Cruz v. Murray, 2016 NUCJ 16

Nunavunmi Maligaliuqtiit NUNAVUT COURT OF JUSTICE Cour de justice du Nunavut Citation: Cruz v.

Murray, 2016 NUCJ 16 Date: 20160526 Docket: 08-15-241 Registry: Iqaluit Plaintiff: Heather Murray -and- Defendant: Jonathon Cruz ________________________________________________________________________ Before: The Honourable Madam Justice Cooper Counsel (Plaintiff): Edward Hopkins Counsel (Defendant): Erin Lepine Location Heard: Iqaluit, Nunavut Date Heard: December 10, 2015 Matters: Federal Child Support Guidelines, SOR/97-175, s. 19(d); s. 19 (f); s. 21(2) ; Children’s Law Act, S.N.W.T. 1997, c. 14 (Nunavut); Family Law Act , S.N.W.T. 1997, c. 18 (Nunavut) REASONS FOR JUDGMENT (NOTE: This document may have been edited for publication)

I. INTRODUCTION [ 1 ] This is an application brought by the mother to have the court impute income to the payor father for the purposes of calculating child support on an interim basis. II. BACKGROUND [ 2 ] The couple in this matter were never married. They have one child together, a son who is two years old. The father is currently paying child support in the amount of $1,131 per month. This accords with the income of $120,000 pursuant to the Federal Child Support Guidelines [Guidelines], SOR/97-175.

No amount is payable for extraordinary expenses. [ 3 ] In the mother’s Notice of Motion , she seeks an order for child support in the amount of $5,074 per month and spousal support in the amount of $15,367 per month, based on an imputed annual income of not less than $600,000. At the hearing it was acknowledged that additional financial information from the mother is required before the Court can make a determination on the issue of spousal support. [ 4 ] The father owns and operates a business called NuSchool Design Agency Inc. [NuSchool] .

The mother alleges that the father also owns a business called Nunatak Cell Phone Company , and three rental properties, one in Florida, one in Ontario, and one in Nunavut. The father attests that he does not own a cell phone company and that he sold the Ontario property in the spring of 2014 for $91,000. [ 5 ] The mother is unable to work full time because she has not been able to arrange for child care, but she has obtained part-time employment. III.

FINANCIAL DISCLOSURE REQUIRED PURSUANT TO THE GUIDELINES [ 6 ] Although the proceedings are pursuant to the Children’s Law Act, S.N.W.T. 1997, c. 14 (Nunavut), and the Family Law Act , S.N.W.T. 1997, c. 18 (Nunavut), it is the Guidelines that are applicable.

Pursuant to subsection 21(2) of the Guidelines , a spouse, in this case the father, against whom a child support order is sought must provide the court and the other spouse with the following financial information for the three most recent taxation years: • copies of personal income tax returns; • copies of notice of assessments and reassessments; • if an employee, the most recent statement of earnings; • if self-employed: o the financial statements of the business or professional practice o a statement showing a breakdown of all salaries, fees, etc., paid to persons or corporations not at arm’s length; • if a partner in a partnership, confirmation of income and draw from and capital in the partnership; • if controlling a corporation, the financial statements of the corporation and its subsidiaries; and a statement showing a breakdown of all salaries, fees, etc, paid to persons or corporations not at arm’s length; and

• if a beneficiary under a trust, a copy of the trust settlement and copies of the trusts financial statements. ( Subsection 2(1)) [ 7 ] Accordingly, the father is obliged to provide financial information relating to his personal finances, which includes financial information relating to the rental properties, and the corporate financial information. IV.

FINANCIAL DISCLOSURE THAT HAS BEEN PROVIDED [ 8 ] The father has sworn an affidavit stating that the following financial disclosure has been provided: • notices of assessment for the years 2012, 2013, and 2014; • four recent cheque stubs from NuSchool showing net pay for each period; • rental agreement for the Nunavut property; which was terminated in the spring of 2015; • rental agreement for the Florida property; • T4’s for the years 2012, 2013, and 2014; • account history covering approximately 6 months for 18 various accounts, including bank accounts, lines of credit, credit cards, etc.; • NuSchool chequing account history for a 6 month period; and • NuSchool expense and revenue tracking sheets for the years 2012, 2013, and 2014.

V. ANALYSIS A.

Has complete financial disclosure been made? [ 9 ] When one compares what financial disclosure must be made with the financial disclosure that has been made, it is apparent that there is insufficient disclosure. [ 10 ] The following are financial disclosures that the father has not made: • copies of his income tax returns for the years 2012, 2013, and 2014; • income tax returns for NuSchool ; and • financial statements for the corporation. [ 11 ] There is no reasonable explanation given as to why either the personal or the corporate tax returns have not been disclosed by the father. [ 12 ] What has been provided is an Affidavit [the Affidavit] from an individual who is a friend and former business advisor to the father.

Attached as an Exhibit to the Affidavit is a one page spread sheet of financial information titled “12 Month Cash Flow Projection” for each of the years 2012, 2013, and 2014. The affiant did not prepare these spread sheets. There is no information as to who prepared them, nor their qualifications as it relates to accounting.

[13] Given the content of the Affidavit, I am unable to conclude that the affiant has accounting qualifications. The affiant attests tohaving seen the 2015 record of revenues and expenses for the business and that they are decreasing. He attests as to what the income ofthe father is from the business for the year 2015. [14] The financial information which the affiant has reviewed is the financial information which should have been provided to the courtand opposing counsel.

The filtering of financial information through someone who is neither qualified, nor an independent party does notsatisfy the disclosure requirements pursuant to the Guidelines. [15] The Court is being asked to rely upon this Affidavit as proof of income. There are a number of concerns with this. [16] With respect to the Exhibits titled ”12 Month Cash Flow Projections” for the years 2012, 2013, and 2014, the informationprovided is problematic. For each year there is an expense item titled “withdrawal and payments”. There is no explanation as to whatthese payments are for, yet they are substantial.

They are not wages, which make up a separate line item. In 2012, such payments were$128,897.20, in 2013, $79,435.87 and in 2014, $54,445.61. [17] There is also an expense relating to the payment of a loan. This payment varies greatly over the three year period, from $4,880 in2012, to $815.14 in 2013, and $10,661.68 in 2014. Since the financial information does not show regular payments on the loan, itinevitably leads to questions regarding the nature of the loan.

At the very least, the question must be asked if the increase in loanpayments from a low of $815.14 in 2013 to over $10,000 in 2014, is an unreasonable diminishment of the income upon which childsupport is to be calculated. [18] Another expense which increased considerably are the payments to subcontractors. These payments went from $14,979.88 in 2012,to $79,840.10 and $72,024.81 in 2013 and 2014, respectively.

There is no information as to the nature of these subcontracts and whetherthey might fall within the ambit of subsection 18(2) of the Guidelines, that is not dealing at arm’s length, and as such, should be added tothe pre-tax income of the corporation. [19] The onus is on the father to provide financial disclosure in accordance with the Guidelines. This case illustrates the importance ofproviding comprehensive and complete financial disclosure.

The purpose of the Guidelines is to essentially pierce the corporate veil sothat the court has the necessary information to properly assess what income is reasonably available for child support. As stated in Ayowv. James, 2013 ONCJ 512 at para 51: A self-employed person has the onus of clearly demonstrating the basis of his or her net income. This includes demonstrating that thedeductions from gross income should be taken into account in the calculation of income for support purposes. See: Whelan v. O’Connor, (ON SC), [2006] O.J. No. 1660, (Ont. Fam. Ct.).

They have an inherent obligation to put forward not only adequate,but comprehensive, records of income and expenses, from which the recipient can draw conclusions and the amount of child support canbe established. See: Meade v. Meade (2002) (ON SC), 31 R.F.L. 5th 88 (SCJ). These principles also apply where theperson’s employment income is derived from a corporation that he or she fully controls. See: MacKenzie v. Flynn, 2010 ONCJ 184. [20] The father in this matter has failed to meet this obligation of full financial disclosure. B. Should income be imputed?

If so, in what amount? [21] The mother asks the court to impute an annual income of at least $600,000. The basis for this is an e-mail sent to the father by hisformer business advisor. The email states “You have a $600K a year business and with better financial organization, operationsmanagement and proactive marketing it will be a $2 Mil business by the end of 2016.” [22] While the mother’s concerns are understood, in my view it would not be appropriate to impute income of $600,000 on the basis ofthis e-mail alone.

The limited financial information which has been provided substantiates gross revenues of $500,000, but this is very

different from the income that should be used to calculate child support. [ 23 ] I am satisfied that I should impute income to the father pursuant to subsections 19 (

d) of the Guidelines , as it appears that income has been diverted which would affect the level of support to be determined under these Guidelines , and subsection 19(

f) of the Guidelines, in that the father has failed to provide income information when under a legal obligation to do so.

The income upon which child support is to be calculated will be increased by the average of those payments which are unexplained and prima facie unreasonable. [ 24 ] The father states that his income is $120,000 per year, which includes rental income. [ 25 ] Added to this income will be: • $87,592.89, the average of the “wages and payments” paid out from 2012 to 2014; • $5,452.27, the average loan payments over the three years; and • $55,614.93, the average payments to subcontractors over the three years. • Total annual income for purposes of calculating child support: $268,660.09 • Monthly amount of child support payable: on first $150,000: $1,384.00 on $118,660.09 ($9,730.13/year): $810.84 Total: $2,194.85/month [ 26 ] The father was under a Court Order to provide full financial disclosure by September 25, 2015. [ 27 ] The amount of $2,194.85 per month will be retroactive to October, 2015.

The amount of arrears owing is $8,510.80. The arrears will be payable by monthly payments of $1,000 per month payable by two equal monthly instalments on the 15th and the 30th of each month, commencing May 30th, 2016. [ 28 ] The child support will continue to be payable on the 15th of each month. VI. CONCLUSION A. Ongoing disclosure obligations [ 29 ] The father is still bound by the Order dated August 28th, 2015, to provide full financial disclosure.

[ 30 ] There will be a further order that the father provide to opposing counsel the name and contact information for all accountants and bookkeepers who provide services to him personally or to any company or business that he has an interest in. If these professionals do not provide the required financial disclosure via the father’s counsel, counsel for the mother may bring an application compelling these third parties to produce documentation. B. Costs [ 31 ] The father was under a Court Order to provide full financial disclosure by September 25, 2015.

His failure to do so resulted in the mother having to bring this application to impute income. The mother is entitled to her costs. [ 32 ] Counsel for the mother shall file a Bill of Costs and brief written submissions on the issue of costs within 20 days of the issuance of these reasons. Counsel for the father will have 10 days to file a Reply. Dated at the City of Iqaluit this 26th day of May, 2016 ___________________ Justice S. Cooper Nunavut Court of Justice