A few Pandemic financial cases: Condensed facts, high points and take-aways

The pandemic saw the case of Serra v. Serra, 2009 ONCA 395, https://canlii.ca/t/23j1w back into focus:

Summarizing some of the questions and takeaways:

• Will a payor be permitted to reduce his equalization payment pleading unconscionability?
• What happens if values drastically fall by the time a trial is heard?
• What about market-driven post-valuation date change in the value of a party’s assets? Can that change be considered in determining whether the equalization of family property is unconscionable under s. 5(6) of the Family Law Act?
• If the decline in the value of a party’s main asset may be taken into account, would the equalization of family property be unconscionable in the circumstances?
• Is it fair to ask payers to pay support on pre pandemic income if pandemic income severely reduced?
• Is it fair to equalize property based on prep pandemic values?
• Blurb of the facts: The Serras were married in 1976. They separated after 24 years in November 2000, and were divorced in 2003. Mr. Serra had a very profitable textile business that afforded his family a “luxurious lifestyle”. At the time of separation Mr. Serra’s shareholdings in the business were valued at between $9.5 million and $11.25 million. At trial, the value had decreased to between $1.875 million and $2.6 million which was a decline of approximately $8 to $9 million. The reduction on value was between the date of separation and the trial. The decline was not Mr. Serra’s fault. The change in value was on account of the shifting market forces that had affected the Canadian textile industry.
• The trial was in in 2006. “Mr. Serra argued that equalizing his and his wife’s net family properties on the basis of the separation-date value of his assets would be “unconscionable” as contemplated by s. 5(6) of the FLA. It would require him to make an equalization payment of $4,129,832.50 – an amount that exceeds his total net worth (and on one view of the evidence, could be as much as twice his total net worth). The trial judge ruled – she could not take a market-driven post-separation date decline in the value of a spouse’s assets into account under s. 5(6) and ordered the large equalization payment of about $3.3 million which exceeded Mr. Serra’s net worth.”
• What happened on appeal? Mr. Serra was successful: He “relied on paragraph 5(6)(h) of the FLA.. that the marked post-separation date decline in value of the textile business and therefore of his common shares in it, in combination with his [ex-wife’s] trust claims to an interest in those shares, the preservation order she obtained, and the significant interim support and capital payments he was required to make (and which could only be made out of an operating Ajax Textiles), [were] all circumstances relating to the disposition, preservation and maintenance of [his textile business] and, therefore, of his property assets.”
• Justice Blair found that the trial judge erred in taking strict separation date value approach that she took and so allowed the appeal.
• The Court of Appeal stated: “Although a purely market-driven decline in the value of Mr. Serra’s principal asset is at the heart of these proceedings, this case is not about whether a significant post-separation drop in the value of an individual’s stock portfolio, precipitated by a deep but temporary recession, will amount to unconscionability. Such an occurrence may well be a factor for consideration under s. 5(6)(h), but whether it would be sufficient by itself to constitute “unconscionability” is quite another matter. Each case must be determined on its own facts. In the circumstances here, however, I am satisfied that an equalization of net family property would be unconscionable, given the dramatic downward turn in Mr. Serra’s fortunes and the factors giving rise to, and surrounding, it.”
• How is unconscionability defined? “shocking the conscience of the court”; circumstances which are “unfair”, “harsh” or “unjust” alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must “shock the conscience of the court”. Unconscionability is a high threshold to meet.

Here’s something of note: In Ontario, for equalization payment purposes we use values at separation date which could be more or less than values at trial. Same for the Territories, Manitoba, PEI and Nova Scotia BUT –date of trial or settlement date is the valuation date for Alberta and BC. I think the latter two are worthy adoptable examples.

Browning v. Browning, 2020 ONSC 2697 (CanLII), https://canlii.ca/t/j6wn8

• Child support based on actual and most current income!
• Helpful for a payor who did not cause his income to be reduce.
• Blurb of the facts: Mother asked for child support from Father based on his 2018 and 2019 approximate income of $82,000.00 per year. Father’s income had declined severely due to the pandemic. Because of COVID-19, mother had been laid off from her employment, where she had earned approximately $37,000 per year; mother was receiving CERB in the amount of $2,000 per month; No Canada Child Benefit (CCB) for reasons that were in dispute (disagreement regarding how much time children were in each party’s care); Father had not paid child support since the parties separated in January 2020; and Mother was struggling to meet the basic financial needs of the children.
• Father’s position was that during March and April, 2020, while COVID-19 was ongoing, he earned approximately $5,125.89 per month, which was $61,510.68 annualized. Father did not know how long he would be able to earn that income. He was working at two places of employment. Effective April 30, 2020, father had to choose one or the other jobs. The father’s evidence was that he would evaluate the employment options he had with a view to maximizing his income. He did not anticipate being able to earn more than $5,125.89 per month while he was restricted from working at both places of employment.
• In determining the father’s income for child support purposes, the Court noted that, “the Child Support Guidelines require that the father’s current and ongoing income should be basis for child support. While COVID-19 is ongoing, it is not appropriate to use the father’s 2018 and 2019 income as the basis for his ongoing child support obligation. The evidence is clear he is not making that amount of money and he has not caused his income to be reduced.”
• The Court noted that, the best evidence that was before the court was the father’s actual income that he earned in March and April, 2020. The Court decided to also take into account the evidence that, effective, April, 2020, the father would not be able to work at both jobs. Based on those factors, the court decided that child support would be based on father’s having an annualized income of $50,000.00.
• To appease the mother the Court required that the father “keep the mother informed, through counsel, of his actual ongoing income and employment opportunities”

Lakhtakia v. Mehra, 2020 ONSC 2670 (CanLII), https://canlii.ca/t/j6wn9:

• We can all agree on one thing. Yes! there was? or is? a pandemic underway. It doesn’t mean you are no longer required to produce actual evidence to support your claimed decline or impact on business.
• Blurb of facts: Father brought a motion relating to his financial circumstances that he claimed was urgent. He requested a reduction in child support and a reduction or termination of spousal support. Father had been paying $2,086 a month for child support and $3,197 a month for spousal support since an October 30, 2017 order.
• Father claimed he suffered a “material change in circumstances in light of the COVID-19 pandemic” that caused a 42% reduction in his income.

• What did father rely on to support his support reduction and termination request?  a March 31, 2020 letter from the CFO of his business, DOT Global Mobility Solutions. The letter stated that, “due to the COVID-19 Pandemic, we are reducing your salary by 42% and cancelling all benefits effective April 1, 2020”. The 42% reduction resulted in father’s having an income of CAN $95,837.
• Curious omission: The letter did not reveal that the father was a 90% shareholder of DOT Global Mobility Solutions.
• The mother was suspicious and argued that, as controlling shareholder, the father set his own income.
• Father had not provided any evidence as t why and how COVID-19 impacted his business not any consideration of how quickly his business might recover.
• Father stated in his affidavit that his rental income from investment properties had all dried up because his tenants could not pay the rent. He did not identify the rental properties nor specify the number of tenants. He also did not provide any details ad to the rental income lost. In his January 2019 and April 2020 financial statements he did not list the properties nor rental income.
• The court found that, despite the 42% reduction in the father’s employment income and the alleged loss of rental income, father was able to pay all child and spousal support that he owed and there were no arrears of support.
• Court also found that father’s motion was a pre-emptive attempt in the event he was unable to pay support and so as not to risk Family Responsibility Office (“FRO”) involvement.
• Father’s motion was deemed not urgent.

Isabelle Juteau v Daniel Orr, 2020 ONSC 5324 (CanLII), https://canlii.ca/t/j9j58:

• COVID-19 is not an excuse for non-compliance with the Family Law Rules’ disclosure requirements.
• The reasonableness and legitimacy of father’s claimed business expenses questioned.
• Mother brought a motion seeking spousal support of $3,230.00 per month based on an imputed income for the father of $230,000.00 and also for set-off child support of $3,061 based on that income and an imputed income for her of $40,000.00 as well as proportionate sharing of section 7 expenses among other relief. Father opposed the motion. Father is an independent contractor and his income is 100% commissioned. Mother is 2020 graduate of a nursing program.
• Mother’s Motion was granted.
• Examples of unreasonable expenses and factors that raised red flags: (1) The salaries claimed for 2017 were identical to those claimed in 2017; (2) no salaries expense was claimed in 2018; (3) No information as to who father hired, in what capacity and the reason for  no longer needing assistance from his employees; (4) advertising expenses increased by 60% in 20218 but were relatively consistent in 2016 ad 2017; (5) Management and administrative fees varied between 20 to 24% of the total business expenses and (6) teer was no evidence before the Court to explain the purpose of the business expenses and their fluctuation throughout the years.
• Adverse inference: Important point made by Court: In the absence of financial disclosure for 2019 and failure to provide meaningful supporting documentation regarding the business expense deductions, an adverse inference is drawn in determining the father’s income.
• Court stated: On the evidentiary record before me, as well as the principles set out in section 19(1) of the Guidelines, and the Father’s own admission that his 2019 income resembles his 2016 income, I agree with the mother’s submissions and conclude that a fair and reasonable amount for the Father’s net income in 2019 is $230,000.00.
• Justice March Smith stated: “I can appreciate that the current pandemic has brought on new challenges for us all, but I do not believe that it should be used as an excuse not to provide financial disclosure” … Court went on to say it could  “accept that [the father would not have been able] to provide a Notice of Assessment, especially if he had not filed his income tax returns, but as a self-employed individual, he should have kept records of his commissions and been able to provide some form of documentation to the Mother confirming his income for 2019. Financial disclosure was not only required by the terms of the Agreement but more importantly, it is a fundamental principle in family law, imposed upon all parties involved in litigation.

Small v Small, 2020 BCSC 707 (CanLII), <https://canlii.ca/t/j7c5z:

• Leave given by the Court for the parties to reassess/redetermine their income after trial if their incomes were further impacted by Covid-19
• Imputation of Income – Impact of the COVID-19 pandemic on the issue of prospective support.
• Legal framework: Section 16 of the Federal Child Support Guidelines; Section 19(1) of the Guidelines
• Trial ended at end of January, 2020. Events/impact of Covid 19 not part of the evidence. Since the Trial – public health directives greatly restricted business operations in British Columbia, including the mandatory closures of fitness centres and yoga studios. There was no present indication of when such restrictions might be lifted.
• Court was being asked to determine income in a manner that would influence the parties’ future financial positions.
• Judge decided he could not ignore post-trial events. Judicial notice taken of the fact that there was a material change since trial.
• Judge decided to determine each party’s income as of the time of trial.
• But leave given to either party to apply to have their income re-determined based on post-trial events.
• Court decided that both parties should have the opportunity to return to court to ensure that any prospective support orders reflect any COVID-19-related impacts on their incomes that are of more than a temporary nature.
• Important comment: Imputing income for intentional unemployment or under-employment does not require a finding of bad faith on the part of the spouse in respect of whom the imputation is sought; it only requires a finding that he or she is not earning to capacity: M.C.V. v. F.V., 2018 BCSC 96
• The imputation of income should not be the product of speculation or guess-work; the court must find that the parent is realistically capable of earning the income that is sought to be imputed and whether he or she has taken reasonable steps to obtain employment commensurate with factors such as age, health, education, skill and work history: Bourque v. Gerlach, 2006 BCCA 157 at para. 63; Marquez v. Zapiola, 2013 CCA 433 at para 37 [Marquez]; Shen v. Tong, 2013 BCCA 519 at paras. 81-82.

There are lots more interesting income determination cases that came out of the pandemic. Take a look at these two cases dealing with incomes of persons in the airline industry (Air Canada employees). Pretty interesting conclusions:

• Roberts v. D’Amico, 2021 ONSC 707 https://canlii.ca/t/jd1m8: “While there is some continuing uncertainty, much more is generally known and appreciated about the COVID-19 pandemic, its persistence and implications. Justice Akbarali had no difficulty concluding that the COVID-19 pandemic was a catastrophic event for the airline industry. She said that whether it was a catastrophic event for the respondent remained an open question, that she anticipated could be informed by knowing what would happen to his income over the course of 2020. We now have that information.”
• The Court also stated: “The impact of the COVID-19 pandemic on air travel is a circumstance that was beyond the respondent’s control, and he should not bear the entirety of the burden that his reduced flying hours and salary have created. While it will no doubt create a hardship on the applicant to be in receipt of less monthly spousal support, the applicant has focussed primarily on challenging the respondent’s position and has not identified specific hardships that she will suffer if the spousal support payments are reduced”

And

• Cartwright v. Cartwright, 2020 ONSC 7653 https://canlii.ca/t/jc6sw: Underlying pattern of employment not materially affected by COVID; Need to explain whether and how you can seek self-sufficiency within the circumstances.
• The court stated: “the Applicant has not provided any explanation as to why she has not searched for other work since she has been laid off by Air Canada. The Applicant has, instead, stated that she is simply waiting to be called back to work. If one were to accept the Applicant’s arguments in this respect, then the Applicant would not have any responsibility to address her self-sufficiency. While I acknowledge that this factor should attract less weight on an interim motion, it is still a factor to consider.”
• The Court considered the Applicant’s income as if it remained at her wage at Air Canada throughout the pre-trial time period.

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