Thompson v. Thompson 2013 ONSC 5500

POSITION OF THE PARTIES:

The Applicant’s Position:

• Seeking a court order that clearly states that neither party is obligated to pay either spousal or child support up to the date of April 30, 2013.

• The Respondent's claims for retroactive support are not valid due to the fact that these claims were omitted from his original Answer and Claim.

• The Applicant proposed a new custodial arrangement, which would start from January 2023. The arrangement was referred to as a “hybrid model.”

• The Applicant proposes that any calculations for support should be conducted based on her salary from two companies, namely Harmony and Solaris.

• The Applicant is opposed to the idea of attributing the pre-tax corporate income of Harmony to her personal income for the years spanning 2009 to 2012.

• The Applicant explicitly rejects the notion of imputing income to her.

• The Applicant acknowledges that the Respondent is entitled to spousal support, however, this acknowledgement is based on the Respondent’s need. The Applicant suggests a mid-range spousal support under the Spousal Support Advisory Guidelines. This support, she proposes, should be awarded for a limited duration of eleven years.

The Respondent’s Position:

• The Respondent is currently seeking both spousal and child support from the Applicant. This includes retroactive support, meaning covering previous periods where support was not provided, as well as ongoing support for the foreseeable future.

• The basis of the Respondent's argument is that the Applicant should be attributed an income of $121,000.00 for the purpose of calculating support payments. This figure was derived from an income analysis report, which the Respondent believes accurately reflects the Applicant's financial capacity.

• The Respondent contends that this income level should continue to be imputed to the Applicant regardless of her recent sale of her business interest.

• The Respondent argues that the Applicant should have sought repayment of a shareholder loan, which would have increased her financial resources.

• The Respondent is seeking a court order for ongoing support. This would be based on the attributed incomes of both parties and would ensure a steady, reliable source of income for the Respondent and the children.

• The Respondent is also seeking contribution to the children's expenses, to ensure their needs are adequately met.

• The Respondent is asserting an entitlement to spousal support on two primary grounds.

  • Firstly, the Respondent believes support is needed due to their financial circumstances.

  • Secondly, the Respondent is seeking support on compensatory grounds, suggesting that they have made career or financial sacrifices during the marriage that should now be compensated for.

RESIDENTIAL SITUATION FOR THE PARTY’S CHILD:

An important issue in this case was the residential situation of their child Paige since the couple's separation. The residential situation of the children was a critical issue for determining child and spousal support.

The court had to scrutinize where the child had been living since the separation, and how that impacted other factors such as child support. This involved assessing the living conditions provided by each parent, the child's preference, and the impact of the living situation on the child's wellbeing and development.

The court found that the Applicant mother's evidence regarding the daughter Paige's residence was more credible than the Respondent father's.

The court concluded that for most of the time between 2009 and 2013, Paige resided primarily with the Applicant, except for certain periods when she lived with the Respondent.

Therefore, child and spousal support calculations should be based on a hybrid custody situation: primary residence of one child with the Applicant and a shared custody arrangement for Paige.

THE COMPLEXITY OF DETERMINING TRUE INCOME

When determining income for the purposes of child and spousal support, the court doesn’t just look at line 150 of the tax return but considers the true income of the parties, which can include things like benefits, bonuses, and dividends. In cases where a party owns a business, as the Applicant did, the court may also consider the gross business income and legitimate business expenses. This process may require a thorough examination of financial documents, business records, and sometimes, the enlistment of financial or accounting experts.

This was a complex process that involved examining the income that the Applicant received from her company, Harmony Dental Arts Inc., and whether it should be included in her income for the years from 2009 to 2012.

With respect to the issue of attribution of corporate income. The court determined that Mr. Molon was a credible witness.

The court found his testimony to be honest, forthright, and organized even under intense cross-examination. Despite failing to clarify some aspects of Harmony’s financial statements, his credibility was not affected as it was acknowledged that the company’s accountants prepared these statements.

The court considered the evidence presented by both Mr. Molon and Mr. Horsley regarding the Applicant’s income. After a detailed analysis, it was concluded that attributing Harmony’s pre-tax corporate income for the years 2009 to 2012 to the Applicant would be inappropriate. The court considered several factors in making this decision:

• The court delved into Harmony’s corporate structure and its historical approaches to income and retained earnings. The court considered the Applicant's degree of control over the company's income and retained earnings. It was found that she did not have a controlling interest in the corporation and did not possess the ability to declare dividends or decide on bonuses on her own. Mr. Molon and another shareholder, Gino Marino, preferred to keep income within the company for potential business growth. This approach was consistent with their treatment of corporate income in another dental laboratory they owned, Aurum.

• The court also examined the true state of Harmony’s business operations. The court found that Harmony’s financial statements did not provide an accurate picture of the corporation’s overall functioning. It was revealed that Harmony would have potentially gone under if not for the extensive unpaid services provided by Mr. Molon and the significant financial support received from Aurum.

• The evidence provided by the Applicant and Mr. Molon painted a picture of Harmony as a ship without a captain, which would have sunk if not for the intervention of Mr. Molon and Aurum. Mr. Molon described Aurum as the “Big Brother” to Harmony, essentially footing the bill for a significant part of Harmony’s operations. He testified that he would not have considered declaring dividends, paying out bonuses from Harmony’s income, or repaying shareholder loans because this would have resulted in a financial windfall for the Applicant and a financial blow to himself, Mr. Marino, and Aurum after all of the support that had been provided to Harmony and the Applicant. Based on these findings, the court agreed with Mr. Molon’s stance.

The court determined that any significant pre-tax income or retained earnings shown on Harmony's books wouldn't have been there if Mr. Molon had billed for his services and if Aurum hadn't financially supported Harmony.

Sale of Harmony:

A significant issue revolved around the sale of a company, Harmony, and the subsequent financial implications it had on the child and spousal support calculations.

The Applicant had sold her interest in Harmony, receiving $89,000 worth of shares in Solaris as compensation for her interest.

This decision was challenged by the Respondent who argued that income should be imputed to the Applicant based on several reason:

• The Respondent's first argument was that the Applicant could have received dividends or bonuses from Harmony from 2009 to 2012, and thus, income should be imputed to the Applicant. However, the court disagreed, concluding that income should not be imputed to the Applicant on this basis.

• The second argument was that the Applicant failed to pursue all of her rights in relation to the transfer of Harmony. The Respondent argued that the Applicant was negligent in negotiating the sale of her interest in Harmony, and that her business partners took advantage of her in regard to the sale. The Respondent's counsel suggested that the Applicant could have received significant dividends or bonus payouts, as well as repayment of her shareholder loan if she had pursued these rights. However, the court did not accept this argument. The court found that the only consideration for the transfer of the Applicant’s interest was the transfer of $89,000.00 worth of shares in Solaris and that there was no expectation of any additional rights or considerations.

• The Respondent's third argument was that the Applicant's decision to sell Harmony was reckless. The Respondent believed that the company was on an upward slope in terms of its success and income-generating capacity. Thus, by selling her interest in Harmony, the Applicant was deliberately underemployed and the court should impute income to her.

However, the court disagreed, finding that Harmony would have been struggling to survive as a company without the financial backing of Aurum and the unpaid services of Mr. Molon and Aurum staff.

Furthermore, the court highlighted that the decision to sell Harmony was made necessary due to the Applicant's declining mental health and the need to balance work and child care responsibilities.

The court also noted that the sale resulted in the Applicant being given a position as a ceramist with Solaris which offers her long-term job security and remuneration that is much higher than is typical for this type of employment.

In conclusion, the court found that the sale was reasonable and necessary, and therefore rejected the Respondent's argument that income should be imputed to the Applicant.

IS THE RESPONDENT ENTITLED TO PURSUE CLAIMS FOR RETROACTIVE CHILD AND SPOUSAL SUPPORT?

A significant point of contention was the entitlement to retroactive child and spousal support. The respondent attempted to pursue claims for retroactive child and spousal support for the period from June 2009 until April 2011.

However, the court ruled that these claims were invalid. The reasoning for this decision was based primarily on the fact that the respondent did not formally notify the applicant of his intent to seek retroactive child and spousal support for that period.

The court concluded that as a matter of law, a request for retroactive child support or spousal support must be specifically pled and the respondent failed to do so. This meant that the applicant was not given formal notice that she would need to defend against claims for retroactive relief.

The court found no evidence of misconduct on the part of the applicant. This finding was based on the thorough examination of the applicant’s financial situation, the needs of the child, and the fairness of any potential retroactive support payments.

The court found no evidence that the applicant attempted to mislead the respondent about her financial situation or that she intimidated the respondent in any way about seeking child or spousal support at any point prior to trial.

The court considered the potential hardship that a retroactive order would cause to the applicant and the children. They concluded that both would suffer if a retroactive order were granted. Specifically, the court noted that the applicant was unable to purchase a home for herself and the children due to concerns over her financial stability if a retroactive order were granted.

The court also pointed out that even if the respondent had validly claimed for retroactive child and spousal support from the separation date until March 2011, the applicant would have had a full defense on the basis of set-off amounts. These are amounts the respondent would have owed the applicant on account of child support and contribution to section 7 expenses over that same time period.

The court's thorough examination of the parties’ respective incomes after their separation played a pivotal role in reaching this conclusion.

THE BASIS OF THE RESPONDENT’S ENTITLEMENT TO SPOUSAL SUPPORT:

One of the primary contested issues in this case was the basis for the Respondent's entitlement to spousal support. The Applicant acknowledged the Respondent's needs-based claim for spousal support, but disputed the compensatory basis for his claim.

A compensatory claim for spousal support suggests that one spouse has made significant sacrifices or contributions that have resulted in the economic advancement of the other spouse, and is now seeking compensation. The Respondent asserted that his contributions to childcare, household responsibilities, and establishing and operating a business named Harmony, where the Applicant was a partner, laid the groundwork for a compensatory claim.

In assessing the validity of this claim, the court considered a range of factors. This included whether the Respondent had made any contributions which assisted the Applicant in obtaining her Registered Dental Technologist designation.

The court concluded that the Respondent did not make any personal or career sacrifices during the initial years of their marriage that could have facilitated the Applicant in advancing her career.

The Applicant had obtained this professional designation two years after their marriage, and there was no evidence to suggest that the Respondent had financed her training or taken on additional household responsibilities during this period.

The court also examined the evidence presented by both parties regarding their respective contributions to household chores and childcare responsibilities.

The Applicant maintained that she was the primary caregiver for their children. She contended that she was responsible for most of the children’s care, from feeding and changing diapers when they were infants to arranging their activities and medical appointments as they grew older. She also claimed to have shouldered most of the household chores.

The Respondent, on the other hand, claimed that he was equally involved in childcare and household chores. He stated that he participated in basic child care tasks when the children were infants and became more involved as they grew older. He also assumed responsibility for most of the tasks related to yard work, maintenance of the family vehicles, and household improvements.

The court had to assess the credibility of both parties as their accounts were starkly contrasting. The court found both parties to be credible in some areas and less so in others.

When it came to the development of Harmony, the court recognized that the Respondent had indeed assisted the Applicant in the initial setup and operation of the business. However, his involvement was not considered substantial enough to warrant a compensatory spousal support claim. The court noted that while his efforts were more concentrated in the early years of the business, they were not overly time-consuming or challenging.

The court concluded that both parties had made different but generally equal contributions for the benefit of the family.

The court concluded that the Respondent's assistance with Harmony was valuable, but not sufficient to support a compensatory support claim. The court found no evidence that the Respondent had foregone any opportunities for career advancement due to his family responsibilities or his involvement with Harmony. Additionally, the court did not find that the establishment of Harmony conferred any significant economic advantage on the Applicant for which the Respondent had not already received compensation.

SHOULD THE RESPONDENT BE PERMITTED TO BENEFIT FROM POST-SEPARATION INCREASES IN THE APPLICANT’S INCOME FOR THE PURPOSES OF THE SPOUSAL SUPPORT ANALYSIS ?

The court decided that the respondent should not benefit from post-separation increases in the applicant's income for the spousal support analysis. This decision was based on the lack of a compensatory basis for the respondent's support claim, the nature and extent of the respondent's assistance with respect to Harmony, and the fact that the applicant also supported the respondent in his career.

The primary reason for this was the lack of a compensatory basis for the respondent's claim for support. In other words, there wasn't a strong enough reason or justification for the respondent to claim a portion of the applicant's boosted income that had been earned after their separation. This significant deciding factor inevitably tipped the scales in the applicant's favor.

The court also took into account the nature and extent of the respondent's assistance towards their child, Harmony. The relationship between the respondent and Harmony, as well as the degree to which the respondent had been involved in Harmony's life, played a vital role in shaping the court's decision.

DURATION OF SPOUSAL SUPPORT:

The Court determined that the spousal support award should not have a specified duration at this time.

It is likely that the situation of the children and the parties will change over the next few years.

Paige will be of age to commence post-secondary studies in approximately three years, and Jessie will be ready to start her post-secondary education in approximately five years.

The children’s section 7 expenses will therefore in all likelihood increase significantly, and this will very likely have a ripple effect with respect to spousal support.

Given the ages of the children and the stages which they are at in their lives, it is very likely that the issues of child and spousal support may have to be revisited in the next few years.

Having regard for the unknowns at this time respecting the children’s future financial needs, it is not possible to determine whether a duration of eleven years is reasonable.

There may be concerns regarding ability to pay prior to that time if the children’s educational expenses are significant. Accordingly, there will be no specified duration for spousal support.

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