2022 MBKB 229, 2022 MBKB 229

Date: 20221205 Docket: FD 15-01-09964 (Winnipeg Centre) Indexed as: Klassen v. Wowk-Litwin Cited as: 2022 MBKB 229 COURT OF KING’S BENCH OF MANITOBA B E T W E E N: WESLEY LYNDON KLASSEN, ) petitioner, ) Terry P. Beley ) for the petitioner - and - ) ) MARIA LEE WOWK-LITWIN, ) Carla B. Paul respondent. ) for the respondent ) ) JUDGMENT DELIVERED: ) December 5, 2022 antonio J. INTRODUCTION [ 1 ] This is a decision from a trial that raises a lengthy list of property-related issues, the primary of which is Mr.

Wesley Klassen’s claim that his $701,302.61 Steinbach Credit Union bank account (SCU account) is not shareable in the accounting with Dr. Maria Wowk-Litwin. [ 2 ] There is no dispute that Mr. Klassen had savings of $701,302.61 in his SCU account on the valuation date, however, he argues that it contains proceeds of a sale of shares that were gifted to him by his parents two years before the relationship began, and he should not have to account to Dr. Wowk-Litwin for the value of the SCU account. The legal issue in this case is whether the issuance of the shares to Mr. Klassen was truly a gift from Mr.

Klassen’s parents. [ 3 ] The testimony of Mr. Klassen’s father, Mr. Waldie Klassen, and the documentary evidence, satisfies the Court that the shares were not a gift to Mr. Klassen. According to Waldie Klassen, what in fact occurred is he instructed his lawyers to issue 1250 shares in a new farm corporation to Mr. Klassen, as compensation for past and possibly future work done by Mr. Klassen on the farm. [ 4 ] Mr. Klassen received the shares following a seven-year long dispute with his father.

The Court concludes that the reorganization of the farm and creation of a new farm corporation was a part of a sale transaction involving another family, which included shares transferred to Mr. Klassen for compensation and settlement of a dispute. It was not a gratuitous transfer to Mr. Klassen; consequently, Mr. Klassen’s claim for the exemption of his SCU account on the basis of a gift fails. [ 5 ] As an alternative, Mr.

Klassen argues that if the SCU account is shareable, the shareable portion should be reduced on account of “appreciation” in the value of the shares from the date of cohabitation to the date the shares were sold, two months before the separation. [ 6 ] Mr. Klassen argues that he has provided sufficient evidence to allow the Court to conclude that the shareable amount of the SCU account, taking into account the appreciation in the shares, was $254,757.61. Dr.

Wowk-Litwin opposes this and argues that there was no appreciation in this asset as that term is intended under The Family Property Act , C.C.S.M. c.F25 ( FPA ). She relies on the oral testimony of Mr. Klassen and his father’s oral testimony concerning Mr. Klassen’s work on the farm. In particular, she says the amount of work he did on the farm meant that the family farm would not have continued to operate without him. She says the evidence allows this Court to conclude that a significant amount of the work on the farm was done by Mr.

Klassen, which caused the farm to increase in value throughout the relationship. The Court agrees with the position taken by Dr. Wowk-Litwin. The evidence does not support Mr. Klassen’s position that the shares increased in value due to market influences, inflation and other factors outside of Mr. Klassen’s control. Consequently, adopting the meaning of “appreciation”, as interpreted by the Manitoba Court of

Appeal in Waters v. Waters (1986), (MB CA), 44 Man. R. (2d) 109, 1986 MBCA 5051 (MBCA) (Waters), there shallbe no exemption for his SCU account for “appreciation” in the shares. [7] If this Court had been satisfied that an exemption was appropriate, Mr. Klassen did not provide evidence that would haveallowed this Court to fix the value of his shares in the farm (a broiler operation) at the date of commencement of the relationship.

Mr.Klassen asks the Court to accept his father’s testimony about the prices of chicken quota and a letter from the Manitoba ChickenProducers Board that lists the prices of chicken quota at the time the parties’ relationship began as proof of the value of the shares at thecommencement of cohabitation.

He asks the Court to rely on his logic that the value of the shares in the family farm operation can bedetermined by taking a percentage of the value of the chicken quota in the farm, which can be calculated by relying on prices for chickenquota in Manitoba, as stated in the above-noted letter from the Manitoba Chicken Producers Board. This does not constitute admissibleevidence of the value of the shares of this large farm operation, which operated from the lands, buildings, chickens, equipment andnumerous other assets owned by the farm corporation and by Mr. Klassen’s parents personally. Mr.

Klassen chose not to call any expertevidence at this trial. He tendered no reliable evidence with respect to the value of the farm shares, or with respect to the assets and debtsin dispute at this trial. Mr. Klassen’s claim with respect to appreciation in the SCU account was unsuccessful; therefore, it wasunnecessary to determine the value of any appreciation. [8] This judgment also deals with this Court’s decision to allow Dr. Wowk-Litwin to amend her pleadings to claim a negativeaccounting. Mr.

Klassen argued that her pleadings were insufficient to ground her claim, as she did not specify a request for a negativeaccounting and relies only on pleading the FPA. The Court agrees; however, allows her to amend the answer. [9] The Court is persuaded that this was an appropriate case for a negative accounting, that it would be unjust for Dr. Wowk-Litwinto be left with the burden of the debts of ($475,351). Her debts primarily arose during the relationship, and were partly as a result of themismanagement of the family’s resources by Mr. Klassen. Dr.

Wowk-Litwin has become disabled and is left with a fixed income onwhich to discharge her debts. Mr. Klassen’s asset base, at the date of separation, was over $1,000,000. Additionally, while purporting tocontinue looking after Dr. Wowk-Litwin’s finances, Mr. Klassen failed to file Dr. Wowk-Litwin’s tax returns for multiple years leadingup to the separation and never informed her of this change. Both parties benefitted from Dr. Wowk-Litwin’s significant income duringthe relationship, however, without a negative accounting, Dr. Wowk-Litwin is left carrying the debt on her own.

These debts should notbe hers to bear alone. [10] This decision also deals with Dr. Wowk-Litwin’s claim, pursuant to section 6(7.1) of the FPA, that Mr. Klassen dissipated assets.The evidence satisfies this Court that the excessive spending by Mr. Klassen during the relationship, and increased debt left for Dr.Wowk-Litwin to assume, amounts to a “gross and irresponsible squandering of an asset” by Mr. Klassen. The Court is satisfied that theevidence as to Mr. Klassen’s actions during the relationship support a finding that Mr. Klassen dissipated family assets. [11] The Court allows Dr.

Wowk-Litwin’s claim for dissipation, however, the amount sought of $300,000 is too high. The Courtconcludes that it is fair and just that a portion of the dissipated assets, in the amount of $129,000 be added to the inventory of Mr.Klassen. [12] This decision also deals with the following other issues: 1. Reasons for leave granted to Dr. Wowk-Litwin to amend her pleading to claim lump sum common-law partner support; 2. This Court dismisses both parties’ claims for lump sum common-law support; 3. The Court determines and fixes the values of 18 assets and liabilities. The Court addressed Mr.

Klassen’s claim for sale of certainvehicles, or for compensation for same, assets which he says belong to him, but remained improperly stored at the family home whereDr. Wowk-Litwin has continued to reside since the separation; 4. The Court declines to order a credit to Mr. Klassen in the accounting for maintenance costs to the parties’ rental property in BritishColumbia (B.C.), as it disagrees that

section 12 of the FPA gives the Court jurisdiction to deal with allocation of maintenance costs forthe B.C. property; 5. These reasons for decision also deal with claims for an order by Dr. Wowk-Litwin vesting title to the jointly-held family home inher name, for interest on the equalization payment owed, for an accounting of house maintenance costs by Dr. Wowk-Litwin for thejointly-held family home, and finally, a claim by Mr. Klassen for occupation rent in respect of the family home. [13] A fuller explanation for this Court’s decision on all issues is set out below. ISSUES Issue #1: Is Mr.

Klassen’s bank account shareable? Is the SCU account exempt due to a gift? [14] Mr. Klassen submits that the evidence establishes that the savings in his SCU account were derived from the sale of shares giftedto him by his parents and as such, his SCU account is not shareable in the accounting with Dr. Wowk-Litwin. The Court disagrees. [15] Mr. Klassen submits that if the bank account is shareable, then only $254,757.61 should be included in the accounting with Dr.Wowk-Litwin, due to the fact that the savings were from the sale of shares acquired by Mr. Klassen before the relationship began.

TheCourt disagrees and rejects this alternate claim for exemption of part of the funds, on the basis of appreciation of a pre-acquired asset,and finds that the full balance in the SCU account is shareable in the accounting with Dr. Wowk-Litwin. [16] The Court acknowledges that Dr. Wowk-Litwin also advanced an argument that Mr. Klassen’s pleadings are insufficient to

advance a claim for the exemption of his SCU account. [17] She says that his pleadings in no way identified that he was seeking an exemption for his SCU account, whether based upon agift or otherwise. She points to the fact that Mr. Klassen sought an equal division of property in the Petition, and the Form 70D hesigned on January 30, 2015, attached to the Petition, never even disclosed the existence of his SCU account, valued at $701,302.61. [18] Counsel for Mr.

Klassen argued that an asterisk (*) on a Financial Statement in Form 70D is sufficient notice to the other party,and the Court, that an exemption is sought. In this case, Mr. Klassen did not even disclose his SCU account on his Form 70D statements filed in 2015 and 2020 so this argument is a mystery to the Court. Nowhere on Mr. Klassen’s Form 70Ds did helist the SCU account. He also says that he can rely on having pleaded the FPA under “Details of Relief Claimed” in the Petition, whichgives the Court jurisdiction for his claim for the exemptions he is seeking. He also says that Dr.

Wowk-Litwin had notice when hisparalegal filed an affidavit in May 2019 that disclosed the bank account. He says this gave Dr. Wowk-Litwin plenty of notice in advanceof the trial. [19] Due to Dr. Wowk-Litwin having notice of the SCU account and the exemptions claimed years prior to the trial, and there beingno prejudice demonstrated that could not be addressed with costs, the Court does not dismiss Mr. Klassen’s claim for the exemption ofhis SCU account on the grounds that his pleadings are insufficient.

It may be that in another case, the failure to fully particularize anexemption of an asset in the Form 70D may result in the Court refusing to hear argument for the exemption at all.

THE LAW [20] The relevant legislative provisions respecting an exemption due to a gift are set out in section 7(1) of the FPA as follows: Gift, trust benefit 7(1) This Act does not apply to any asset acquired by a spouse or common-law partner by way of gift or trust benefit from a thirdperson, unless it can be shown that the gift or benefit was conferred with the intention of benefiting both spouses or common-lawpartners. [21] Counsel for Mr. Klassen argues that the three essential ingredients of a gift, as set out in the Ontario Court of Appeal decision inMcNamee v.

McNamee, 2011 ONCA 533, have been met in this case: [24] … There must be (1) an intention to make a gift on the part of the donor, without consideration or expectation of remuneration, (2)an acceptance of the gift by the donee and (3) a sufficient act of delivery or transfer of the property to complete the transaction: ... (citations omitted) [22] Mr. Klassen concedes that he has the onus of proving that the SCU account is an exempt asset (FPA,

section 22), and the Courtmust be satisfied of the exemption on a balance of probabilities (see Faurschou v. Faurschou, 2018 MBCA 44). [23] Dr. Wowk-Litwin relies upon Allen J.’s decision in Faurschou v. Faurschou, 2016 MBQB 12 (2016 Faurschou), upheld by theManitoba Court of Appeal: [38] In Fehr v. Fehr, 2003 MBCA 68, 177 Man. R. (2d) 1, the issue was whether a transaction characterized as a sale for tax purposescould be characterized as a gift for the purposes of The Marital Property Act., R.S.M. 1987, c. M45. The husband’s father wished topass land to the son in a tax efficient manner.

The advice received was that the transaction had to proceed as a sale in order to exemptthe husband’s father from tax liability. The parties prepared cheques to each other – never cashed – as part of the tax requirement. Aswell, a promissory note was signed by the husband in favour of his father although no funds were ever paid to the father. The Masterfound that the land was to be included in the accounting, but the amount of the promissory note forgiven was a gift and must be deductedfrom the value of the land.

The trial judge accepted the Master’s decision regarding the inclusion of the land but rejected the alloweddeduction for the value of the promissory note. [39] The Court of Appeal agreed that the transaction had the legal effect of a sale by the father and a purchase by the husband. Theparties must be presumed to have intended the consequences of the words they used. The Court referred to Dashevsky v. Dashevsky(1986), (MB QB), (MB KB), 40 Man R. (2d) 58 (Q.B.), as correctly decided.

The Court further found that there was no legalbasis for the husband to deduct the value of the promissory note from the land value. [40] In Dashevsky, Carr J. had held that a transaction between parents and a child, expressly arranged to be considered a sale rather thana gift for tax purposes, could not later be characterized as a gift so as to exempt the property from The Marital Property Act, even thoughthe payments for the property were never made. [41] In Black v.

Black (1988), (ON SC), 66 O.R. (2d) 643 (H.C.J.), the court found a very complex series of estatefreezes and share exchanges to be a commercial transaction and not a gift.

In that case, the court notes at 661: Given the extraordinary caution and steps taken by the husband's father's solicitors to prevent under any circumstances a suggestion of agift or the attraction of gift tax in connection with the incorporation of Bemocoge and, most particularly, the subscription for its shares;the real and very active participation of the husband in the affairs of Bemocoge from its very outset; the substantial and vital partBemocoge played in the development and appreciation in value of the husband's business interests, I am not satisfied and am unable tofind that the onus imposed by s. 4(3) of the Act has been met. [42] In Bochurka v.

Bochurka, 2009 MBQB 295, the son, who received shares as a result of an estate freeze, was held to receive themas a gift. However, the evidence pointing to a gifting transaction was much stronger, including evidence of an extremely close familial

relationship, evidence of many types of gifts between father and son and evidence from the mother, who was the corporate secretary at the relevant time, that the son had never paid for the shares. Finally, the documentary evidence was more equivocal in that the son did not sign the subscription for the shares. These are very different facts than in this case. ANALYSIS [ 24 ] Mr. Klassen worked on the family broiler farm, which his parents, Waldie and Levina Klassen, owned under the incorporated entity Twin Birch Holdings (Broilers) Ltd. (Twin Birch), since the 1980s. On October 24, 2002, Mr.

Klassen’s parents sold assets of Twin Birch, as well as assets they personally owned, including land, broiler barns, sheds, equipment, and chicken quota, which were governed by a Subscription Agreement dated October 24, 2002 and an Offer to Purchase of the same date (Constating Documents). [ 25 ] The assets were sold to a new company, Borland Poultry Ltd. (Borland), and involved the Campbell family, who contributed to the purchase price with cash and chicken quota, and who, like Waldie and Levina Klassen, took common and preference shares in Borland. Mr.

Klassen received 1250 Class A common shares in Borland. [ 26 ] The Subscription Agreement was signed by Mr. Klassen and both his parents, and by Bruce Campbell for Borland. It states: Subject to the terms of this Subscription Agreement and subject to the terms and conditions of the Offer to Purchase dated October 24, 2002 between Waldie and Levina Klassen and Twin Birch Broilers Ltd.

Vendor and Borland Poultry Inc. as Purchaser, Wes Klassen, Waldie Klassen and Levina Klassen (the “Purchasers”) agree to subscribe for, take up and pay for aggregate 5000 Class A Voting Common Shares in the capital of Borland Poultry Inc. issued by the Corporation from its treasury at a purchase price of $0.01 per share, and the Corporation agrees to allot, issue and deliver the Issued Shares as provided for in this agreement. [ 27 ] Mr. Klassen argues that though Dr. Wowk-Litwin characterized Mr.

Klassen’s shares as being issued to him as part of an estate freeze within the larger purchase and sale, it was not an estate freeze. He said that his father did not take preference shares. The Shareholders’ Register, however, does not align with that position. [ 28 ] The Shareholders’ Register discloses the following share structure that resulted from the purchase, including that Waldie and Levina Klassen’s company, Twin Birch, took preference shares in Borland: *4248709 Manitoba Inc. is a company owned by Brock Campbell and another individual named Lorne Derkach [ 29 ] Mr. Klassen also disputes Dr.

Wowk-Litwin’s argument that Mr. Klassen’s 1250 shares were received as part of an estate freeze, and that the shares were issued to Mr. Klassen as compensation for Mr. Klassen’s work on the farm after a long dispute between Mr. Klassen and his father over Mr. Klassen’s future as an owner of the family farm. [ 30 ] Counsel for Mr. Klassen submits that the following supports his position: (

a) The family farm was operated and controlled by his parents, as the farm was run through a company and assets owned by Mr. Klassen’s parents; (

b) Mr. Klassen was remunerated for his work on the farm, as he received a salary working for Twin Birch since the 1980s, whereas in some of the case law, the party provided unpaid labour in the family business; (

c) Mr. Klassen and Waldie Klassen testified that they do not recall Mr. Klassen paying $12.50 for his 1250 common shares in Borland; (

d) Mr. Klassen did not realize, until years later, that the shares in Borland had a value. He testified that he felt the value was in the chicken quota owned by Twin Birch and that he had wanted to eventually take over the family farm and wanted shares in Twin Birch, not shares in a new company partly owned by another family; (

e) Borland acquired 96,860 kilograms of chicken quota from Twin Birch and 30,000 kilograms of chicken quota from Bruce Campbell. Mr. Klassen emphasized in argument that that the Offer to Purchase did not include the Twin Birch chicken quota; however,

section 10.1 of the Offer to Purchase clearly required the Klassens to convey 96,880 kilograms of chicken quota in Twin Birch to Borland; (

f) Mr. Klassen sold his shares in Borland in 2014 for a price of $700,000.00, and that is the origin of most of his SCU account savings of $701,302.61;

(

g) There was evidence from Mr. Klassen and Waldie Klassen about friction between Mr. Klassen and his siblings because Mr. Klassen received shares in Borland. However, Mr. Klassen argued that his father gifted him the shares and generally claimed that his father made other gifts to him; and (

h) Mr. Kevin Code, CPA, CGA, a tax and accounting expert qualified by this Court, was called by Dr. Wowk-Litwin. He testified as to the nature and character of the alleged gift, stating that it was a purchase and sale and was not structured as a gift for tax purposes, but was in the nature of an estate freeze. Mr. Code was not yet practicing in 2002 when Mr. Klassen received his shares. Counsel for Mr.

Klassen says that little weight should be placed on his testimony, as he could not possibly offer a reliable opinion as to this type of corporate transaction when he was not yet an accountant at the time the shares were issued to Mr. Klassen. [ 31 ] Counsel for Dr. Wowk-Litwin indicates that Mr. Klassen received his shares as a result of an estate freeze, done as part of a larger purchase and sale of the farm involving the Campbells, and she says that the Constating Documents for the sale of the farm supports this. She argues that the evidence of Mr.

Code, and of Waldie Klassen on cross-examination, confirms this was part of a sale and any intention to gift the shares is simply being imported to the transaction years later. She asks the Court to infer from the actual form of the transaction and evidence of both Waldie and Mr. Klassen about compensation that there was no intention to gift the shares to Mr. Klassen. Based upon 2016 Faurschou , the legal effect of the transaction that led to the issuance of 1250 shares to Mr. Klassen, is an estate freeze within a broader purchase and sale of the family farm. Mr.

Klassen cannot now characterize the transaction as a gift importing another intention to the transaction not supported by the evidence. [ 32 ] The farm business was re-organized and sold in 2002. A new business was incorporated with the Campbells, combining the assets held personally by Waldie and Levina Klassen and by Twin Birch, to form a new company in which all of the Klassens, including Mr. Klassen, became shareholders. [ 33 ] Dr. Wowk-Litwin called Mr. Code as an expert witness to review the purchase and sale transaction that created Borland. Mr.

Code’s report, entitled “Analysis of Sale Transaction”, was persuasive. He reviewed the Constating Documents for Borland, the Directors Resolution, Shareholders’ Register, the Subscription Agreement dated October 24, 2002, the Offer to Purchase dated October 24, 2002, and the share certificate for Mr. Klassen’s shares issued on October 24, 2002. [ 34 ] Mr. Code’s report opines: “Based on documents available to me, it is clear that the Corporation did not confer the shares upon Mr. Klassen as a gift, nor did his parents. They were purchased from the corporation’s treasury for real cash consideration of $12.50.

The Share Certificate confirms the value of the shares of real consideration of $0.01 per share, and as issued from treasury. At no time was any value conferred upon these shares or the Corporation by way of a gift.” [ 35 ] Mr. Code described a customary sale transaction in his review of, among other documents, the October 24, 2002 Offer to Purchase signed by Vendors that included Mr. Klassen, as President of Twin Birch, Waldie and Levina Klassen, and the Directors Resolution, signed by Bruce Campbell as Secretary for Borland, confirming the issuance of 1250 Class A Common Voting shares to Mr.

Klassen directly from treasury. The documentation for the sale of the farm, and creation of Borland, described the shares as a purchase and subscription. [ 36 ] The evidence is that Waldie Klassen instructed the lawyers who prepared the Offer to Purchase which created Borland in 2002 to issue 1250 shares to Mr. Klassen. Borland was created in a manner as intended by Waldie Klassen, after obtaining advice from multiple accounting firms about the alternate option of issuing the shares to Mr. Klassen as a gift for tax purposes and the way in which this could be done. Mr.

Klassen’s father did not arrange for transfer of the shares to Mr. Klassen to be done as a gift, despite being told exactly how this should be structured by various tax accounting and legal professionals. [ 37 ] The Court, in part, took into account that the reorganization of the farm was described as a purchase and sale on the Constating Documents. [ 38 ] The Court also considered testimony and documentary evidence of discussions and meetings that took place between Mr. Klassen and Mr. Klassen’s parents leading up to the 1250 shares being issued to Mr. Klassen. According to Mr.

Klassen, the meetings involved a mediator, three separate accounting firms and lawyers, all retained to provide options for Waldie and Levina Klassen to issue the shares to Mr. Klassen. [ 39 ] The Court was provided with a letter dated July 13, 1995, from BDO Dunwoody Chartered Accountants (BDO), addressed to Waldie Klassen and Mr. Klassen. It referred to a meeting and phone conversation with the Klassens respecting the “potential reorganization of the family enterprises as part of your future planning process”. The letter indicates under “Issues” that, among other things, Mr.

Klassen desires to become a shareholder in the chicken broiler operation. There are four options outlined by BDO with advantages and disadvantages for each, and with a note at the end to contact BDO for further discussion upon the Klassens reviewing the letter. The options included Gifting of Shares, Sale of Shares, a “Freeze”, and Incorporation of a Holding Company. [ 40 ] Counsel for Dr. Wowk-Litwin acknowledges that the Klassens did not pursue formal steps to incorporate Borland using these accounting firms, and ended up using a different accounting firm, but states that this is of no moment.

The fact is that Waldie Klassen was well aware of how he could formally create a gift of shares to Mr. Klassen, but he instead had shares issued to Mr. Klassen as part of a sale. There is no reference, in all of the documentation throughout the years relating to Mr. Klassen and Waldie Klassen’s discussions/negotiations about Mr. Klassen’s future in the farm that, Waldie Klassen instructed his advisors to gift shares to Mr. Klassen. After years of negotiations, and advice from multiple accounting firms, Waldie Klassen did not use a Deed of Gift, such as the one provided to this Court in draft form by Mr.

Code, nor did he follow the planning advice of the accountants to formally gift the shares to Mr. Klassen. This, coupled with the evidence of Mr. Klassen and Waldie Klassen, about compensation for Mr. Klassen’s work on the farm, is evidence that the 1250 shares were issued to Mr. Klassen as a settlement of a seven-year long dispute over what Mr. Klassen should receive in return for his efforts on the farm. It was not, Dr. Wowk- Litwin submits, a gratuitous transfer of shares.

[41] Dr. Wowk-Litwin highlighted the following evidence of Mr. Klassen on examination for discovery and from his cross-examination: 1. “The day-to-day hands-on, getting up in the morning, taking care of the chickens, fixing the barn, doing whatever else had to takeplace to keep a farm functional”, was his job; 2. When he accepted the 1250 shares in Borland, he was aware of his responsibility to continue working for Borland as he had donepreviously on the farm; 3. On cross-examination, Mr.

Klassen confirmed that in 1987, there was discussion with his father where his father told him to stickaround and he would get Mr. Klassen’s name on the “books” of Twin Birch; 4. Mr. Klassen was not in favour of the reorganization involving Borland. Mr. Klassen said he felt that the transaction did not adequately address his “sweat equity” in Twin Birch, built up since the 1980s, andthis was the basis of the animosity between Mr. Klassen and his father; 5. Mr.

Klassen agreed that the following statement was correct: “I feel it necessary to point out, as well, and whenever there was adiscussion around what I was to be paid while working for my parents between 1986 and 2003, the determination of what would beconsidered fair was always measured against the fact that I was building undocumented equity in the business”; 6. Mr. Klassen admitted that his sisters did not get shares in the farm since they were not involved in the farm operation. The Court didnot receive evidence of any gifts received by Mr. Klassen’s sisters, nor of any other gifts from Waldie Klassen to Mr.

Klassen, though hegenerally stated during his testimony that Waldie Klassen made gifts to him on other occasions. [42] Dr. Wowk-Litwin says that Mr. Klassen’s shares were clearly as a result of an estate freeze and in this case, involvedcompensation to Mr. Klassen for his sweat equity built up in the family farm. She argues that the shares were issued as part of thepurchase of the family farm. She points out that the evidence is that Mr. Klassen felt that the shares were not an adequateacknowledgment of his future work on the farm, but only for the past work he did.

Waldie Klassen clearly felt that the shares were anadequate acknowledgment for both, as well as an adequate settlement of a long-standing dispute between them. She says that whether theshares were for past or future work done by Mr. Klassen (or both), the issuance of the shares was clearly compensation and therefore notgratuitous. [43] Dr. Wowk-Litwin points out that the suggestion that Mr. Klassen and his father had a warm gifting relationship did not align withthe facts. The evidence was that there was animosity between the two and there was no evidence that Waldie Klassen made other gifts toMr.

Klassen and therefore, the Court agrees with her assertion. [44] Dr. Wowk-Litwin points out that when Mr. Klassen purchased his home in B.C., he did so on his own without contribution fromhis father. She points out that in the accounting, Mr. Klassen asserted that his father made a loan to the parties during the relationship,and that on separation, $30,000 was owed. Dr. Wowk-Litwin submits that there were protracted negotiations between Mr. Klassen andhis father that went on for approximately seven years, and significant conflict over what Mr.

Klassen felt he was owed, based upon thesweat equity he had built up in the family farm. She says this was anything but a warm gifting relationship. Dr. Wowk-Litwin drew outevidence during cross-examination that Waldie Klassen and Mr. Klassen both acknowledged that there were no visits or friendlyinteractions between Mr. Klassen and his father during the years’ long dispute. [45] The evidence does not satisfy this Court that, on a balance of probabilities, the shares were a gift to Mr. Klassen. The shares werecompensation for services given by Mr. Klassen to the family farm.

This Court finds that the shares were intended by Waldie Klassen tocompensate Mr. Klassen for his considerable efforts working on the farm beyond his wages, and in recognition of Mr. Klassen’sexpectation that if he stayed working for his father, he would one day have an ownership role in the farm operation. Waldie Klassen hadthe shares issued directly from registry. Although Mr. Klassen and Waldie Klassen did not recall Mr.

Klassen paying for the shares, theevidence easily allows the Court to conclude that the shares were issued to deal with his son’s desire to have an ownership interest in thefarm and to compensate him for working on the farm. The lack of payment for the shares is not determinative of the issue of gift(Dashevsky v. Dashevsky, (MB QB), 40 Man R. (2d) 58 (Q.B.)). [46] Waldie Klassen did this as part of the broader purchase of the family farm and while Mr. Klassen was not in favor of the creationof Borland, Waldie Klassen clearly intended to compensate Mr. Klassen. [47] Mr.

Klassen testified that part of the dispute with his father was that he wanted to take over the farm one day, and WaldieKlassen attempted to satisfy Mr. Klassen’s desire to work towards control of the family farm by providing him with shares in Borland.Whether Mr.

Klassen believed the shares had value, or felt that the shares satisfied his plans with the farm, is not relevant. [48] The farm reorganization involving the Campbells was structured as a purchase and sale, according to an accounting expert whoregularly advises and structures reorganizations and provides tax and accounting advice for corporate transactions, including estatefreezes. The issuance of the shares to Mr. Klassen, Mr. Code said, was an estate freeze.

This was done at the same time as the farmpurchase and sale. [49] The fact that he was not practicing when the shares were issued, does not take away from this Court qualifying him as an expertto provide opinion evidence on how estate freezes are structured, the way a gift can be structured, and the tax consequences relating toboth. There was no expert evidence that impugned Mr. Code’s opinion that this reorganization was structured as a purchase and sale ofthe assets of Twin Birch, and the Klassens personally, nor was there expert evidence to contradict Mr.

Code’s testimony regarding how agift might have been structured. Waldie Klassen must have intended to structure the issuance of shares to Mr. Klassen as part of a sale,the reorganization transaction set up by his advisors on his instructions. The Court is not convinced that the form of issuance of theshares was a gift. Mr. Klassen’s attempt to characterize the transaction as a gift is not supported by the way the transaction wasstructured or by his oral evidence or other evidence of the relationship between Mr.

Klassen and Waldie Klassen as it existed at the time.There was overwhelming evidence that the shares were issued to settle the dispute with his son. The sale proceeds resulting from the sale

of Mr. Klassen’s shares in Borland are shareable. Is Mr. Klassen entitled to an exemption from his SCU account due to appreciation? [ 50 ] Given that the claim respecting a gift is denied, the Court is to consider what, if any, of the SCU account is non-shareable as appreciation. Dr. Wowk-Litwin submits that the Court ought to interpret the Waters decision in Dr. Wowk-Litwin’s favor, and find that the increase in the value of the shares is not appreciation and that the entire bank account is shareable. [ 51 ] Mr.

Klassen argues that the 2014 date of separation value should be calculated by taking the 2014 SCU account savings and deducting from it $75,000 for a dividend he received as part of the sale of Borland. [ 52 ] Mr. Klassen first says that the price of his shares did not include the $75,000, and casually dismisses this payment as ‘coming later in the sale’. He also says he had to pay tax on the dividend, and so by having to also account to Dr. Wowk-Litwin, he would have to ‘pay for the dividend twice’. The Court disagrees with this logic. The Court is to determine Dr.

Wowk-Litwin’s claim for an equal accounting of the assets of the parties as of the valuation date, including the savings held in Mr. Klassen’s SCU account on the separation date, not the sale proceeds he received prior to the separation with some discount for tax he paid on the amounts received before separation. [ 53 ] As for the 2004 valuation of Mr. Klassen’s shares, Mr. Klassen seeks to have the date of cohabitation value set at $371,545. This is a sum equal to 12.5% of the value of chicken quota in Borland as of 2004.

He submits the Court can set the price of chicken quota based on the Constating Documents from the purchase and share subscription agreement and the price of chicken quota, as set out in a letter from the Manitoba Chicken Producers Board. [ 54 ] The Court ruled during the trial that the letter was not admissible for the purposes of providing evidence of value of the shares in Borland. In any event, the letter sets out historic prices of chicken quota, not the value of the farm. During Mr. Klassen’s testimony, he sought to tender the letter as part of his case.

He advised the Court that it was not for a valuation of Mr. Klassen’s shares. [ 55 ] Dr. Wowk-Litwin was successful in her position that the letter should be excluded if Mr. Klassen wanted to tender it as a form of expert opinion of the value of the shares. The letter was allowed in for the limited purpose of showing historical prices of chicken quota and was tendered through Waldie Klassen’s testimony. When Waldie Klassen had been an active operator of the family farm, he had also been a director on the Manitoba Chicken Board.

He was able to describe that chicken quota prices were from his recollection roughly as set out in the letter. He was not qualified as an expert for the purpose of valuation of the shares. [ 56 ] A

summary of Mr. Klassen’s calculation of the appreciation is as follows: 1. $701,302.61 SCU account savings, less $75,000 dividend = $626,302.61 (2014 value); 2. Less $371,545 for the 2004 value of the shares, which he says is calculated as 12.5% of the 2004 value of the chicken quota in the farm based on the above-noted letter from the Manitoba Chicken Producers Board; and 3. The shareable appreciation of the SCU account is therefore $254,757.61. [ 57 ] Dr. Wowk-Litwin argues that the evidence supports a finding by this Court that the farm shares increased in value as a direct result of Mr.

Klassen’s work on the farm, as opposed to market influences or other factors outside Mr. Klassen’s control. She submits that the shares therefore did not “appreciate”, as that term is defined by the FPA . [ 58 ] Mr. Klassen ran the farm and its existence clearly depended on him. She submits that the increase in value of the farm shares was as a result of Mr. Klassen’s work on the farm, and there is no admissible evidence for Mr. Klassen’s argument that the increase arose due to the increasing value of the chicken quota in Twin Birch. She submits that Mr.

Klassen chose not to call any expert evidence to support this point, or to assist the Court with making findings of fact about the value of Twin Birch at the start of the relationship. She argues that he should not be allowed to import opinion evidence of the farm shares value based upon a letter from the Manitoba Chicken Producers Board and the testimony of Waldie Klassen. The Court agrees with Dr. Wowk-Litwin.

THE LAW – The Waters Decision [ 59 ] The relevant legislative provisions set out in the FPA are as follows: Income, appreciation, depreciation 7(4) Any income from, or appreciation or depreciation in the value of, an asset acquired in the manner described in subsection (1), (2) or (3) shall not be included in any accounting under

Part II, unless it can be shown that the gift was conferred or the inheritance devised or bequeathed, as the case may be, with the intention that the income or appreciation should benefit both spouses or common-law partners. [ 60 ] The Court considered the

interpretation of the meaning of appreciation as described in the Manitoba Court of Appeal decision in Waters : [15] … “Appreciation” occurs where an asset remains the same, but its value increases. … It is not “appreciation”, however, where the recipient himself adds something to the gift which increases its value. Thus the recipient of an antique car by way of gift who buys a new engine, installs it and refurbishes the car, must be accountable under the Act for the increase in value due to the investment of family assets and his own effort. In the case of an incorporated family business the same principle applies. …

ANALYSIS [ 61 ] Dr. Wowk-Litwin argues that the Court should conclude, based on the testimony of Mr. Klassen, and his father, that Mr. Klassen’s work efforts from the 1980s, and continuing during the relationship, made it possible for the farm to continue to operate and to grow, and he added something to the farm as the operation increased in size and success. The Court agrees that there was no reliable evidence to support another conclusion. [ 62 ] Dr. Wowk-Litwin asks the Court to look at the balance sheet for Borland at the commencement of cohabitation and on the date of separation. Dr.

Wowk-Litwin submits that the retained earnings in Borland increased from 2004 to 2014 by $13,309 and therefore, Mr. Klassen’s 12.5% shareholding was $1,663.63 in 2004. She disputes that there was significant value in Mr. Klassen’s shares in 2004 based upon assumptions of what chicken quota was worth in 2004. She points out that Mr. Klassen did not receive his first dividends for 2004 until 2011, which is when Mr. Klassen received the first financial benefit. Borland really became profitable in 2014, according to Mr. Klassen’s examination for discovery evidence. Mr.

Klassen asks the Court not to simply rely on the financial statements of Borland for its consideration of the value of 1250 shares. [ 63 ] Dr. Wowk-Litwin also points out that Mr. Klassen suggests that the chicken quota was not his but someone else’s. Dr. Wowk- Litwin submits that the suggestion by Mr. Klassen that his 1250 shares did not account for the chicken quota is contradicted by the Constating Documents for the share transaction. The Court agrees. [ 64 ] Dr.

Wowk-Litwin submits that the Court may consider other available information that may assist the Court in drawing conclusions about the overall financial well-being of the corporation, such as information contained in its balance sheets. She submits that this is a case where it would be proper to take into account information noted on Borland’s balance sheets to determine whether the balance sheets support Mr. Klassen’s position; that his shares had significant value as of 2004, or supports Dr. Wowk- Litwin’s position that Borland really only became profitable and valuable somewhere around 2014.

The Court accepts Dr. Wowk- Litwin’s position. [ 65 ] In terms of the value of Borland, Dr. Wowk-Litwin argues that Mr. Klassen attempted a “sleight-of-hand” by trying to suggest that the Borland was valuable in 2004. He suggested in his direct examination that the value of the chicken quota in 2004 was not included in the reorganization; however, Dr. Wowk-Litwin points out that the Offer to Purchase clearly included the chicken quota as part of the reorganization. [ 66 ] Mr.

Klassen did not lead any other evidence to satisfy the Court that the increase in the value of his shares was due to factors outside of his control. [ 67 ] The Court has no reliable evidence upon which to conclude that the shares increased in value due to the value of chicken quota. The increase in value of Mr. Klassen’s shares is not “appreciation”. Mr. Klassen’s work on the farm was integral to its operation and he remained in the same role as the broiler operation grew. [ 68 ] The Court rejects the arguments that the SCU account should be discounted by an amount for “appreciation”.

The SCU account is shareable. Issue #2 - Valuation of various assets and liabilities of the parties General Comments and Findings [ 69 ] The parties were unable to agree to the value of 18 assets and liabilities. The following values for the disputed assets and liabilities were fixed by the Court, and shall be included in an accounting between the parties:

[ 70 ] In respect of all items listed above except for the landscape equipment and BMO loan, the Court heard oral evidence from two experts called by Dr. Wowk-Litwin, who provided testimony to supplement their appraisal reports. [ 71 ] Dr. Wowk-Litwin called Mr. David Andrews, an appraiser of furniture, vehicles and equipment who conducted an appraisal of the vehicles of the parties as of April 2015. [ 72 ] The Court qualified Mr.

Andrews as an expert capable of providing opinion evidence with respect to the fair market value of the parties’ vehicles (motorcycles, cars, and trailers). [ 73 ] After his initial cross-examination of Mr. Andrews, Mr. Klassen did not oppose the request to qualify Mr. Andrews as an expert. Mr. Klassen did not call any expert evidence at the trial. [ 74 ] Mr. Klassen submits that the case management judge set up a process for the parties to agree upon an appraiser for the vehicles and that was not followed by Dr. Wowk-Litwin, as she hired her own appraiser. Mr.

Klassen himself had access to appraise his vehicles and apparently did so. His appraiser attended at the home, however, Mr. Klassen did not produce an appraisal report for the vehicles. [ 75 ] Mr. Klassen generally submits that the Court should reject Mr. Andrew’s opinion for various reasons. He argues that instead of valuing his vehicles for the accounting, the Court should instead order compensation to him for the fact that his vehicles remained at the home and were improperly stored and, as a result, were damaged. [ 76 ] The evidence is that Mr.

Klassen attended at the home on four occasions and he brought a trailer in order to remove certain vehicles. Dr. Wowk-Litwin asked Mr. Klassen multiple times to take all of his assets, and she cooperated with his requests to attend at the home to obtain his assets. She arranged for her friend, Mr. Derbowka, to be present while Mr. Klassen obtained his assets. Mr. Derbowka testified that he helped Mr. Klassen move some items and he asked Mr. Klassen repeatedly to take more of his assets from the home, since he had space to pack more. [ 77 ] Mr.

Klassen could have taken his vehicles, or asked for the opportunity to do so much earlier than in 2022, when counsel says he finally retrieved his items. [ 78 ] Mr. Andrews’ curriculum vitae (CV) set out his qualifications as a licensed mechanic. The Court received evidence describing his experience as a buyer and seller of antiques and appraiser of furniture, cars, trucks, and other vehicles and equipment throughout Manitoba, Alberta and Ontario.

For over 40 years, he has been providing appraisal reports for separated families, and in some instances, he was qualified as an expert in Court, and the Court accepted his valuations. He has presided at over 10,000 arbitrations for members of the public involving Manitoba Public Insurance. [ 79 ] Mr. Andrews testified that he inspected the vehicles over a period of a week and the Court received a report of the value of the vehicles as of late April 2015. This was six months after the date of valuation, however, there was no evidence given of the values as of November 2014. [ 80 ] Mr.

Klassen argues that the Court should put little or no weight on the opinion of Mr. Andrews as to the value of the vehicles because Mr. Andrews did not include a copy of Black Book printouts or other source documents that he used in arriving at his opinion. [ 81 ] Mr. Andrews testified that he does not typically provide copies of these source documents. He carefully reviews Black Book values, and relies upon his experience with Associated Auto Auction Ltd. and ADESA Winnipeg/Canada auctions in arriving at his opinion. Mr.

Andrews was able to recall in detail the information about the vehicles in his report, including their state of disrepair in some cases and certain special features of the vehicles. [ 82 ] The Court considered the Court of King’s Bench Practice Direction, issued on February 28, 2019, entitled “RE: New Model for Scheduling and Case Flow Management Practice before the Masters”, which outlines certain expectations, requirements and procedures including the following (pages 9 – 10): (

I) For automobiles and other vehicles such as boats, ATVs and trailers, as well as farm equipment and any other heavy equipment, the parties will be required to obtain a joint appraisal which is binding, or to each obtain an independent appraisal. (

J) In each of the situations presented in

F) to

I) above, where the parties do not obtain a joint appraisal, it will be the initial

responsibility of the party who owns the asset to obtain the independent appraisal, and only if the other party disputes that value will the other party be required to obtain his or her own appraisal. To the extent possible, all appraisals should be obtained prior to the first hearing for directions, and if they have not, the parties should expect these will be ordered at the first hearing for directions. [ 83 ] The Court does not place any less weight on his opinion due to the failure to provide copies of his source documents with his report. [ 84 ] Dr. Wowk-Litwin hired Mr.

Andrews to appraise all of the parties’ vehicles, regardless of ownership, so that she would have the expert evidence necessary to assist the Court with fixing the values of both the parties’ vehicles. Mr. Klassen provided no appraisals. [ 85 ] Dr. Wowk-Litwin says that the Court should draw an adverse inference from Mr. Klassen’s failure to provide any evidence for the value of his vehicles. His appraiser had access to the assets to be valued and he did not produce an appraisal report to support his position. Mr.

Andrews is a qualified and experienced vehicle appraiser, who easily answered questions posed to him on cross-examination regarding certain features of each vehicle, or suggestions that he erred in his opinion. The Court finds his evidence to be reliable and credible. [ 86 ] The following is noted by the Court in respect of the positions of the parties for each asset in dispute. Item #1 / Nissan Titan - $10,000 value fixed by the Court [ 87 ] Mr. Klassen filed a document in argument in response to Dr. Wowk-Litwin’s list of asset values (“Response to Respondent’s Inventory”).

In it, he asks the Court to fix the value of this 2006 vehicle at $9,513, based on his personal opinion. His opinion, as a layperson having no special qualifications or experience on which to qualify as an expert valuator for this truck, is inadmissible and the Court puts no weight on Mr. Klassen’s estimate. [ 88 ] It was suggested to Mr. Andrews on cross-examination that his appraisal of $10,000 for this vehicle was too high, that he failed to take into account damage to the vehicle and repairs required on the vehicle. Mr.

Andrews held steadfast that he was relying upon values based upon the market as of 2015 for other comparable Nissan Titans. The Court is satisfied that Mr. Andrews considered the condition of this vehicle. He answered questions about the mechanical work and damage and it did not change his opinion. The Court accepts Mr. Andrews’ opinion on this vehicle for purposes of the accounting between the parties. Item #2 / Mazda Miata - $6,000 value fixed by the Court [ 89 ] When cross-examined, Mr.

Andrews confirmed that this was one of several vehicles that had a lower value because the vehicle was stored without protection from the elements. Mr. Andrews’ opinion considered ADESA auction prices and took into account that the convertible top was missing and the vehicle was in terrible condition at the time of inspection. He indicated that the vehicle would have been much more valuable had it been in excellent condition. The Court accepts Mr. Andrews’ opinion of its fair market value, which took into account the actual condition of the vehicle at the time. Items #3 to #6 [ 90 ] Mr.

Klassen did not challenge the basis for Mr. Andrews’ opinion with respect to the values ascribed to the Rainbow Trailer, the Honda CBR 125R motorcycle, the Sokal Utility Trailer, and the Forest River Camper, or provide any evidence to dispute Mr. Andrews’ opinion on these vehicles. Accordingly, the values are fixed as noted in the above chart, relying on Mr. Andrews’ opinion. Items #7 to #10 (motorcycles) [ 91 ] Mr. Andrews was questioned about why he did not use the Kelly Blue Book as a basis for his opinion about the value of the four motorcycles. Mr. Andrews responded that he does not use the Kelly Blue Book.

He testified that it is a resource that could be useful for determining the tax value of motorcycles but not appropriate for determining the amount that these motorcycles could get if sold on the open market. The Court considered the following: 1. 2011 Harley Davidson - $10,000 value fixed by this Court: Mr. Andrews testified that the value of this motorcycle was significantly impacted by not being stored properly. He indicated with some fervor that this motorcycle was covered in bird feces and had been left uncovered for some time. Its condition was rough as of the date of Mr.

Andrews’ inspection and no evidence of its value was offered by Mr. Klassen; consequently, the Court accepts Mr. Andrews’ opinion. 2. 2007 Honda 450X - $4,200 value fixed by this Court: Mr. Andrews had a good recollection of the condition of this motorcycle, which was stored inside a trailer 20 minutes from the Niverville family home, where most of the other vehicles were stored. He answered questions on cross-examination, including his recollection of the detail of add-ons to this vehicle.

He testified that the vehicle was in good condition and his opinions were consistent with the fair market value of similar vehicles at the time. 3. 2007 Honda 250R - $2,700: Mr. Andrews was able to describe the good condition that this vehicle was in and that it was stored inside of a trailer protected from the elements. He did not waver in respect of his opinion of its value. [ 92 ] The Court accepted Mr. Andrews’ opinion for these vehicles for purposes of the accounting between the parties. Item #11 / Loan from Mr. Klassen’s parents [ 93 ] Mr.

Klassen asks the Court to accept his evidence that he had a debt owing to his parents of $30,000 on the separation date. His testimony was that his parents loaned the parties $40,000 during the relationship and that the parties repaid $10,000, which left a $30,000 balance owed as of the separation date. Mr. Klassen provided no documents to support his claim, and no information about the dates the monies were loaned, the reason for the loan, repayment terms, or demands for payment. He testified only that the debt was no

longer owed. Dr. Wowk-Litwin said she knew nothing about the alleged debt. [ 94 ] Based upon the Court’s observation of Mr. Klassen’s almost non-existent oral testimony about the particulars of this debt and there being no other evidence to support his claim, the Court is not satisfied that this debt existed on the date of valuation. He shall not be entitled to claim the $30,000 alleged debt to his parents in the accounting between the parties. Item #12 / Dr. Wowk-Litwin’s 2013 Mini Cooper - $16,000 value fixed by this Court [ 95 ] Mr.

Andrews was questioned extensively on cross-examination about what was suggested to be a low value for Dr. Wowk- Litwin’s Mini Cooper. He explained that his estimate was based upon ADESA auction prices, the condition of the vehicle and its mileage. Mr. Klassen argues that Mr. Andrews failed to take into account the extended warranty that came with the vehicle, that he failed to account for add-ons to the vehicle and that the estimate was low given its purchase price of $47,000 a couple of years earlier. Mr.

Andrews confirmed that he had taken into account all add-ons to the value that affected what it would sell for, and said that the extended warranty was not relevant to his opinion of its fair market value. Given Mr. Andrews’ extensive experience with auctions, his knowledge of the market for this vehicle and what would impact on its value, and that there was no competing expert evidence, the Court accepts that his estimate properly considered factors that impacted its value. Item #13 John Deere Tractor - $14,000.00 value fixed to it by this Court [ 96 ] On cross-examination, Mr.

Andrews again confirmed the particular accessories and condition he considered in estimating its value. He was able to recall that it was “well-weathered” and he took into account that it had a rototiller and snow blower. He indicated on cross-examination that he had no knowledge of the whereabouts of other attachments. The Court was not provided evidence of anything missing from this tractor and given his detailed testimony and his qualifications, Mr. Andrews’ estimate is accepted. Item #14 / Landscaping equipment in possession of Dr. Wowk-Litwin: value fixed by this Court: $0.00 [ 97 ] Mr.

Klassen claimed that Dr. Wowk-Litwin had landscaping equipment valued at $2,400 but he provided no basis for his estimate. Neither party could provide the Court with an inventory of the landscaping equipment, allegedly in the possession of Dr. Wowk-Litwin on the date of valuation. Dr. Wowk-Litwin described having some rakes, shovels and other sundry yard items left at the family home on separation. In closing argument, the Court was left only with estimates suggested by each party; $0.00 by Dr. Wowk-Litwin and $2,400 by Mr. Klassen.

The Court sets the yard equipment/landscaping equipment at $0.00, as there was no probative evidence of the existence or value of such equipment. Item #15 / Dr. Wowk-Litwin Medical Corporation - value fixed to it by this Court: $164,709 [ 98 ] The Court was asked to determine the fair market value of the Wowk-Litwin’s professional corporation (Medco), a corporation that the parties agree had $201,318 in its bank accounts on the date of valuation. [ 99 ] Dr.

Wowk-Litwin submits that the Court should fix the value of Medco, taking into account the amounts in the bank accounts for Medco, less the taxes payable by Dr. Wowk-Litwin to access the savings held in Medco. [ 100 ] The Court agrees that the fair market value, taking into account the definition ascribed by section 15(2) of the FPA , “the amounts that the asset might reasonably be expected to realize if sold in the open market by a willing seller to a willing buyer”, must take into account the taxes payable for Dr. Wowk-Litwin to access the funds from Medco. [ 101 ] Mr.

Code testified that withdrawal of the funds would be done most tax efficiently, if dividends were declared over a three-year period. Accordingly, in his testimony, Mr. Code reviewed Dr. Wowk-Litwin’s personal tax returns and T2 Tax Returns for Medco for the three years following the date of valuation. He based his calculation on the assumption that as of 2015, Dr. Wowk-Litwin would not earn a salary from work, and took into account all taxes due at her marginal rate over those three years. [ 102 ] Mr.

Code provided a report entitled “Analysis of Cash Value in Corporation” to demonstrate the difference in the savings held in Medco versus the amount realizable by Dr. Wowk-Litwin if withdrawn from Medco and declared over three tax years, compared with if she withdrew the funds all in one tax year. His report opined that the net cash to Dr. Wowk-Litwin would be $164,709 if withdrawn over three years, or $136,924 if withdrawn all in the same taxation year. [ 103 ] The Court did not receive any competing expert testimony and there was nothing suggested to Mr.

Code on cross-examination that cast any doubt that his estimate was accurate. Mr. Code is an accountant, qualified to give opinion evidence regarding personal and corporate taxation. He described to the Court his conclusions, supported by his report and Dr. Wowk-Litwin’s tax returns. Mr. Code was thorough and answered Mr. Klassen’s questions in a manner which left the Court with no concerns about the reliability of his expert opinion. Mr. Code’s estimate is accepted and accordingly, the fair market value of Medco, as estimated by Mr. Code on the assumption that Dr.

Wowk-Litwin would withdraw the funds over a three-year period, shall be used for the purposes of the accounting between the parties. Item #16 / BMO loan (Mini Cooper): ($79,569) value fixed by this Court [ 104 ] The Court received bank statements and tax returns to prove the debts claimed by Dr. Wowk-Litwin for the accounting. [ 105 ] The Court received the supporting statements for this debt and Mr. Klassen did not object to the supporting documents. Dr. Wowk-Litwin shall be entitled to include it as a debt in the accounting between the parties.

Item #17 / Interest on Lines of credit: ($54,737) [ 106 ] Mr. Klassen argued that there is no basis for Dr. Wowk-Litwin to include this interest which arose after the date of separation. The Court agrees. An accounting and equalization between the parties requires the Court to take into account the values of their assets and liabilities on the date of valuation, which is November 1, 2014 ( FPA ,

section 15 and 16 ). Item #18 / Dr. Wowk-Litwin’s Tax Liabilities: ($189,743) [ 107 ] Mr. Klassen submits that the tax liabilities claimed by Dr. Wowk-Litwin do not coincide with figures shown on the Medco T2 tax returns and her personal returns. [ 108 ] Mr. Code provided the Court with a very detailed review of each of Dr. Wowk-Litwin’s tax returns for the years leading up to the date of separation and the amount that would be left owing, only in respect of the date of separation. [ 109 ] Mr. Code testified that looking at the 2014 to 2018 tax returns, one can see the total tax liability for Dr.

Wowk-Litwin, taking into account dividends declared by her from Medco. He explained the requirements of Canada Revenue Agency respecting the timeline within which Dr. Wowk-Litwin had to declare dividends on her tax returns for monies withdrawn by her from Medco. He testified about his detailed review of Dr. Wowk-Litwin’s tax returns, which showed that the date she declared dividends does not necessarily correspond with the date the monies withdrawn from the corporation were actually earned.

He testified that there is a gross-up of 15% on the dividend amount shown on Medco’s T2 return, and that this was the reason for the difference in the amounts on the T2 return declared by Dr. Wowk-Litwin on her personal returns. [ 110 ] The Court accepts Mr. Code’s expert testimony of how he arrived at the tax liability owed on the date of valuation, and that Dr. Wowk-Litwin’s tax liability was $189,743 on the valuation date. Sale of vehicles or compensation requested by Mr. Klassen [ 111 ] Mr.

Klassen asserted that the Court has some general authority to fix a value for his vehicles, on another date other than the valuation date, to deal with the damage that occurred to the vehicles left exposed to the elements following separation. This is not accepted by this Court. [ 112 ] Mr. Klassen argued that he should be entitled to some compensation in some manner, however the Court sees fit, to remedy his loss of use of the vehicles and to compensate him for the damage to the vehicles. He says the damage arose due to Dr. Wowk-Litwin improperly storing the vehicles.

The evidence is he was told that one of his vehicles was left at an impound and chose to leave it there. The evidence is that he returned to the home multiple times and chose not to recover all of his vehicles. [ 113 ] The Court must fix the values of the vehicles on the date of valuation ( FPA ,

section 15 ). The Court does have the ability to vary the amount of the equalization payment owed by a party in exceptional circumstances, where the payment would be grossly unfair or unconscionable ( FPA ,

section 14 , unequal division of family assets). [ 114 ] The Petition filed by Mr. Klassen did not seek an unequal division of family assets of the parties. Dr. Wowk-Litwin sought to amend the Answer to permit a claim for an unequal division before the case conference judge; however, the amendment was not permitted. Had Mr. Klassen sought an unequal division of family assets, the equalization payment would very likely not be varied in Mr. Klassen’s favour.

The assessment of whether the payment would be grossly unfair or unconscionable would necessarily involve consideration of all of the financial circumstances of the parties, including facts which were relevant to the Court’s findings of dissipation against Mr. Klassen. Given the evidence of what occurred to result in the damage to the vehicles, and the lack of legal foundation for sale of the vehicles for compensation, or to fix the date of valuation differently for the vehicles, the Court dismisses these claims. Issue #3 - Is Mr.

Klassen entitled to a credit in the accounting associated with the maintenance costs he has paid for the parties’ investment property in Osoyoos, B.C. ? [ 115 ] Mr. Klassen pleads, under

section 12 of the FPA , that he should be reimbursed, or compensated, for the maintenance costs related to the parties’ investment property. The Court disagrees that

section 12 of the FPA , which requires the Court to take into account the value of foreign assets in an accounting and equalization, provides the Court authority to compensate Mr. Klassen for payments made by him in connection with the parties’ B.C. property. The reference to an accounting and equalization between the parties is to the FPA “Part II Sharing of Assets”. That

section involves an accounting and equalization of the value of the inventory of assets of each of the parties, taking into account certain additions and deductions (

section 15 ) prescribed by the FPA and does not deal with maintenance costs for the B.C. parties’ assets. Issue #4 - Is Dr. Wowk-Litwin entitled to a negative accounting ? [ 116 ] The legal questions at issue are as follows: 1. Is the general reference to the FPA in Dr. Wowk-Litwin’s pleading sufficient to ground her claim for a negative accounting? 2. If not, should an amendment to the Answer, at the conclusion of trial, be allowed to seek a negative accounting? [ 117 ] Dr. Wowk-Litwin argues that an amendment to plead a negative accounting is not necessary.

She says that a negative accounting may be pursued if a party pleads the FPA , which she did. She argues that there is no prejudice by allowing the negative accounting claim. The parties know the values for all liabilities and they exchanged all supporting documentation long before the trial.

[118] Dr. Wowk-Litwin submits that it would be a terrible injustice for her to be left with all of the debt and given that there is noprejudice to Mr. Klassen, her claim for a negative accounting should be permitted. The Court agrees with this submission but wishes toexpress extreme caution for parties who wish to seek a negative accounting who have not clearly listed this claim in their pleadings andmost importantly, well prior to the trial. [119] Dr.

Wowk-Litwin argues that at the time of filing, a litigant may not be aware that they need to claim a negative accounting andas such, the general reliance on the FPA should be acceptable to ground the claim and also, it is customary in family law to advance thisclaim without specifying that a negative accounting is sought. The Court disagrees. [120] Pleadings inform the parties and the Court of the claims each party advances. The pleadings should be properly particularized toidentify if a negative accounting is sought. If Dr.

Wowk-Litwin was not aware at the time of filing the Answer and her Form 70D thatshe needed to claim a negative accounting, she should have moved for an amendment of her pleadings once that was discovered. TheCourt disagrees that a general reference to the FPA is sufficient to claim a negative accounting. Adjudicated claims for a negativeaccounting are not that common and if they are being advanced based on a general reliance on the FPA being a statute listed in thePetition or Answer, it is a custom that should stop. [121] Dr.

Wowk-Litwin submits that if a negative accounting needs to be listed as a specific claim in the Answer, then she meets thecriteria for allowing an amendment as outlined in MacDonald v. MacDonald, (BC SC) (MacDonald) and Konrad etal. v. Gamble, 2009 MBQB 184 (Konrad). [122] Mr. Klassen had notice of her intention to claim a negative accounting prior to the trial and she conveyed her position to him onthe accounting during the case management process. She gave sufficient notice of her request for a negative accounting and Mr.

Klassenhas not demonstrated that there would be any difference in the relevant evidence submitted to this Court if the claim for a negativeaccounting were not permitted. The Court fails to see the prejudice to Mr. Klassen by allowing the amendment. Taking into account thelack of prejudice to Mr. Klassen, and the principles enunciated in MacDonald and Konrad, leave is granted to Dr. Wowk-Litwin toamend her pleading to include a claim for a negative accounting.

THE LAW - Negative Accounting [123] In an accounting between separated spouses, a party is unable to deduct debts to leave herself in a negative position (negativeaccounting) except where the Court orders this special relief (FPA, section 11(2)). [124] In Surka v. Surka, (MB QB), 79 Man.

R. (2d) 243 (Q.B.), Kennedy J. cited the factors that should beconsidered on an application to allow a `negative accounting’ (para. 17): - degree of input into financial decisions; - one party having primary control over finances; - financial contribution of each of the parties; - the asset position and potential to earn of each of the parties. Should this Court order a negative accounting? [125] Dr. Wowk-Litwin had almost no involvement in the financial decisions concerning Medco. Mr. Klassen used Medco to fund hisexceptionally large credit card expenditures. Mr. Klassen also increased lines of credit in Dr.

Wowk-Litwin’s name for purchasesunknown to her. She was unaware of the significant expenditures on the back of Medco or that he had stopped filing her tax returns.These dealings resulted in accumulation of consumer debt and tax debt that she was left with at the date of separation. Her debt at theseparation date totaled $475,351, including three lines of credit totaling ($204,690), the ensuing line of credit interest of ($54,737) andtax debt of ($189,743). Mr. Klassen was left with debt of ($51,598). Dr. Wowk-Litwin’s net position excluding the family home isestimated by her to be ($111,885). Mr.

Klassen’s net position is estimated by her to be $1,104,687. These estimates were given byDr. Wowk-Litwin assuming her family property valuations were accepted by this Court, which they were, and assuming that Mr.Klassen’s SCU account was determined to be a shareable asset, which it was. The exact amount of the principal paid down on themortgage on the family home to the date of the trial was not provided at the trial, but evidence of the amount paid to December 2020was filed. [126] A listing of Visa card charges was submitted by Dr.

Wowk-Litwin summarizing the parties’ Visa statements submitted during thetrial, which showed the following: 1. Total credit card charges for both parties’ cards from 2009 to 2014: $804,916; 2. Total charges on Mr. Klassen’s card from 2009 to 2014: $531,570, and total payments by him were $112,409; 3. Total charges on Dr. Wowk-Litwin’s card from 2009 to 2014: $172,780, and total payments by Dr. Wowk-Litwin’s Medco were$712,529; and 4. Mr. Klassen had earnings of approximately $357,000 total over those years. [127] Mr.

Klassen acknowledges that he had primary control over the finances and while he says he did not hide the expenditures fromher, it was not important to let her know about the finances. [128] Mr. Klassen acknowledges that Dr. Wowk-Litwin’s earnings were much more significant than his, enabling him to obtain more

credit and continue to pay off his credit card debts and incur new expenses. Mr. Klassen acknowledges that he contributed far less to the credit card expenses of the parties, that his expenses were significantly disproportionate to his level of contribution from his earnings. [ 129 ] There is no dispute that Dr. Wowk-Litwin is left with much more significant debt, and a negative net worth at the date of separation, compared to Mr. Klassen, whose net worth exceeds $1,000,000 on separation. [ 130 ] The Court takes into account Mr. Klassen’s level of exclusive control over the finances.

It also considers the evidence by Dr. Wowk-Litwin and her friend Mr. Derbowka, who testified in a frank and careful manner about his recollection of conversations between the parties done in his presence about the fact that Dr. Wowk-Litwin had no knowledge of how much credit card debt was being incurred. [ 131 ] The Court considers that Mr. Klassen never bothered to file Dr. Wowk-Litwin’s tax returns and never told her of this change, and also the significant credit card debt that he incurred behind her back, and other factors too numerous to list in this decision. [ 132 ] This Court puts some weight on Mr.

Klassen’s significant savings, as of the separation date, compared to those of Dr. Wowk- Litwin’s. The Court considered that Dr. Wowk-Litwin has a fixed income limited to her disability benefits, and Mr. Klassen’s evidence suggests that he continues to have the same capacity to run his business, in addition to starting a new career as a realtor. It is fair in the circumstances that a negative accounting be ordered and that the debts of Dr. Wowk-Litwin be shared by Mr. Klassen except for the interest claimed by her on the lines of credit (noted as not shareable for reasons set out in this decision).

Issue #5 - Has Mr. Klassen dissipated family assets and if so, what amount should be added back to his inventory in an accounting between the parties ? [ 133 ] Dr. Wowk-Litwin seeks a finding that Mr. Klassen dissipated family assets. Dr. Wowk-Litwin submits that the Court should add $300,000 to the inventory of Mr. Klassen’s assets in an accounting between them. She says that Mr. Klassen hid his overspending from Dr. Wowk-Litwin and that his actions constitute gross and irresponsible squandering of family assets. Dr. Wowk-Litwin relies in part, on records that she says show that over a nine-year period, Mr.

Klassen used Medco to pay for over $500,000 in credit card expenses. She says that Mr. Klassen was deceitful and induced Dr. Wowk-Litwin to believe that he was spending money in a reasonable manner, and generally managing their finances responsibly, such as filing their tax returns and ensuring debts were paid. [ 134 ] In closing argument, Dr. Wowk-Litwin submitted a review of their Visa statements and a report titled “Report: Cash Flow – Details”, from her medical corporation, between the years 2009 to 2014. As noted above, these documents demonstrated that Mr.

Klassen spent $531,570 on his Visa card but only contributed $112,409 towards the payments; the rest was paid from Dr. Wowk- Litwin’s income. Put another way, she submits that over this period, of the $804,916 spent on their credit cards, Mr. Klassen contributed 12% towards the payments and Dr. Wowk-Litwin contributed 88%. While Dr. Wowk-Litwin had much more significant earnings during the relationship, his secretive expenditures consistently eclipsed hers, even taking into account their disproportionate incomes. [ 135 ] Dr.

Wowk-Litwin points out that at the end of the relationship, she was left with the family home that is “heavily mortgaged” ($390,000 owed), and the other liabilities noted above instead of significant savings that she should have had when the parties separated. On the other hand, Mr. Klassen was left with a fully paid condominium in Osoyoos, B.C., and $200,000 of tax-free savings. His net worth position in the accounting, according to Dr. Wowk-Litwin, is over $1,000,000. [ 136 ] Mr.

Klassen argues that the evidence does not support that he engaged in conduct that could be characterized as gross and irresponsible squandering of family assets. Mr. Klassen says that his income was nowhere near Dr. Wowk-Litwin’s income and that the parties afforded a generous lifestyle because of her work as a doctor. He says that looking at the Visa statements, one cannot extrapolate that the approximately $804,000 of expenditures were primarily for his benefit. He says that they spent a lot of money on credit cards for furniture, and many other expenses for their joint benefit. Mr.

Klassen does not quantify how much he estimates was on their new furniture nor give evidence to support these “other expenses”. [ 137 ] Finally, he argues that if the Court is going to look at the Visa credit card statements, then the Court should also consider that he says he made significant payments to the parties’ two mortgages and other joint expenses. He provided no analysis of any numbers that would contradict the amounts put forward by Dr. Wowk-Litwin in her assessment of the credit cards. Dr. Wowk-Litwin’s testimony was credible and supports the deceitful nature of Mr. Klassen’s actions. [ 138 ] Mr.

Klassen was clear that any time he could use a credit card for personal and business expenses he did so. When asked during his examination for discovery if he used Medco to pay all of his personal credit card expenses, he answered that yes, “that was the path that was suitable.” He was asked if he had shared with Dr.

Wowk-Litwin the excessive amounts of her earnings he was using for his credit card expenses and he answered: “it wasn’t important”, and he could not recall having a conversation with her about it. [ 139 ] The Court agrees that the particular facts of this case support a finding of dissipation against Mr. Klassen, a gross and irresponsible squandering of family assets. Dr. Wowk-Litwin had significant earnings during the relationship, and she had good reason to believe that she could rely on Mr. Klassen for management of the household finances, including assuming that he regularly filed both parties’ tax returns.

She never knew about the excessive use of credit cards paid off using Medco. The evidence, including testimony of both parties considered by this Court supports a finding that he had been funding his spending, of which she had no knowledge, by transferring her income from Medco to pay off his credit cards. [ 140 ] It is just, given the circumstances, to add back a portion of the dissipated assets to Mr. Klassen’s inventory of assets, as is permitted by section 6(7.1) of the FPA . In terms of what amount ought to be added back to Mr.

Klassen’s inventory of assets, this Court looks to the overall financial circumstances of the parties. In exercise of its discretion, it takes into account that Dr. Wowk-Litwin has been successful in her claim for a negative accounting, and Mr. Klassen is to be responsible for half the debts she is left with as of the date of separation. Taking that into account, and considering the total amounts expended on the joint credit card account of each party from 2009 to 2014, the amounts paid by each party, and the limited oral evidence that Mr.

Klassen chose to give about the categories of expenses that would have been for the

joint benefit of the parties, it is just that Mr. Klassen shall add to his inventory of assets and liabilities an amount that is equal to his actual credit card expenditures shown on his card, less half the total charges for both cards, or $129,000. Issue #6 - Should Dr. Wowk-Litwin be awarded interest on the FPA amounts owed to her by Mr. Klassen ? [ 141 ] Dr. Wowk-Litwin seeks interest on the equalization payment that will be owed to her by Mr. Klassen. THE LAW [ 142 ] Section 20(3) of the FPA allows the Court to award interest where a party has been ordered to make an equalization payment.

It provides as follows: Interest where equitable 20(3) On making an order for one spouse or common-law partner to pay an amount under

section 17 or on application the court, if satisfied that it is equitable under the circumstances, may order that spouse or common-law partner to pay interest on all or a portion of the amount at a rate fixed by the court and calculated from a date which is not earlier than the valuation date established under

section 16 . [ 143 ] The Manitoba Court of Appeal has commented on the philosophical underpi

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