tax returns or how his business income was calculated in the corporate financial statements. He testified that his accountant would be able to explain this, but he presented no evidence from his accountant. [ 13 ] The corporate year-end financial statement for Fedorsen Financial Inc. for 2008 showed revenue of $288,983, but a loss of $22,944. The year-end financial statement for 2009 showed revenue of $216,949 and a loss of $41,399.

The respondent conceded that he did make money during these years, and could not explain why a deficit was shown on the financial statements. [ 14 ] The respondent declared personal income of $85,943 in his 2008 income tax return and business income of $26,000, together with RRSP income (funds cashed in) which took him up to a total income of $64,135.53 in his 2009 income tax return.

He could not adequately explain how he arrived at these calculations. [ 15 ] The respondent provided no evidence to the court about his income in 2010, even though the year is almost over and his income was the subject of the motion. [ 16 ] A self-employed person has the onus of clearly demonstrating the basis of his or her net income. This includes demonstrating that the deductions from gross income should be taken into account in the calculation of income for support purposes. See Whelan v. O’Connor , 2006 CanLII 13554 , 28 R.F.L. (6th) 433, [2006] O.J. No. 1660, 2006 Cars​well​Ont 2581 (Ont. Fam. Ct.).

This principle also applies where the person’s employment income is derived from a corporation that he or she fully controls. See MacKenzie v. Flynn , 2010 ONCJ 184 , [2010] O.J. No. 2145, 2010 Cars​well​Ont 3450 (Ont.

C.J.). [ 17 ] The court draws an adverse inference from the respondent’s failure to provide financial disclosure for 2010 and his inability to explain in any meaningful way how his income is calculated. [ 18 ] The respondent did provide disclosure from London Life showing the revenue that Fedorsen Financial Inc. received from it for the period 2007-2009 as follows: 2007 $248,444 2008 $227,864 2009 $177,393 [ 19 ] The court accepts the respondent’s evidence that 2009 was a very difficult year for his business. The financial markets had collapsed at the end of 2008 and consumers were wary about investing.

The respondent conceded that business has rebounded in 2010. In the absence of any current records from his business, I find that it is appropriate to fix the current gross business income of Fedorsen Financial Inc. at its 2008 level ($227,864). [ 20 ] This brings us to what expenses deducted by the business are appropriate for support purposes. It was evident in reviewing the evidence and hearing from the respondent that the respondent and his accountant have aggressively deducted expenses in Fedorsen Financial Inc. to reduce the respondent’s income.

For instance, although he runs a small financial planning business, the respondent declared meals and entertainment expenses of close to $2,000 per month in 2009. This is exorbitant. Many of the other expenses in the corporate financial statement were very high or could not be explained by the respondent (for example, a deduction of

$79,000 in 2009 for commissions). The respondent agreed that, when he cohabited with the applicant, he used to income-split with her; he paid her a significant salary even though she did not work for his business. I had no difficulty finding that the expenses claimed in the corporate financial statements were not an accurate reflection of its actual expenses. [ 21 ] Under questioning, the respondent testified that his business is actually quite simple. He is paid by one source. He pays one employee, rent and the ordinary office expenses one would expect from a small business.

On a review of the expenses declared by the business, I find that the corporate expenses should be no more than 50% of its gross revenue. This translates to the respondent actually earning an annual income of $113,932. [ 22 ] This income figure ties in closely with the respondent’s representation to his bank in November of 2008, where he represented in his mortgage application that he was earning $110,000 per annum (see questions 148-151 of the transcript of his out-of- court questioning). [ 23 ] The income analysis does not end there.

It is appropriate in these circumstances to gross-up the respondent’s income, as he is declaring and paying tax on substantially less income than he is actually earning. This is done to ensure consistency of treatment where a party is found to have arranged his affairs to pay less tax on income. See Sarafinchin v. Sarafinchin , 2000 CanLII 22639 , 189 D.L.R. (4th) 741, [2000] O.J. No. 2855, 2000 Cars​well​Ont 2640 (Ont. S.C.).

To determine the appropriate gross-up figure, I have contrasted the respondent’s 2008 declared income of $85,943 with the income that I have imputed to the respondent (based on the 2008 corporate figures) of $113,932. A software analysis shows that the gross-up of the respondent’s income brings his annual income to slightly over $137,143. This is the income that will be used for the support calculation on an ongoing basis. 4: THE APPLICANT’S INCOME [ 24 ] The respondent claims that income should be imputed to the applicant, who has not earned any income since 2001. There is merit to the respondent’s argument.

The principles of imputation apply equally to the applicant if she is intentionally under-employed, unless it is by virtue of her reasonable educational needs, the needs of the child or reasonable health needs. See Drygala v. Pauli , supra . The court had sufficient evidence to conclude, even on a temporary basis, that the applicant is intentionally under-employed without reasonable excuse and that income should be imputed to her. [ 25 ] The questioning of the applicant established that she has made little, if any, effort to find employment since the separation.

She has experience as a waitress but has not applied for any job of this nature. Her plan to become self-sufficient is vague. She plans to attend school for her GED, attend college and then, possibly take courses for Health and Fitness Promotion. She is only taking one GED course at this time. Her child is old enough that she should be able to work on a part-time basis. Her health is good. Despite her limited education, she presented as an articulate and intelligent person.

I ncome will be imputed to her at $12,000 per annum. 5: THE SUPPORT OBLIGATION [ 26 ] The table amount of child support for one child under the child support guidelines based on an income of $137,143 per annum is $1,158 per month. [ 27 ] In Kowalski v. Grant , 2007 MBQB 235 , 219 Man. R. (2d) 260, 43 R.F.L. (6th) 344, [2007] M.J. No. 386, 2007 Cars​well​- Man 422 (Man. Q.B.), the court set out the following principles in dealing with temporary spousal support motions: 1. Interim support is to provide income for dependent spouses from the time the proceedings are instituted until trial. 2.

The court need not conduct a complete inquiry into all aspects and details to determine what extent either party suffered economic advantage or disadvantage as a result of the relationship. That is to be left to the trial judge. 3. Interim support is a holding order to maintain the accustomed lifestyle if possible pending final disposition as long as the claimant is able to present a triable case for economic disadvantage. 4. Interim support is to be based on the parties’ means and needs, assuming that a triable case exists. The merits of the case in its entirety must await a final hearing. [ 28 ] In Robles v.

Kuhn , 2009 BCSC 1163 , [2010] B.C.W.L.D. 1935, [2010] W.D.F.L. 1330, [2009] B.C.J. No. 1699, 2009 Cars​well​BC 2239 (B.C.S.C.), the court added the following considerations: 1. On interim support motions, needs and ability take on greater significance. 2. On interim motions, the need to achieve self-sufficiency is of less importance. 3. Interim support should be ordered within the Spousal Support Advisory Guidelines (SSAG) range unless exceptional circumstances dictate otherwise. 4.

Interim support should only be ordered where a prima facie case for entitlement has been set out. [ 29 ] The Court of Appeal in Fisher v. Fisher , 2008 ONCA 11 , 88 O.R. (3d) 241, 232 O.A.C. 213, 288 D.L.R. (4th) 513, 47 R.F.L. (6th) 235, [2008] O.J. No. 38, 2008 Cars​well​Ont 43 (Ont. C.A.), stated that the SSAG, while only advisory, are a useful starting point to assess the quantum of spousal support, once entitlement is established. They have been endorsed as ideal for use on temporary support motions. See D.R.M. v. R.B.M. , 2006 BCSC 1921 , 63 B.C.L.R. (4th) 331, [2006] B.C.J.

No. 3299, 2006 Cars​well​BC 3177 (B.C.S.C.). [ 30 ] The SSAG ranges in this case are $2,692 per month in the low range, $3,096 per month in the middle range and $3,489 per month in the high range. A temporary order in the middle range will leave the applicant and child with slightly more than 50% of the family’s net disposable income. This is a reasonable distribution given the length of the relationship, the needs of the parties as set out in their respective budgets and the comfortable lifestyle they and the child enjoyed while they lived together.

I will adjust the order slightly to reflect the fact that the applicant is also receiving $188 per month from the child’s biological father, which was not included in

the SSAG figures. The respondent will be ordered to pay the applicant the sum of $3,000 per month for temporary spousal support. This sum will be tax deductible for the respondent and will be tax inclusive for the applicant. 5: THE START DATE [ 31 ] The applicant asks that the support order be effective from the date the application was issued. The respondent asks that support only be ordered on an ongoing basis. [ 32 ] I agree with the respondent. To his credit, he has paid significant support to the respondent, without court order, since the separation.

He provided evidence showing that he has given the applicant the sum of $35,363.15 for the first ten and one-half months in 2010. He gave the applicant even more money in 2009. If this matter proceeds to trial, the trial judge will be in the best position (with a full evidentiary record and evidence as to the income tax implications of any order) to assess whether there should be a further adjustment of the respondent’s support obligations, whether it be to the quantum, duration or the start date of the order. 6: THE ORDER [ 33 ] An order will go on the following terms: (

a) The respondent shall pay to the applicant temporary child support in the sum of $1,158 per month commencing on 1 December 2010, based on his imputed income of $137,143 per annum. (

b) The respondent shall pay to the applicant temporary spousal support in the sum of $3,000 per month, commencing on 1 December 2010. (

c) The respondent shall serve and file at least 10 days before the settlement conference scheduled for 12 May 2011, the following:

(1) An updated sworn financial statement.

(2) The 31 July 2009 year-end financial statement for his corporation.

(3) His complete corporate and personal income tax returns for 2010.

(4) The year-end statement of revenues received by his corporation in 2010 from London Life.

(5) His 2009 and 2010 notices of assessment (if the latter assessment is available).

(6) A letter from his accountant setting out how his personal income in his income tax return has been calculated. (

d) The applicant shall serve and file at least 10 days before the settlement conference:

(1) An updated sworn financial statement.

(2) Her complete 2010 income tax return and notice of assessment (if available).

(3) A detailed job search list, setting out each job for which she has applied on an ongoing basis, including the name, address and phone number of the employer, the date of the application and any documentation, including her resume, she has in relation to the job application. (

e) If either party seeks costs, he or she shall serve and file written submissions by 31 December 2010. Any written response is to be served and filed by 14 January 2011. The written submissions are not to exceed two pages, not including any offer to settle or bill of costs.