McKay v. McKay, 2012 NSSC 158

SUPREME COURT OF NOVA SCOTIA (FAMILY DIVISION) Citation: McKay v. McKay, 2012 NSSC 158 Date: 20120322 Docket: SFSND001206-2436 Registry: Sydney, Nova Scotia Between: Bruce McKay Applicant v. Diane McKay Respondent LIBRARY HEADING Judge: The Honourable Justice Darryl W. Wilson Heard: January 30, 2012, January 31, 2012 and March 22, 2012 at Sydney, Nova Scotia Oral Decision: March 22, 2012 Written Reasons: April 20, 2012 Subject: Termination of spousal support and retroactive cancellation of arrears.

Summary: Bankruptcy of payor’s company - reduction in payor’s income - increase in payee’s income. Issue: Date of termination.

Result: Spousal support terminated effective January 31, 2009, when payor’s business operations taken over by Receiver. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . SUPREME COURT OF NOVA SCOTIA (FAMILY DIVISION) Citation: McKay v. McKay, 2012 NSSC 158 Date: 20120322 Docket: SFSND001206-2436 Registry: Sydney, Nova Scotia Between: Bruce McKay Applicant v. Diane McKay Respondent Judge: The Honourable Justice Darryl W. Wilson Heard: January 30, 2012, January 31, 2012, and March 22, 2012, in Sydney, Nova Scotia Oral Decision: March 22, 2012

Written Reasons: April 20, 2012 Counsel: Lee Anne MacLeod-Archer, Counsel for the Applicant Alan Stanwick, Counsel for the Respondent By the Court: [ 1 ] In this proceeding, Mr. McKay applied to terminate the spousal support provisions of a Varied Corollary Relief Judgment, dated January 14, 2008. [ 2 ] The parties were married August 1, 1980, separated in 1992 and divorced August 12, 1996. A Separation Agreement, which was incorporated into the Corollary Relief Judgment issued by the court, required Mr. McKay to pay Mrs.

McKay, $2,000.00 per month for the support and maintenance of herself and the children of the marriage. Mr. McKay was also required to forward to Mrs. McKay, annual financial statements of Krazy Krazy Limited, a corporation owned and operated by him. Both parties were to provide each other with copies of their personal Income Tax Returns and supporting documents on an annual basis. [ 3 ] The Corollary Relief Judgment was varied by Order dated January 14, 2008. Mr.

McKay ’ s obligation to pay child support was rescinded, effective June 27, 2007 as it was determined the three (3) children of the marriage were no longer dependent. Mr. McKay was ordered to pay spousal support in the amount of $1,500.00 per month, beginning June 27, 2007. Both parties were to exchange personal financial information by May 31 st of each year, commencing 2008. Mrs. McKay was to provide Mr. McKay with a statement of her efforts to secure employment on or before May 31, 2008 and each year thereafter. [ 4 ] At the last variation hearing, Mr.

McKay had not provided full and complete disclosure of all his financial assets. There was evidence that his retail electronics business, Krazy Krazy, was in financial difficulty but he had taken a salary of approximately $52,000.00 and paid his common-law partner a further salary of $50,000.00 from the business in the year preceding the hearing. He was a minority shareholder in another company owned, Profitable Properties Limited, owned by his common-law partner. There was evidence that Mrs. McKay had completed a course at Island Career Academy in 2006 to improve her employability.

At the time of the hearing, she was working several jobs on a part-time basis. She provided minimal information about her attempts to obtain work with various employers in the local area. [ 5 ] Justice Goodfellow stated: “If you have any further application, clearly the entitlement to spousal support exists and there is not adequate evidence before me to indicate that it should be terminated. It is clear the means, needs and circumstances of Mrs. McKay still require financial assistance by way of spousal support.

I think the only thing I can do is make a small reduction in the quantum, based on the reduction of your income and see where we go from there. ” [ 6 ] Further, Justice Goodfellow stated: “The Order should also provide that Mrs. McKay should, in addition to providing her financial Returns from the previous year, should provide details of the efforts which she is making to secure employment.

It is sufficient for this hearing for her to come in and to indicate, and I accept her evidence that she has gone to Cambridge and gone to these five (5) or six (6) other places, but it would have been better to have had copies of her application forms and then we would know, in fairness, exactly where we stand. What Mrs.

McKay must recognize, her husband is now fifty (50), the business, I think, is probably going to be alright, but who knows, I don ’t have a perfect crystal ball, but at some point in time the maintenance will likely either terminate or become so minuscule, unless he is very successful and the business comes back again. In giving that direction, I am not going to put any

specific time-frame for review. The parties are entitled to apply for a review whenever there is a change in circumstances. I would think from a general recommendation that you wouldn ’t want to review it until probably early 2009. By then you ’ll have a pretty clear-cut indication. ” [ 7 ] Mr. McKay ’ s Application to Vary the existing Order by terminating spousal support was filed September 22, 2010. His last payment pursuant to the Varied Order was on October 31, 2008. An Income Tax Refund of $13,221.01 was credited to arrears on January 20, 2011. Mr.

McKay requests the court terminate his spousal support obligation retroactively to October 2008. Outstanding arrears as of December 31, 2011 were $52,177.99. [ 8 ] Mr. McKay was the sole owner/operator of a corporation known as Krazy Krazy Limited from 1982 to 2009. The corporation declared bankruptcy in March, 2009. Krazy Krazy Limited ran into difficulties in the Fall of 2008 and Mr. McKay closed two (2) stores in other provinces when the company filed for bankruptcy. His last pay from the company was December 5, 2008. He had no income from January, 2009 until March, 2010.

Since he was self-employed, he was unable to collect EI benefits. He relied upon savings, as well as help from family and friends to pay his living expenses. [ 9 ] On April 1, 2010, he began paid employment with PPL Management, a property management company owned by his common-law partner, Carolyn Chambers. He has a 25% ownership interest in the corporation. He is paid $1,000.00 per month, plus a car allowance of .50 ¢ per kilometre. His duties include collecting rents, dealing with tenants and maintenance issues. He provided services without pay during 2009. [ 10 ] Mr. McKay and Ms.

Chambers own a home in East Bay with an assessed value of $381,300.00. There is a mortgage balance outstanding of $287,500.00. Since January, 2009, they have been paying only the interest and the taxes. Funds to purchase the home were advanced through a Home-Owners ’ Line of Credit secured by a mortgage which allows for monthly interest payments only.

He incurred substantial personal debts in relation to his operation of the corporation, Krazy Krazy Limited. [ 11 ] He attempted to obtain work as a real estate agent after the bankruptcy of Krazy Krazy Limited, but was unable to pass the course and was not granted a license. [ 12 ] Mr. McKay ’ s mother and his common-law partner had serious health issues after the bankruptcy of Krazy Krazy Limited. According to Mr.

McKay, these illnesses plus his personal financial crisis and the bankruptcy of Krazy Krazy Limited, caused him considerable personal stress which delayed him filing an Application to Vary. [ 13 ] Mrs. McKay did not kept him up-to-date on her search for employment as required by the last Order. Neither party provided the other with proof of their financial affairs as required by the Order. Mr. McKay believes Mrs. McKay is employed as a bartender at the Dobson Yacht Club and by the Joan Harris ’ Cruise Pavilion. She is earning a greater income than him at the present time. Mr. McKay also believed that Mrs.

McKay is living in a common-law relationship and is sharing expenses with her partner. [ 14 ] Mrs. McKay agrees the Spousal Support Order should terminate January 1, 2012 but contests Mr. McKay ’ s request to rescind the Order as of October, 2008 and to forgive outstanding arrears accumulated prior to January 1, 2012. [ 15 ] Mrs. McKay does not believe Mr. McKay had no income from January 2009 to March 2010. She finds it hard to believe that he could not find employment given his wealth of business experience.

Further, he has a 25% ownership interest in Profitable Properties Limited, which is 75% owned by his partner. This company owns a number of properties. She believes he could be earning a greater income than $1,000.00 a month from his corporation. According to Mrs. McKay, Mr. McKay ’ s evidence that he has limited or no income is not credible since he lives in a very expensive home and he owns several sea-doos, a boat, vehicles and a membership in a golf club. [ 16 ] She denies living in a common-law relationship or sharing expenses with another individual.

She had a continuing need for support during 2009, 2010 and 2011.

[ 17 ] At the time of the variation hearing in January, 2008, Ms. McKay ’ s Statement of Income estimated her 2007 income at $30,864.00, including spousal and child support of $24,000.00. She had reported income of $33,447.00 in 2004; $34,053.00 in 2005; and $40,351.00 in 2006. Each of these totals included $24,000.00 in spousal and child support payments. I do not have a record of her 2008 income. [ 18 ] After the last variation hearing, Mrs. McKay obtained employment, although on a seasonal basis, with the Sydney Ports ’ Corporation as a project coordinator and a senior bartender.

She reported income of $31,000.00 from employment, EI benefits and other sources in 2009 and 2010. Her 2011 income from Sydney Ports ’ Corporation and EI benefits was approximately $24,900.00. With provision for other income as in the last two years, she will likely earn a similar income of approximately $31,000.00 in 2011. [ 19 ] She is content with her employment and does not intend to make any changes in the future. She ’ s in a much better position to support herself now then she was at the time of the last hearing. [ 20 ] Mr.

McKay ’ s business was placed in bankruptcy in March, 2009, approximately one year after the last variation hearing. Mr. McKay ’ s income in the years following the last hearing were $56,000.00 in 2008; $4,943.00 in 2009; $8,000.00 in 2010. He estimates his income for 2011 and 2012 will be $12,000.00. [ 21 ] Ms. Chambers reported income in 2010 of $28,500.00, which included payments from Profitable Properties Limited and a second company that she owns, located in Manitoba. She expected a similar income in 2011. [ 22 ] A considerable amount of time was spent examining Mr.

McKay ’ s financial interests in Krazy Krazy Limited, Profitable Properties Limited and Kayzis Development Limited. Krazy Krazy Limited is no longer operating. The corporation owed more money to creditors than it had in assets. Mr. McKay is personably liable for a number of debts. Creditors are pursuing him for payment but, to date, aside from two (2) small Judgments, no further action has been taken against him. His Statement of Property listed debts exceeding $135,000.00. [ 23 ] Profitable Properties Limited was set up in 2007 with the intent that it would provide an income for Mr. McKay and Ms.

Chambers ’ retirement. Ms. Chambers is the majority shareholder of Profitable Properties Limited because she invested more of her funds in the corporation than Mr. McKay. She had sold the property that she owned in Manitoba and used the funds to invest in Profitable Properties Limited. Mr. McKay provided some funding and helped arrange a 1.6 million dollar bank loan, which was used to acquire sixteen (16) additional properties. This loan was obtained at a time prior to Krazy Krazy ’ s bankruptcy when Mr. McKay had access to credit. The corporation reported earnings of $34,320.00 in 2007 and $8,886.00 in 2008.

It had losses of $21,765.00 in 2009; $11,017.00 in 2010 and $5,670.00 in 2011. There is little equity in the corporation at the present time. They hope to build equity over time as the rents from the properties pay down the existing bank loan. I am satisfied that the corporation is not able to pay Mr. McKay and Ms. Chambers a greater income than is currently being paid. [ 24 ] Mr. McKay currently owns a 10% interest in Kayzis Development Corporation. This corporation was previously jointly owned with another individual. The corporation leased space to Krazy Krazy Limited.

The bankruptcy at Krazy Krazy Limited initiated a clause which required Mr. McKay to buy out his partner ’ s interest for $43,000.00 or risk having his own interest purchased at a substantial loss. He was able to arrange funding from a friend, David Cormier, through his corporation, Patrick Investments Limited. Mr. Cormier provided the funding on a condition that he would be a majority shareholder of Kayzis Development Corporation. The share structure was re-arranged giving Mr. Cormier, through Patrick Investments Limited, 90% control of the company with a 10% interest to Mr. McKay. Mr.

McKay is not receiving any income from his interest in the corporation. He hopes to receive a return of capital at some point in the future when the properties are sold and the corporation wound up. [ 25 ] Mr. McKay and Ms. Chambers jointly owned a property in Coxheath which was sold for $125,000.00. The funds received from the sale of this property was invested by Ms. Chambers in land in Howie Centre. [ 26 ] Mr. McKay acknowledged owning several vehicles, which he stated are at least ten (10) years old. The boat was given to him by his mother.

He purchased shares in the Ben Eoin Golf Limited with funds from his RRSP prior to the bankruptcy of Krazy Krazy Limited. There is no market for these shares. The club is attempting to raise further funds to finish the course. Mr. McKay has not

advanced any additional funds and he has not become a member. He also has $5,900.00 in an RRSP. [ 27 ] Mr. McKay denies Mrs. McKay ’ s claim that he is living an affluent lifestyle or that his lifestyle hasn ’ t changed since the last court hearing. [ 28 ] Mrs. McKay owns her own home. The assessed value of the home is $96,300.00. There is a mortgage balance outstanding of $52,400.00. She has registered investments totalling $26,850.00 and non-registered investments of $5,800.00. She owns a 2002 PT Cruiser, valued at $900.00. She has debts of $5,000.00. [ 29 ] Mr. McKay claims that Mrs.

McKay is in a common-law relationship with Mr. Morris. Both Mrs. McKay and Mr. Morris deny they are in a common-law relationship. They spend a great deal of time together. Mr. Morris stores a number of vehicles on Mrs. McKay ’ s property. Mr. Morris ’ home is located very close to Mrs. McKay ’ s home. Each maintains their own home without assistance from the other. They maintain separate bank accounts. Mr. Morris states that Mrs. McKay provided emotional support after the death of his son. They do not hold themselves out to be husband and wife. On balance, I am not satisfied that Mr.

McKay has proven a common- law relationship between Mr. Morris and Mrs. McKay. THE LAW [ 30 ]

Section 17 of the Divorce Act, RSC 1985, c 3 (2nd Supp) states: Order for variation, rescission or suspension 17.

(1) A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively, (

a) a support order or any provision thereof on application by either or both former spouses; ... Terms and conditions

(3) The court may include in a variation order any provision that under this Act could have been included in the order in respect of which the variation order is sought. ... Factors for spousal support order

(4.1) Before the court makes a variation order in respect of a spousal support order, the court shall satisfy itself that a change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order or the last variation order made in respect of that order, and, in making the variation order, the court shall take that change into consideration. ... Objectives of variation order varying spousal support order

(7) A variation order varying a spousal support order should

(

a) recognize any economic advantages or disadvantages to the former spouses arising from the marriage or its breakdown; (

b) apportion between the former spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage; (

c) relieve any economic hardship of the former spouses arising from the breakdown of the marriage; and (

d) in so far as practicable, promote the economic self-sufficiency of each former spouse within a reasonable period of time. CONCLUSION [ 31 ] Mr. McKay has proven on a balance of probabilities a material change in circumstances has occurred since the Order of Justice Goodfellow in January, 2008. Mr. McKay ’ s principle source of employment and income has been his company, Krazy Krazy Limited. Receivers took possession of the company in January, 2009 and the company declared bankruptcy in March, 2009. He was without income between January, 2009 and March, 2010.

He was self-employed as the owner/operator of Krazy Krazy Limited for most of his adult life, approximately 27 years. He attempted to find paid employment and to obtain a real estate license, without success. Both his mother and common-law partner were quite ill during 2009. I am not satisfied he was under-employed or purposely unemployed during this time and I am not prepared to impute income to him as suggested by counsel for Mrs. McKay. [ 32 ] In addition, Mrs. McKay ’ s circumstances have changed since the previous Order.

Her income from various sources is in the vicinity of $31,000.00 without spousal support, whereas in the years preceding the last Order, her income was in the vicinity of $30,000.00 with spousal support. She is content with her current circumstances. She is to be commended for being able to acquire a home with modest savings at a time when she had limited income and was responsible for caring for her family. She has been able to obtain reasonable employment and her income, at the present time, exceeds Mr. McKay ’ s income. [ 33 ] The parties were together for approximately twelve (12) years and Mr.

McKay had been paying child and spousal support for approximately sixteen (16) years when his company went bankrupt in 2009. Mrs. McKay no longer has any childcare responsibilities. During the time spousal support was being paid, Mrs. McKay was able to further her education, which enabled her to obtain employment, providing some measure of self-sufficiency. [ 34 ] Mr. McKay ’ s application was filed in September, 2010. He seeks to have the Spousal Support Order varied effective in the Fall of 2008, when he was no longer receiving a salary from Krazy Krazy Limited. Mrs.

McKay agrees that spousal support should terminate January 1, 2011. She had notice of Mr. McKay ’ s application to terminate spousal support in September, 2010. At that time, her income had increased significantly and Mr. McKay ’ s income had reduced significantly, such that Mrs. McKay was earning more than Mr. McKay. Mr. McKay had no ability to pay continuing spousal support from the date of his application. Mrs.

McKay had achieved a reasonable level of self-sufficiency and the children of the marriage were adults, living independently of their parents. [ 35 ] I am further satisfied that the Order should be varied retroactively to January, 2009. Mr. McKay had no ability to pay the Order from January, 2009 to September, 2010 when he filed his application. Again, Mrs. McKay had achieved a reasonable level of self- sufficiency. Neither party had provided the other with financial information, as required and Mrs. McKay did not keep Mr. McKay informed of her employment efforts, as required by the last Order.

The lack of notice from Mrs. McKay of her employment, the illness of Mr. McKay ’ s mother and common-law partner, and the stress from the bankruptcy of the company provided a reasonable excuse for Mr. McKay ’ s delay in making the application. I have reviewed Mr. McKay ’ s circumstances, including his investments in other companies, as well as assets held by his common-law partner and the potential debt claims of creditors. I have also reviewed Mrs. McKay ’ s assets and liabilities. There is not a significant disparity in the net assets of Mr. and Mrs. McKay, taking into account that Mr.

McKay shares his current assets with his common-law partner. Mr. McKay did not purposely avoid employment during 2009 and 2010, when he had limited income. It would create an unreasonable hardship to order the payment of spousal support after the bankruptcy of Krazy Krazy Limited. [ 36 ] Therefore, the Order for spousal support shall terminate effective January 31, 2009. This was the date that Receivers took possession of Mr. McKay ’ s corporation, Krazy Krazy Limited. This company was the main source of financial security for the family during the marriage and after the divorce.

Justice Goodfellow thought the company would survive, but opined the parties would have a better idea of the company ’ s circumstances in early 2009 and that either party could seek a review of the Order, provided there was a

change in circumstances. [ 37 ] The Spousal Support Order is terminated effective January 31, 2009. Any arrears owing as of January 31, 2009 are payable forthwith, while arrears accumulated after January 31, 2009 are rescinded. [ 38 ] The parties have thirty (30) days to make written submissions on costs. ___________________________________ J.