Davids v. Davids
Marvin Davids, petitioner, and
Esther Davids, respondent
 O.J. No. 2859
File No. 3550 10401/95
Ontario Court of Justice (General Division)
Heard: May 5-8, 11 and June 8-10, 1998.
Judgment: July 3, 1998.
Family law Husband and wife Marital property, distribution orders Statutes requiring equal division, exceptions Maintenance of wives and children Maintenance of wives Effect of wife's ability to work Awards Lump sum payments, when appropriate.
Petition for divorce, division of the net family property and corollary measures. The parties were married in 1970 and separated in 1994. They had four children. The husband sought equal division of the net family property, and claimed he was unable to pay support. The wife sought spousal and child support and unequal division of the net family property, lump sum payments, and security for support. After the husband incorporated a new business in 1989, the parties both owned shares, but the husband was the real controlling mind. After separation the husband unilaterally transferred all the shares to himself at a new company. The wife had stayed at home and raised the children. After separation, she decided to qualify as an electrologist. After an interim order in 1995, the husband went into arrears and any payments had to be obtained by garnishment. He now claimed he was barely able to take any money home because of the garnishments. An analysis of expenditures and income led the court to impute an income of at least $168,000 per year to the husband since 1994. There were disputes about education costs, orthodontic expenses, and the wife's inheritance funds donated to buy the current matrimonial home.
HELD: Equal division of family property ordered, husband ordered to pay child and spousal support and the equalization payment owed by the wife to the husband was to come from the sale of the house. It was to be held in trust as security for support payments. There was no reasonable basis for breaching the interim orders, and the husband owed all accumulated arrears of $132,211. The husband had demonstrated a lack of consideration for his family and there was a risk he would fail to honour an order for periodic support. The house was in the wife's name and based on all the assets and debts held by each party, the wife owed the husband an equalization payment of $52,302. When the house was sold, this amount was to be held in trust to pay support in case of default by the husband. There was no unconscionable conduct relating to acquisition of the new home, and therefore, no basis for unequal division of the net family property. The Guidelines indicated support for the three remaining children should be $2,524 per month. The wife was in need of support, and unlikely to become self supporting. There were great demands on her time from her children. Reasonable spousal support was $3,000 per month.
Statutes, Regulations and Rules Cited:Divorce Act, ss. 2(1), 7, 15(2), 15(5), 15(7).
Family Law Act, ss. 4(1), 4(2), 5(6), 34(5), 34(6).
Federal Child Support Guidelines, ss. 3(1), 3(2), 4, 17, 18, 19.
Counsel:Petitioner appearing personally.
Kenneth Cole and Sharon Shore, for the respondent.
¶ 1 SHAUGHNESSY J.: Marvin and Esther Davids were married on December 20, 1970, and they commenced to live separate and apart under the same roof from February 19, 1994 until April 30, 1998, when Mr. Davids moved out of the matrimonial home.
¶ 2 There are four children of the marriage, Joanne Elizabeth Davids, born February 3, 1976 (age 22), Michelle Channah Davids, born November 18, 1978 (age 19), Sari Rachael Davids, born January 26, 1980 (age 18), and Jonathan Isaac Davids, born October 4, 1983 (age 14).
¶ 3 The husband and wife both petition for divorce and on the evidence I have heard, the divorce is granted on the grounds that the parties have been living separate and apart since February 19, 1994, and there is no reasonable prospect of their resuming cohabitation.
¶ 4 In these proceedings, the husband claims an equal division of net family property, and an inability to pay spousal or child support as provided in interim orders of this court. The wife seeks corollary relief in the form of spousal and child support, an unequal division of their net family property in her favour, lump sum support payments, and security for support payments. At the time of trial, the wife was residing with the children in the matrimonial home, which is presently listed for sale.
¶ 5 The husband, Marvin Davids is 50 years of age, and he has been employed in the home renovation business for a considerable number of years. In the early 1980's, he operated a business known as Core Developments. In the late 1980's, this company experienced serious financial difficulties and while he did not declare bankruptcy, he did have to abandon the business because of the debt that was incurred.
¶ 6 In the year 1989, Mr. Davids incorporated another business, 866156 Ontario Limited which operated under the trade name of Reno-Art Construction. Initially, Mr. & Mrs. Davids were equal shareholders in Reno-Art Construction. However, by the date of separation Esther Davids held 98% of the shares and Marvin Davids the remaining 2% of the shares in Reno-Art Construction.
¶ 7 While Mr. Davids maintained at trial that he and his wife were both employed by Reno-Art Construction, nevertheless I find that Esther Davids role was a peripheral one and I find that Marvin Davids made all substantive business decisions, and he was the controlling mind and principal officer and director of the company.
¶ 8 After the parties had separated, Mr. Davids states that on three occasions he requested that Mrs. Davids/or her solicitors to transfer her shares in Reno-Art Construction to him. The response that Mr. Davids received was that all assets had to be valued and a separation agreement concluded before a transfer of the shares could take place. Therefore, Mr. Davids took unilateral action and had his solicitors incorporate 1082329 Ontario Limited on May 19, 1994, and this company operated under the name Renart Construction.
¶ 9 The contracts and clients of Reno-Art Construction were transferred to Renart Construction without Esther Davids knowledge or consent. The nature of the business carried out by Mr. Davids in Renart Construction was exactly the same as Reno-Art Construction, namely as a broker for home renovation projects. Notwithstanding the obvious breach of fiduciary duty that Mr. Davids owed to his wife and to the company Reno-Art, Mr. Davids then proceeded to draw on the line of credit of Reno-Art to its maximum limit of $10,000 and then utilized these funds to finance the start up of his new company Renart Construction. Royal Trust advanced him the line of credit, and Mr. Davids never paid any amount of the debt and accordingly Royal Trust sued and obtained Judgment including costs. It is somewhat astonishing that at trial Mr. Davids in explaining his arrears of child and spousal support, suggested that if Mrs. Davids had paid the Royal Trust Judgment then his credit rating would have improved, and he therefore could have borrowed money to pay support.
¶ 10 Mr. Davids then proceeded to conduct business from May, 1994 up to the date of trial under the name of Renart Construction. Within months of commencing business under this name and having removed all business contracts and agreements from Reno-Art Construction, Mr. Davids then sent an invoice to his wife for $14,000 which was a charge by his new company for completing the Reno-Art contracts. Yet, Mr. Davids never remitted to Reno-Art any of the profits that he made on the contracts. Mr. Davids attempted to introduce this invoice at trial as a proper debt to be deducted from his net family property calculation. I have rejected this deduction. There was no accounting or documentation to support this invoice, and I find it was conceived for the purpose of an unfair advantage in the equalization calculation.
¶ 11 The saga of Reno-Art Construction does not end at this point. Mr. Davids took it upon himself to sign a contract with his accountant Mr. Larry Zeifman, making both he and his wife personally liable for any professional fees incurred on behalf of Reno-Art. This contract was signed only by Marvin Davids without the knowledge or consent of Esther Davids, even though it purportedly committed her to personal liability. There is currently litigation commenced by their accountant as against Esther Davids for payment of outstanding fees. This claim is not being taken into account in these matrimonial proceedings.
¶ 12 I will have more to say concerning Renart Construction in these Reasons for Judgment when determining the equalization calculation and the husband's various attempts to avoid enforcement of support payment arrears.
¶ 13 Esther Davids is 47 years of age, she has a Grade 13 education, and she worked as a legal secretary prior to and after the date of marriage until approximately one month before the birth of the eldest child Joanna. After the birth of this child, the wife did not pursue any active employment outside the home except for the occasional assistance that she rendered to her husband in his various businesses. Following the separation, the wife requested that the husband assist her financially by paying for courses to upgrade herself as well as to pay for vocational counselling. The husband refused this request. The wife nevertheless pursued vocational counselling with the assistance of friends and family, and she obtained a diploma qualifying her as an electrologist. At the time of trial, she was attempting to complete further courses which would enable her to earn some income as an aesthetician.
¶ 14 The Davids' had a traditional marriage with Marvin Davids pursuing business interests to economically support the family, while Esther Davids had the primary care of the children and substantial responsibilities for the household management.
¶ 15 For at least two years before the separation, and for approximately four months after the separation, the husband gave the wife $1,250 bimonthly, and which funds were paid out of Reno-Art Construction to her. In addition, the husband gave the wife $600 per week. The total amount of $4,900 per month was used by the wife to pay for groceries, clothing, vacations and other such sundry items. The husband however separately paid all the expenses of the matrimonial home, including realty taxes, insurance, mortgage payments, home repairs, outside maintenance and alarm security charges. The company Reno-Art Construction paid for the cell phones and automobile expenses for both Mr. and Mrs. Davids.
¶ 16 By the summer of 1994, the husband decreased the bimonthly payment from $1,250 to $1,000. Then later he reduced that payment to $750 bimonthly. He also began in this period to default in the payment of the $600 amount weekly. The wife through her counsel brought a motion for support.
Arrears of Support
¶ 17 On May 25, 1995, the Honourable Mr. Justice Goodearle made an interim order requiring Marvin Davids to pay $4,000 per month as spousal/child support, in addition to pay all relevant third party expenses with respect to the matrimonial home and to pay all premiums with respect to extended health coverage. The order also directed Marvin Davids to directly pay all educational expenses for the children as they came due. The order provided that all support payments were retroactive to March 9, 1995. The balance of the motion was adjourned and a subsequent order was made by the Honourable Mr. Justice McLean on July 8, 1996. Justice McLean's order directed that the order of Justice Goodearle would continue to remain in force until trial, subject to one matter of clarification, namely that the husband would continue to pay the tuition of the child Joanna Davids until the trial and subject to an accounting of the funds by the wife if the trial judge made a finding that Joanna was no longer a child of the marriage as defined by the Divorce Act.
¶ 18 Regretfully, I find that the husband has been substantially in arrears of support as provided in the interim orders since they were made. The documents filed at trial as exhibits establish that as of June 8, 1998, the husband is in arrears of child and spousal support in the amount of $64,313.09. Whatever payments that have been made since the first interim order have been obtained by garnishments through the Family Responsibility Office. The husband has paid support primarily by causing his company to remit $625 to the Family Responsibility Office every two weeks on the pretext that this represents one-half of his net salary from the company. In the year 1995, there was a lump sum payment of $15,500 which the husband stated that he obtained these funds by collapsing a savings account that he had kept for his son's Bar Mitzvah. He also says that other funds were paid as his wife demanded that he pay some of the arrears before she would attend mediation with an Orthodox Rabbi in November, 1995. The wife also received a lump sum payment of $14,242, which was the result of a garnishment of the husbands income tax refund.
¶ 19 At the time of the court appearance before Mr. Justice McLean in July, 1996, the husband made a payment of $10,754 on account of arrears. He states that he made this payment at the urging of his then legal counsel. He went on to state that in his opinion, his lawyers advice and concerns were ill founded.
¶ 20 A second attempt at mediation was commenced in 1997. One of the conditions imposed by the wife as a basis for agreeing to a further mediation was that a significant sum of money had to be placed in Mr. Davids solicitor's account. The sum of $34,500 was in fact placed in the solicitor's account and support was to be paid out of this trust fund while the mediation continued over a number of months. Mrs. Davids received three support payments of $1,000 each in April, May and June, 1997.
¶ 21 Mr. Davids gave evidence that he obtained the funds to place in his solicitor's trust account by having his father take out a line of credit for $50,000 secured by a mortgage on his father's home.
¶ 22 Mr. Davids position at trial was that the arrears of support were the direct result of "too rich an interim order being in place". He argued that it was the plan of his wife and her lawyer to financially incapacitate him and all that the court orders accomplished was a depletion of family assets. He stated in evidence that he was most concerned about keeping his good credit rating and not borrowing over his head.
¶ 23 In essence the husband maintains that he has an inability to pay support at the amounts provided in the interim orders. He maintains that his current business is failing and accordingly, he could only withdraw slightly in excess of $14,000 in the year 1997, and he points to his 1997 income tax return as evidence of his income.
¶ 24 In determining the viability of the husbands argument concerning his financial incapacity, a number of documents and forensic accounting evidence was introduced at trial.
¶ 25 This evidence was not seriously challenged by Mr. Davids at trial.
¶ 26 The husband and the wife prior to separation had involved themselves in income splitting and the income tax returns filed at trial detailed the following:
Taxation Year Gross Income Gross Income Marvin Davids Esther Davids 1989 --- $39,000 1990 $43,900 $30,000 1991 $65,122 $65,000 1992 $69,770 $69,771 1993 $47,500 $47,500 1994 $59,900 $13,750
to May, 1994
1995 $73,100 --- 1996 $55,500 --- 1997 $14,068.94
¶ 27 If the income tax returns were reliable and the only evidence of income, then the interim support orders would on their face appear to be excessive. However, the evidence at trial establishes that the income tax returns are not an accurate reflection of the income available to Mr. Davids from the date of separation to the present time. The income tax returns have a limited purpose of demonstrating that the combined income of the Davids family was at least $130,000 in 1996 and approximately $140,000 and $95,000 respectively in the 1992 and 1993 taxation years.
¶ 28 There was much more cogent evidence introduced by the wife's counsel which indicated that Mr. Davids has access to far more funds than his income tax returns would suggest.
¶ 29 There was evidence at trial that the principal amount of the first mortgage on the matrimonial home was $250,000 in 1991, however, by the date of separation the principal on the mortgage had been reduced to $100,000. Mr. Davids in his evidence acknowledged that he retired approximately $50,000 a year of the mortgage debt for three successive years. He also acknowledged that these payments were made in after-tax dollars.
¶ 30 Investigations of Mr. Davids business as well as his own evidence detailed that he was collaborating and earning unreported commissions with a company called Dunn Construction. Mr. Davids acknowledged that Dunn Construction took back a mortgage on the matrimonial home and as Mr. Davids earned commissions of approximately $40,000, the commissions rather than being paid were credited instead as against the mortgage debt.
¶ 31 In the course of these proceedings, Mr. Davids filed nine Form 69K financial statements which are sworn on various dates between November 30, 1994 and November 19, 1997. In these financial statements, Mr. Davids presents a gross income varying between $56,664 to $140,353 per annum. It appears that before each interim motion to the court and in his last financial statement before trial, Mr. Davids swore a financial statement which indicated a significant decrease in his income from his previous statements.
¶ 32 Mr. Neil Maisel, a chartered accountant was called as an expert witness by the wife's counsel. Mr. Maisel is an expert business valuator and forensic accountant.
¶ 33 Mr. Maisel prepared and presented in evidence a series of reports dated May 17, 1995, July 14, 1995, October 31, 1995, November 4, 1997, as well as a revised and updated report dated April 30, 1998. The purpose of the investigation and reports by Mr. Maisel was to estimate the income over which Marvin Davids had access and control for the years 1993, 1994 and 1996. The extensive reports of Mr. Maisel were filed as Exhibits 79 & 80 at trial. These exhibits detail the lengthy and exhaustive investigations carried out by Mr. Maisel which included a thorough review of the financial statements of 1082329 Ontario Limited (Renart Construction) the federal corporate tax returns, transfer of share agreements, employment agreements, the books and financial records of the company, the working papers of the company's accountant, the listing of personal expenses prepared by Marvin Davids. He also received the similar corporate records and documents of 866156 Ontario Limited (Reno-Art Construction). He likewise reviewed the Form 69K financial statements prepared by Marvin Davids in these proceedings. Finally, Mr. Maisel attended on Mr. and Mrs. Davids and the accountant for the company for personal interviews to obtain particulars and information.
¶ 34 Mr. Maisel made a preliminary estimate of Mr. Davids income for the year 1993 in his report of May 17, 1995. His preliminary estimate detailed:
a) Salary paid to Marvin Davids from Reno-Art Construction $47,500 b) Salary paid to Esther Davids from Reno-Art Construction $47,500 c) Personal Expenses of Marvin Davids paid by the company $11,046 d) Cash from an unknown source $82,077 Total $188,123
¶ 35 Mr. Maisel in his evidence detailed that the calculation of "cash from an unknown source" is based on analysis of cash outflows exceeding cash inflows by $82,077. This analysis involved a review of the sworn financial statements prepared by Mr. Davids and the sources of all possible income and by simple deduction it was concluded that based on excess cash outflow there must be cash from unknown sources that was not reflected in the books and records of the company.
¶ 36 It is noteworthy as well that Mr. Maisel as part of his investigation and review of Mr. Davids business affairs, came across a loan application to the Scotiabank dated May 31, 1994 (Exhibit 80 Tab 2), which had been prepared by Marvin Davids. In that loan application Mr. Davids details that he is married and that his income is $65,000 per year, and his spouse's income is $65,000 for a total combined income of $130,000 per year.
¶ 37 In a further report dated October 31, 1995, and filed as an exhibit, Mr. Maisel again conducted a detailed analysis and concluded that for the year 1994, the calculation of income over which Marvin Davids had access and control is as follows:
Salary & other employment income as reported on income tax returns:
i) Marvin Davids $59,900 ii) Esther Davids $13,750 $73,650 $73,650
b) Corporate income available but not taken by Marvin Davids $48,508
c) Personal expenses paid by the company $ 9,866
d) Cash from an unknown source $46,140 Total $178,164
¶ 38 Finally, in the revised and updated report of April 30, 1998, Mr. Maisel calculates Marvin Davids income for 1996 to be in the amount of $168,000. The analysis of income for the year 1996 is perhaps the most comprehensive and detailed of all the reports submitted by Mr. Maisel. The report is also significant in that Mr. Davids advised Mr. Maisel that the sales for the fiscal year ended October 31, 1997 would be 2-3% higher than 1996.
¶ 39 In determining the income over which Mr. Davids had access and control in 1996, Mr. Maisel took note of the amount of income detailed in Renart's financial statement for the year ended October 31, 1996 ($13,146). He then detailed that the financial statements of the company described salaries paid to "owners" in the sum of $98,957. The financial records of Renart Construction by 1996 detail that the "owners" of the company were Marvin Davids as well as his parents Mr. & Mrs. Davidovich. Of the total amount paid to owners, the financial records detail that Marvin Davids received $87,957 in salary, while his parents combined salary was $11,000.
¶ 40 Mr. Maisel then reviewed various items of expense to the company in the 1996 fiscal year and determined that under advertising and promotion there were a number of items expensed to the company which were either discretionary in nature, personal to Marvin Davids, or non-business related. While the report filed as an exhibit describes these various suspect expenses in considerable detail, nevertheless it is sufficient here to state that these expenses in substance related to donations to various religious organizations, his son Jonathan's private school tuition and other personal purchases.
¶ 41 Mr. Maisel's report details that $18,794 was improperly expensed as advertising and promotion items and accordingly this amount should be added back into the calculation of income available to Mr. Davids, or over which he has access or control.
¶ 42 Mr. Maisel also investigated the professional fees expensed to Renart Construction in its financial statement for the fiscal year ended October 31, 1996. Mr. Maisel states that a considerable amount of the money expensed to Zeifman & Co., the accountants for Renart Construction, related to assisting Marvin Davids in these matrimonial proceedings including providing reports and letters. It is the opinion of Mr. Maisel that the expenses of assisting in the matrimonial litigation represents non-recurring and non-business related expenses. After analyzing the professional accounting fee expense in a prior year, it was determined that the normal accounting fee expense for Renart would be $4,000 per year. Accordingly, the Zeifman accounting fee for 1996 of $13,644 should be reduced to $4,000 thereby allowing $9,644 to be adjusted back into income that Mr. Davids has access or control.
¶ 43 Under professional fees for the year 1996 in the financial statements of Renart Construction, there was also an expense for a lawyer to prepare the Last Will and Testament and Power of Attorney for each of Mr. Davids parents. These lawyer expenses which total $450.00 were reviewed by Mr. Maisel as non-business expenses or alternatively non-recurring expenses.
¶ 44 There was also an expense to the company of $610 for a lawyer to prepare documentation necessary to transfer shares from Mr. Davids in Renart to his parents. This non-arms length transaction will be discussed later in these reasons for judgment. This expense in any event, would not be a recurring expense and accordingly it is adjusted back into income over which Mr. Davids has access or control.
¶ 45 Therefore the total sum under the item of professional fees that should be brought back into income is $10,704.
¶ 46 The next item that Mr. Maisel adjusted was the accounts receivable expense to the company. This adjustment was necessary because of the manner in which Renart Construction recorded a business contract. While the actual work on a contract may take place after October 31, 1996, nevertheless the books and records of the company reflected the job as completed on October 31, 1996. The accountants of the company apparently accepted Mr. Davids best guess of the value of accounts receivable for the purpose of preparing the financial statements for the company. Therefore, Mr. Maisel undertook an analysis to determine the "true" accounts receivable of the company for the fiscal periods ending October 31, 1995 and October 31, 1996. The result of the analysis was that the 1995 accounts receivable were understated by $21,976, and the 1996 accounts receivable were understated by $32,643. The difference between these two amounts $10,667 ($32,643 - $21,976) represents the amount of income relating to accounts receivable that was understated in 1996. As this amount includes the G.S.T., a further $698 was deducted to produce a net adjustment for accounts receivable of $9,969. Once again, this amount is brought back into income over which Mr. Davids has access or control.
¶ 47 There were other adjustments made by Mr. Maisel in his report and as detailed in his evidence. An item of expense reflected on the financial statement as "Renart-loan", the amount of which included $3,045 for medical insurance and $8,254 paid to the Director of the Family Support Plan. According to documents prepared by Mr. Davids, the total amount of these items $11,299 ($3,045 + $8,254) represents loans to him from Renart. However, the loan account file was reviewed and there was no information that would trace the amount indicated by Mr. Davids as Renart-loan to any loan amount. Therefore the only reasonable conclusion to draw, and I so find is that the sum of $11,299 should be added back into income to reflect that the expenses paid and deducted were personal to Mr. Davids and are non-business expenses of the company.
¶ 48 There are also payments to the University of Western Ontario which represented partial payments of the daughter Joanna's tuition ($1,528) and various other clothing and education related payments ($371) which were also shown as loans to Mr. Davids on the financial statements. However, again there was no documentation in the loan file to support the contention that these were loans to Mr. Davids. Therefore these amounts which were expensed by Renart Construction should be added back into income over which Mr. Davids has access or control as they are also non-business related expenses.
¶ 49 Under the category of "other expenses", there are adjustments of $13,198 ($11,299 + $1,528 + $371) as discussed above to be brought back into the income of Renart Construction.
¶ 50 In summary, the adjusted income of Renart for the fiscal year 1996 is calculated as follows:
Income as detailed in Financial Statement for the year ended October 31, 1996 $13,146
Salaries paid to owners $98,957
Adjusted advertising & promotion expense $18,794
Adjusted professional fees $10,704
Adjusted accounts receivable $ 9,969
"Other Adjustments" $13,198
Adjusted income for 1082329 Ontario Limited COB as Renart Construction $164,768
¶ 51 Mr. Maisel in his evidence and reports proceeded than to analyze the estimated cash expenditures of Mr. Davids for 1996 ($157,178) less the various sources of funds available to Mr. Davids, including those from income and capital ($153,500) and he thereby opined that there is $3,670 of "other income" available to Mr. Davids in 1996. Much of the analysis by Mr. Maisel is predicated on the accuracy of the form 69K financial statements and other estimates of expenses. I accordingly have some difficulty accepting this portion of the evidence of Mr. Maisel. In his analysis $3,670 of "other income" should be added to the adjusted income for Renart Construction. He then rounds the adjusted income for Renart over which Mr. Davids had access and control to $168,000 per annum in 1996. The evidence of Mr. Davids at trial that the sales of Renart would increase 2-3% in 1997 over 1996, would appear to support the contention that in the year 1998 it is reasonable to impute that Renart's adjusted income would be at least $168,000. I find as a fact based on all of the forensic evidence that the imputed income for Mr. Davids in 1998 was at least $168,000. I also find as a fact that Mr. Davids had an imputed income for each of the years 1994-1997 of at least $168,000.
¶ 52 In so finding that the imputed income for Mr. Davids was at least $168,000 for all relevant years since the date of separation, I find no merit in his defense that his business was failing and that he did not have the ability to pay support. Indeed the evidence is to the contrary. Mr. Davids business has flourished since 1994. He has significantly expanded the physical space and labour force of his business. He employs a secretary and production supervisor, telemarketers and a bookkeeper, all of whom have been employed since the date of separation. The financial statements of Renart filed at trial indicate that gross revenues for the business almost doubled between the fiscal years 1995 and 1996.
¶ 53 Counsel for the wife invited me to average the various imputed or estimate incomes over which Mr. Davids had access or control detailed in Mr. Maisel's reports and summarized as follows:
1993 $188,123 1994 $178,164 1996 $168,000
¶ 54 In support of the proposition to average the imputed income, I was referred to s. 17 of the Federal Child Support Guidelines which allows the court to average the amount of income received by the spouse from that source of income in the three most recent years. Since an analysis of Mr. Davids true income had been prepared for only 1993, 1994 and 1996, then the wife's counsel submitted the court should average those three years to determine Mr. Davids true income.
¶ 55 However, I have declined the request to average the imputed incomes in the various reports. The report and evidence pertaining to the adjusted level of income for 1996 was far more detailed analysis than the prior year reports which were based in part on some assumptions and estimates. In determining the amount of child support in accordance with the Guidelines, the court must first determine the income of the payor spouse. In most cases, the payor's income is usually determined by reviewing the payor's T1 form income tax returns with the appropriate adjustments as set out in the Guidelines. However, the Guidelines permit the court to impute income to the payor in certain circumstances. One such circumstance is the present case where Marvin Davids is a shareholder director or officer of a corporation. Therefore, s. 18 of the Guidelines permits the court to determine the spouse's income by means other than referring to the T1 Income Tax Return. In addition, s. 19 of the Guidelines of the Federal Child Support Guidelines permits the court to impute income where:
the spouse is intentionally underemployed.
it appears that income has been diverted.
the spouse has failed to provide income information when under a legal obligation to do so.
¶ 56 I find that the actions of Mr. Davids bring him well within the confines of s. 18 & 19 in the Guidelines and accordingly, I have imputed income to him of at least $168,000 per year for the purpose of establishing child support under the Guidelines as well as his ability to pay spousal support.
¶ 57 Apart from the evidence of Mr. Maisel, there was other evidence that I have relied on in establishing the amount of the imputed income for Mr. Davids. On February 28, 1995 (Exhibit #59), Marvin Davids swore a financial statement that indicated he was earning $140,353 by way of income, investments and other funds derived from the company. In his last financial statement sworn on November 19, 1997, he detailed a gross income from all sources of $131,350. To suggest as Mr. Davids did at trial that his income for 1998 would be approximately $55,000, is neither realistic nor justified based on the evidence.
¶ 58 In determining the amount of the imputed income, I have also taken into consideration the lifestyle that Marvin Davids has enjoyed since the date of separation. He has taken several vacations including trips to Chicago, Indianapolis, Cleveland (on more than one occasion) Florida (on at least two occasions), the Catskill Mountains, Hartford, Connecticut, Deerhurst Resort in Huntsville, Pinestone Resort in Haliburton, as well as a three week vacation in Israel. On some of these vacations he was accompanied by one or two of his children and/or his girlfriend. He admitted to expending money for hotels, resorts, car rentals, gifts, concerts, sporting events and entertainment while on these vacations. In addition to these vacations, Mr. Davids attended conferences in the United States and Mexico. While these conferences may have been business related, the evidence also establishes that there was a vacation component. While Mr. Davids contended that his parents and friends had funded some of these holidays, nevertheless that the evidence in support of this was insufficient and unreliable.
¶ 59 At the time of trial, Mr. Davids is cohabiting with his girlfriend who is 35 years of age and employed as a school teacher. Mr. Davids states that he is paying his girlfriend $650 per month as rent plus $150 a week for groceries. He resides in a five bedroom home in an affluent neighbourhood in Thornhill, Ontario. Mr. Davids has acknowledged that there is a real likelihood that he and his girlfriend will marry in the near future.
Arrears Under Interim Orders
¶ 60 I have made a finding that Mr. Davids had an imputed income of $168,000 for the years 1994-1998 and accordingly I find that Mr. Davids had no reasonable basis for breaching the terms of the interim orders. As of June 8, 1998, the total amount of all accumulated arrears for all items detailed in the interim orders is $132,211.68. The breakdown of the amount is as follows:
a) Interim Support Arrears
¶ 61 The husband is in arrears of child/spousal support in the amount of $64,313.09. I have previously detailed the history of the arrears of support. The evidence at trial established that the wife did receive a few regular support payments during a yet further mediation when a trust fund was set up jointly by the wife and husbands solicitors. The funds placed in the trust, $27,963.50 were secured from a second mortgage on the matrimonial home. In effect the wife decreased her own assets in order to provide herself and the children with support. Out of this fund was paid the $4,000 per month spousal and child support as well as other household expenses as provided in the interim orders. The payments commenced October 14, 1997 and continued to February 11, 1998, while payment on some of the household accounts continued to May 24, 1998. I have been advised that there is a balance of approximately $6,000 in this Epstein Cole/Flak joint trust account. I hereby order and direct that the funds in that trust account are to be paid out to Esther Davids. Upon receipt of the payment the total amount of arrears owing under the interim orders will be reduced to $129,002.74.
b) Mortgage and Tax Arrears
¶ 62 It was a requirement of the interim orders that Mr. Davids pay the first mortgage on the matrimonial home. Mr. Davids defaulted in his obligation and accordingly from January to October, 1997 the arrears accumulated. The mortgagee Royal Trust, eventually delivered a Notice of Power of Sale and issued a statement of claim to obtain a monetary judgment and possession of the home. The total amount of funds that were required to bring the mortgage back into good standing was $27,989.84.
¶ 63 Esther Davids did pay four months of mortgage payments from May to August, 1996, notwithstanding the interim orders which directed that Mr. Davids was to make such payments. The total amount of the payments made by Esther Davids for the period May to August, 1996 is $2,662.
¶ 64 As detailed previously, a second mortgage was secured against the matrimonial home to provide support payments from October, 1997 to February 11, 1998. The payments on account of this second mortgage were serviced from the trust funds. As of June, 1998, the sum of $3,233.97 has been paid on account of the interest on the second mortgage.
¶ 65 It was also a provision of the interim order that Mr. Davids was to pay the taxes on the matrimonial home. For the years 1996 and 1997 the tax arrears were paid by the first mortgagee, Royal Trust. Therefore, those payments are accounted for in the arrears calculation for the first mortgage. However, the 1998 taxes are unpaid and the amount of those arrears to the present time is $6,103.90.
¶ 66 I find that the total amount of the mortgage and tax arrears owing by Mr. Davids pursuant to the interim orders is $49,046.38.
c) Education Expense Arrears
¶ 67 The interim order of Justice Goodearle provided that Mr. Davids was to pay the tuition expense for the daughter Joanna Davids as they came due. Mr. Davids stated that he utilized an RESP for part of the funding of his daughters education for a period of time following the separation date. While this evidence of the source of the funding appears to conflict with the forensic accounting investigation, the fact remains that there were arrears in payment of this tuition.
¶ 68 Mr. Davids' position is that his daughter was living with her boyfriend and was not attending university. Accordingly, he retained a private investigator at an expense of $2,313.15, to attend in London, Ontario and had his daughter placed under surveillance for two days. The investigation through third parties revealed that Joanna was registered as a student at Western University at that point in time. The investigation also determined that she was living in student housing with one or more other persons. Mr. Davids strongly disapproved of Joanna's boyfriend, and I find for that reason more than any other, he terminated the payment of tuition.
¶ 69 The interim order of Justice McLean provided that the trial judge was to determine whether Joanna was a dependent child of the marriage.
¶ 70 I found Esther Davids evidence to be helpful in determining whether Joanna had withdrawn from parental control and responsibility.
¶ 71 Mrs. Davids stated that as a result of the stress of the marital separation Joanna, like two of her siblings, developed severe emotional problems at university. Her marks dropped and she failed a number of courses. She was alienated from her father and had not even spoken to him in the past 2 1/2 years. The genesis of the alienation would appear to be her father's disdain for her boyfriend. When Mr. Davids terminated financial support for Joanna she was forced to take out an OSAP loan to finance her education and living expenses. Her mother was only able to provide minimal financial assistance as a result of the underpayment of child/spousal support by Mr. Davids.
¶ 72 Esther Davids gave evidence that as of the date of trial, Joanna was enroled at the Marvel Beauty School located in London, Ontario. She also stated that her daughter was working part-time during her training period earning minimum wage for 30 hours per week. It was also her evidence that Joanna Davids will have completed all the courses at the Marvel Beauty School, and will be working as a full time esthetician commencing in July, 1998. Mrs. Davids indicated that Joanna is residing with her boyfriend who is also employed on a part-time basis. It is Joanna's intention to work full time and attend Western University and take courses at night. She has another 6-7 courses to complete before obtaining a Bachelor of Arts degree. Her plan is apparently to take 1-2 courses a year at Western.
¶ 73 I find that sometime in early 1998, Joanna stopped attending Western and enroled in the Marvel Beauty School. The evidence does not establish that Joanna commenced to cohabit with her boyfriend until very recently.
¶ 74 Counsel for the wife argues that Joanna commenced to cohabit with her boyfriend out of economic necessity and therefore, she should not be penalized.
¶ 75 Joanna is now 22 years of age, and I believe that she has wisely determined that her course of studies at Western University was not going to provide her with economic independence in the future. Her decision to train as an esthetician does provide her with an opportunity to join the work force at least at an entry level position. The Nova Scotia Court of Appeal decision in Martel v. Heights 3 RFL(4th) 104 at 105-106, citing Justice Chipman in Yaschuk v. Logan 1992 110 NSR(2d) 278 (C.A.):
"... it must be remembered that an education that will fit a child for a career can be properly regarded as a necessity. ... The judgment which must be exercised in each case is particularly within the province of the trial judge."
¶ 76 Justice Haliburton also stated:
"... One hopes and expects that children will become self supporting and able to fend for themselves at some point, but it surely is widely acknowledged at this particular period that a young person with a Bachelor of Arts degree has not achieved much in the way of professional qualifications and is not able, in all likelihood, without some further education, to obtain a job that would be commensurate with the amount of education they've had."
¶ 77 The Divorce Act s. 2(1) provides that parents have a responsibility for children over the age of 16 years during their period of dependency. The case law repeatedly states that the period of dependency is a question of fact for the trial judge to decide. However, in an age when we have implemented child support guidelines which provide in s. 7 for the payment of post secondary school education expenses, it would be helpful to set forth the criteria that the court ought to consider when determining the period or duration of dependency.
¶ 78 One criteria or consideration is that the parents of a student will be responsible for child support and educational costs until the child has achieved a level of education commensurate with his or her abilities. However, the court should also take judicial notice of the prevailing social and economic circumstances of the day, and determine whether the education program which is being pursued by the student will likely result in the child obtaining employment in an appropriate field within a reasonable period of time. In short, the court ought to consider whether the education is "designed to fit [the child] for years of life ahead" (Laskin J.A. in Tapson v. Tapson 1969 2 RFL 305).
¶ 79 Of course child support and educational expenses may last longer if there are special circumstances, such as where the child is physically, emotionally or mentally challenged.
¶ 80 While there is no age or scholastic achievement test to be applied, nevertheless the burden of proving dependency should be greater as the child's age increases and as he/she attains degrees.
¶ 81 It also seems reasonable in the circumstances that both parents should be apprised regularly of information pertaining to the child's marks and progress at a post-secondary institution, in order to evaluate and assess the child's further education and job prospects.
¶ 82 This is not to ignore those circumstances where the child is forced to withdraw from parental control not by choice, but by reason of economic necessity. If one or both of the parents purposefully terminates support obligations requiring the child out of necessity to live independently or obtain financial assistance from a third party, then the child should nevertheless be deemed to be dependent. To do otherwise would permit a parent to obtain an advantage through his/her own wilful default.
¶ 83 The court should examine to what extent an adult child is enjoying an independent lifestyle with little or no parental control. There is little doubt that the concept of parental control of necessity results in competing interests in the framework of separation and divorce. The parent(s) will be looking towards the light at the end of the tunnel and pressing the child to educate himself/herself in order to qualify for a job and thereby become self-sufficient. The child will undoubtedly raise issues such as freedom of choice as it pertains to career and academic plans. A conflict may also arise when the child decides to leave school for a period of time to travel or pursue other interests. Notwithstanding these issues, some sense of reality must be imposed by the court in the context of a particular family unit. Separation and divorce often create a new economic reality. Therefore, like their parents, adult children must make adjustments for the new economic reality and set goals and make plans that are reasonable and which are directed to their eventual self-sufficiency.
¶ 84 I was referred to the case of Lyttle v. Lyttle 41 RFL(3d) 422, a decision of Judge Pedlar of the Ontario Court (Provincial Division) at page 432 where it is stated:
"I do not believe it is a reasonable interpretation of this legislation to require a dependent to be under the control of both parents in the sense that the dependent would require the approval of both parents relating to her academic plans. If one or the other of them supports the dependent in their educational plans, either emotionally or financially, within reasonable expectations, then that dependent remains within parental control."
¶ 85 I respectfully disagree in part with the learned judge's reasoning in Lyttle v. Lyttle. The test of reasonableness should be an objective standard. The court should review the academic history of the child, the current academic progress, and the degree or diploma that is likely to be obtained. Whether the child will be in attendance at a post-secondary institution on a full time or a part time basis is but one criteria to consider, together with a consideration of the reasonableness of the time frame to complete the education or degree. Justice Fitzgerald in Figueirdo v. Figueirdo (1991) 33 RFL(3d) 72 at page 84 stated:
"... the requirement of enrolment in a full time course of education does not contemplate the mere registration of the student as the foundation of a claim for support. The child owes a duty to pursue that course with diligence."
¶ 86 The court then should objectively determine whether there is due diligence on the part of the child to seriously pursue academic studies and completion of a degree or diploma within a reasonable period of time.
¶ 87 The court should also examine the prospects of employment in the child's chosen field of endeavour and determine whether the child is likely to become self-sufficient. The achievement or lack thereof in the chosen course of study should be the subject of an ongoing review process by both parents and the child.
¶ 88 The cost of post-secondary education today requires that most families must critically assess the educational goals and objectives of their children to determine a realistic plan that balances the childs needs and academic freedom with the equally important objective of self-sufficiency and independence.
¶ 89 I do not anticipate that adult children will have to submit to vocational assessments, except in the most extraordinary of cases in order to assess their academic abilities and career objectives. However, where these issues are litigated, the court should require evidence relating to the reasonableness of the academic plan and the objective criteria available relating to future employability.
¶ 90 Up until now, the courts have not applied an objective criteria concerning a child's education plans. As Professor McLeod has stated in his Annotation to Amaral v. Amaral (1993) 50 RFL(3d) 364 at page 367:
"But if the only test of "child of the marriage" is inability to support oneself, children in school would always be entitled to support ... To say that entitlement lasts as long as is reasonable is to state a conclusion as a reason. At some point children must assume responsibility for themselves".
¶ 91 In summary, the court should require evidence at trial of a comprehensive detailed plan, which is supported by objective criteria and academic achievement that will lead directly to employment and independence.
¶ 92 In this proceeding, the interim order of Justice McLean dated May 25, 1995, invites the trial judge to consider whether Joanna Davids has withdrawn from parental control as of the date of the order, and therefore was no longer a dependent child of the marriage. I find there is no evidence that Joanna had in fact withdrawn emotionally or financially as a dependent of her parents until sometime in 1998. The evidence of the investigator called as a witness by Mr. Davids, indicates that as of late fall 1997, Joanna was still attending Western University.
¶ 93 I also find that Joanna's enrolment in the Marvel Beauty School and qualifying herself to become an esthetician was a reasonable decision in the circumstances. The course was completed in a relatively short period of time, and it has resulted in her obtaining full time employment by July, 1998. Accordingly, the expense for the Marvel Beauty School was a reasonable expense and it is an expense that Mr. Davids should be responsible for under the terms of the interim order.
¶ 94 I order Mr. Davids to pay the arrears of education expenses for his daughter Joanna as detailed in Exhibit #69, Tab 10 and summarized as follows:
1995-1996 Tuition for Joanna at the University of Western Ontario $1,184.00 1996-1997 Tuition deposit for the University of Western Ontario $440.00 1996-1997 Tuition for the University of Western Ontario $3,153.00 1997-1998 Tuition for Marvel Beauty School $5,763.00 Total $10,540.00
¶ 95 I do make a finding however that as of July 1, 1998, Joanna Davids will have withdrawn from the charge of her parents, and she is no longer a dependent child of the marriage. She is cohabiting with her boyfriend and now has full time employment available to her.
d) Dental Expense
¶ 96 There is no provision in either of the interim orders compelling Mr. Davids to pay the orthodontic expenses of the son Jonathan. The wife nevertheless asks the court to direct Mr. Davids to pay this expense.
¶ 97 Jonathan commenced orthodontic treatment in 1996, and was still receiving periodic treatment at the time of trial. It was Mrs. Davids evidence that she requested that her husband pay the orthodontic treatment and he refused. The wife has paid $2,300 by way of monthly instalments as against the total account of $4,800.
¶ 98 I hereby order Mr. Davids to reimburse Mrs. Davids for the $2,300 paid on account of the orthodontic treatment to date. I further order that in addition to the base amount of child support, Mr. Davids shall pay $100 per month on account of the orthodontic account, commencing July 1, 1998 as an add-on expense pursuant to s. 7(1) & (2) of the Federal Child Support Guidelines.
e) Arrears for Expenses of the Matrimonial Home
¶ 99 As detailed in Exhibit #69, there were a number of expenses relating to the matrimonial home that were paid out of the joint solicitors trust fund. The trust fund was created as a result of a second mortgage registered on the title to the matrimonial home. Pursuant to the order of Justice Goodearle, dated May 25, 1995, Mr. Davids was required to pay "directly to the relevant third parties all sums required to keep and maintain the realty premises in which both parties presently reside separately". Mr. Davids failed to comply with the order and I accept the evidence and calculation of the arrears of household expenses which total $6,012.21 as of the date of the trial.
Summary of Arrears & Expenses
¶ 100 The total amount of arrears and expenses due and owing by Marvin Davids is summarized as follows:
1) Support Arrears $64,313.09 2) Mortgage & Tax Arrears $49,046.38 3) Education Expense Arrears $10,540.00 4) Orthodontic Expense $ 2,300.00 5) House Expense Arrears $ 6,012.21 Total $132,211.68
Equalization of Net Family Property
¶ 101 The calculation of the net family property is very difficult in the particular circumstances of this case. The husband has transferred assets and shares after the date of separation.
¶ 102 A further complicating factor is the lack of credible evidence of the husbands alleged indebtedness to his parents and what I unfortunately must describe as artificial debts created by the husband to embarrass the wife in these proceedings.
a) Matrimonial Home
¶ 103 The home located on Maimonides Court in Thornhill, Ontario is presently listed for sale, and it is registered in the name of Esther Davids. The listing agent, Michelle Rosen, with 20 years experience, gave evidence that the home had a "tired appearance" and required numerous repairs to make it more marketable. Apparently, these repairs could be completed for approximately $2,000 by an independent contractor. Mr. Davids would not pay an independent contractor to do the work, nor would he carry out the repairs himself unless Mrs. Davids compensated him in the amount of $2,000.
¶ 104 At the request of the wife's counsel, Ms. Rosen prepared a letter dated May 14, 1998 (Exhibit #76) which valued the matrimonial home on the date of separation in the range of $522,500 to $541,000.
¶ 105 I accept Ms. Rosen's evidence and for the purpose of the calculation of net family property, I have chosen a mid range value of $532,000.
¶ 106 The first mortgage on the matrimonial home at the date of separation was in the principal amount of $95,000. On the date of separation, it was the only mortgage on the home. As a consequence of Marvin Davids breach of the interim orders, the Royal Trust mortgage went into arrears and notice of power of sale was delivered, followed by a statement of claim to secure a monetary judgment and possession of the home. It was only as a result of the efforts of Mr. Gerald Heifitz, a lawyer of 40 years experience, and an acquaintance of Esther Davids, that relief from the power of sale proceedings was achieved. The Royal Trust mortgage was in default from January, 1997. In order to bring the mortgage into good standing a sum of $27,989.84 had to be paid to Royal Trust. Mr. Heifitz arranged for this payment by reassigning the first mortgage and increasing the principal amount of the mortgage from $95,000 to $123,842. While the first mortgage does not require monthly payments until the mortgage expires in October, 1998, nevertheless the interest continues to accrue at 7.75% per annum.
¶ 107 The wife also claims as a deduction the cost of disposition of the matrimonial home in the sum of $37,000. I am allowing this deduction as the property is currently listed for sale and a sale appears imminent. Mrs. Davids also gave evidence that it was her intention to sell the matrimonial home and move to a smaller home, hopefully in the same neighbourhood. Therefore, national costs of disposition are a reasonable deduction following the decisions of Sengmueller v. Sengmueller (1994) 2 RFL(4th) 232, 69 OAC 312 (Ont.C.A.) and Arndt v. Arndt (1991) 37 RFL(3rd) 423 affirmed 66 OAC 4 (Ont.C.A.).
b) Shares in Corporation and Transfer of Shares and Assets
¶ 108 In or about February or March, 1996, Mr. Davids transferred 93% of his shares in the new company Renart Construction (1082329 Ontario Limited) to his parents Miriam and Morris Davidovich. When asked for an explanation for the transfer of shares, Mr. Davids stated that his parents became concerned about his ability to continue to operate the business. In the same time period, Mr. Davids also transferred his two motor vehicles into his father's name. One of the vehicles he operated in the course of his business, however, the second vehicle, a Porsche, was operated only for pleasure.
¶ 109 In cross-examination Mr. Davids admitted that he transferred the shares of the business and the vehicles and arranged for his parents to become the "owners" of the business primarily out of concern about the garnishments and seizures that the Family Responsibility Office were attempting to enforce.
¶ 110 As part of the share transfer, Mr. Davids and his parents entered into an Employment Agreement dated February 27, 1996. The agreement has a term of five years and is renewable at expiration by consent of the parties on each anniversary date of the agreement. The agreement provides that Renart Construction will provide Mr. Davids with health benefits, a car allowance, a cellular phone allowance and shall reimburse Mr. Davids for all other reasonable expenses incurred by him. The agreement also states that "for his services the employee [Marvin Davids] will be paid an annual gross salary of $100,000 payable in 2 biweekly proportions which shall commence after the completion of the sale of the employee's residence municipally known as 18 Marmonides Court, Thornhill, Ontario. Until the said sale is completed, the employer shall pay the employee the gross salary of $1,800 biweekly." Mr. Davids also had the option under the agreement to repurchase the shares transferred to his parents and he could purchase up to "20% of the original number of shares transferred to Mr. & Mrs. Davidovich ... annually and over the succeeding five years from and including the 27th day of February, 1997." The option is cumulative in the discretion of the employee (Marvin Davids). The price to be paid for a common share was to be agreed upon between the parties or failing agreement then upon a value determined annually by the accountant. Finally, Marvin Davids was given a right of first refusal on any share transaction involving his parents.
¶ 111 Marvin Davids maintained that the share transfer was also demanded by his parents because of significant indebtedness owed to his parents both before and after the date of separation. He called his father Morris Davidovich as a witness to substantiate the debts and loans that he alleges were owing to his parents.
¶ 112 The evidence of Mr. Davidovich was essentially that in the 1980's when Marvin Davids was operating the company called Core Developments, he (Morris Davidovich) gave Core Developments $105,000 to purchase properties. Core Developments experienced financial difficulties and was abandoned by Mr. Davids in or about 1989. However, between 1989-1994, there were no payments being made to Mr. Davidovich by Marvin Davids.
¶ 113 Mr. Davidovich gave evidence that his son owed him $160,000 to $170,000, yet there was no adequate or reliable documentation to support this contention.
¶ 114 I find that the evidence of Mr. Davidovich is unreliable and unsupported by any other documentary evidence. Mr. Davidovich had no understanding or control over the business. It was obvious that he was willing to say anything or do whatever was necessary in order to advance the position of his son at trial. His answers to questions were vague and uncertain and, I reject his evidence that there was any liability due and owing by Marvin Davids to him on the date of separation. While Mr. Davidovich maintains that he is the owner of Renart Construction, he acknowledges that Marvin Davids has the control and makes all decisions concerning the company. Indeed the evidence establishes that Marvin Davids continued to sign the financial statement of Renart Construction as an officer and director for the year ended October 31, 1996.
¶ 115 The transfer of the shares to his parents as well as the automobiles to his father, together with the employment agreement entered into by Mr. Davids and his parents lead to the conclusion that these non-arms length transactions were designed for no other purpose than to defeat seizure of these assets by the Family Responsibility Office for non payment of support.
¶ 116 For the purpose of the equalization calculation, I find that Marvin Davids was 100% beneficial owner of both Reno-Art Construction and Renart Construction.
¶ 117 The documents and financial statements filed as exhibits at trial indicate that Marvin Davids transferred and assigned all his interest in the 93 common shares of Renart Construction to his parents, Morris and Miriam Davidovich in a joint account for $20,000 on February 26, 1996. This is the best evidence and perhaps the only evidence that can be used to value Reno-Art Construction on the date of separation. Mrs. Davids was not aware of the incorporation of Renart Construction as well as the transfer of shares until long after these transactions occurred. The husband in his financial statement valued the shares of Reno-Art Construction at $16,000.
¶ 118 The wife in her net family property statement, proposes a value of $16,000 for Reno-Art Construction on the date of separation. I accept this value as a reasonable value in these particular circumstances.
c) The Wife's Inheritance
¶ 119 The evidence of Esther Davids and her sister June Sherman, is that in 1984 both of their parents died. Ms. Davids and Ms. Sherman were the beneficiaries of the estates and each received an inheritance of approximately $130,000.
¶ 120 In this same period of time, Mr. Davids was anxious to move out of the then matrimonial home on Marissa Court and purchase the larger home on Maimonides Crescent. Mrs. Davids evidence was that she resisted the move and she wanted to remain on Marissa Court. Eventually, she was persuaded by her husband to use her inheritance funds for the down payment on the Maimonides home. Esther Davids' evidence was that her husband promised her that he would repay to her the inheritance funds out of the proceeds of sale of Marissa Court. However, Marissa Court did not sell immediately and instead it was rented out to tenants. Marissa Court was registered in Esther Davids name. The husband then requested that his wife transfer the Marissa Court property into his name as he would be better able to collect the rent and pay the various expenses related to the Marissa Court property. However, it appears from the abstract of title and transfers of the property which were filed as exhibits, that the wife actually transferred the property into the name of a numbered company which operated under the name of Core Developments.
¶ 121 Eventually the Marissa Court home sold and when Esther Davids asked for a portion of the sale proceeds equal to the amount of her inheritance ($130,000), she was advised by Mr. Davids that the money was lost in Core Developments. At trial, the husband gave evidence that he made a $250,000 profit from the sale of Marissa Court which was deposited into the Core Developments bank account.
¶ 122 Mr. Davids evidence was that he used all the money as well as other funds that he says he borrowed from his father to invest in the company, and it was his understanding that as profits were generated he would share those profits with his wife. He also testified that despite his best efforts, all the money was lost in Core Developments.
¶ 123 The abstract of title for Marissa Court filed as an exhibit at trial, details that at the time the wife transferred the property to the husband's company, the principal amount of the first mortgage was $150,000. By the time the husband sold Marissa Court, the property was mortgaged for $370,000. The husband was unable to account for any of the funds except to say that Core Developments was heavily in debt and he used every source of funding he could find to keep the company going.
¶ 124 Counsel for the wife has provided a New Family Property Statement, which deducts the value of the wife's inheritance as being a gift or inheritance, and therefore excluded property, pursuant to s. 4(2) of The Family Law Act. I find such a deduction or exclusion is improper. In their text, The 1998 Annotated Ontario Family Law Act, James Macdonald and Ann Wilton state at page 69:
Gifts and Inheritances
¶ 125 To be excluded from net family property, it is not necessary to know the value of the gift or inheritance, because the whole of the property is excluded no matter what its value. Section 4(1) defining net family property uses the phrase "except property described in subsection (2)". It is the property which is excepted, not the value of the property. Similarly s. 4(2) describing the exceptions or exclusions, refers in the opening words to the "following property" and paragraphs 1, 2, 5 & 6 which specify the exceptions refer to "property".
¶ 126 The wife's inherited funds were put into the matrimonial home. S. 4(2) specifically excludes property which constitutes a matrimonial home or the tracing of an inheritance into a matrimonial home.
¶ 127 I find that for these reasons, the deduction made in the wife's net family property under s. 4(2) being the amount of $130,000 relating to her inheritance, is disallowed.
¶ 128 The evidence at trial substantiates the following equalization calculation:
Asset Husband Wife Matrimonial Home
-sole owner Esther Davids
$532,000 Furniture to be divided
Jewellery $3,500 $4,000 Works of Art $5,000 Vehicles - 1990 Dodge Caravan $10,000 - 1988 Pontiac Wagon $5,000 - 1986 Porsche 944 $17,000 Violin $2,000 RSP $26,000 $38,006 Mutual Funds $22,162 RESP $12,000 Chequing Account $3,000 Reno Art Construction Account $400 Joint Chequing Account - Royal Trust $14,000 Accounts Receivable $7,100 Reno Art Construction $16,000 Gold Bars & Coins (including Kruegar Rand 22 kt.) $1,580 Total of Assets owned on Valuation Date $109,000 $609,748
Less Debts & Other Liabilities on the Date of Separation
Mortgage $95,000 Disposition Costs on Sale of Matrimonial Home $37,000 Line of Credit Royal Trust $5,000 $5,000 Total Debts $5,000 $137,000 Less Assets owned on Date of Marriage $1,500 $800 Value of Property excluded under s. 4(2) of the Family Law Act Violin $2,000 Krueger Rand 22 kt. $420 $2,420 Net Family Property $102,500 $469,528 Equalization Payment Wife pays to husband - $178,514
¶ 129 I have deleted from the equalization calculation the husbands collector beer cans with a value of $2,500. The husband's testimony is that he has not received these items and the wife maintains that they are not in her possession.
¶ 130 I was further advised that the parties have divided several items of personal possession and furniture. There are also a number of items of furniture that the wife received from her parents estate which would be excluded property under s. 4(2) of the Family Law Act. I heard very little evidence about the disposition of the remaining furniture, and even less evidence as to its value. Therefore, I have assumed that the furniture has been more or less divided in a manner that is satisfactory to the parties and I make no further orders or calculation of values with respect to the same.
¶ 131 For reasons which I have also previously provided, I am not allowing a deduction for any alleged loan owed by Mr. Davids to either or both of his parents. If there was funds advanced in the late 1980's by Mr. Davids parents, I find that these were in the form of investments in his company Core Developments. Although Mr. Davids introduced promissory notes as evidence of this indebtedness, I find that the parents often assisted Marvin Davids without the expectation of repayment. In any event, I am not satisfied based on the evidence of Mr. Davids and Morris Davidovich that this alleged indebtedness is bona fide, and therefore I am not allowing the deduction.
¶ 132 However, based on my finding of the amounts due and owing by Marvin Davids under the interim orders, and as well for the orthodontic expense [$132,211.68], and providing a credit to him for the funds presently standing in the Epstein Cole/Flak joint trust account ($6,000) I charge the equalization payment due and owing to Marvin Davids with the sum of $126,211.68. I then find that the net amount owing by Esther Davids to Marvin Davids after deducting the charge amount is $52,302.32 ($178,514 - $126,211.68). As an authority I have relied on the decision of Williemze - Davidson v. Davidson 1997, O.J. 856, wherein the Ontario Court of Appeal ordered lump sum child support as well as arrears to be deducted from the husband's interest in the matrimonial home. A similar approach was followed in Dimitry v. Dimitry 26 RFL(3d) 418 (Ont.C.A.).
¶ 133 In the case of Kumar v. Kumar (1988) 63 OR(2d) 572, Mr. Justice Rosenberg held that section 34(1)(k) of the Family Law Act and section 15(2) of the Divorce Act enable a court to order the provision of security for a support order. A summary of the situations in which security may be ordered are:
where a payor spouse has a history of dissipation of assets.
where the payor spouse is likely to leave the jurisdiction and become an absconding debtor.
where the payor in the past has refused to honour a support obligation, whether it came by court order or contract or has refused to provide support at all.
where the payor has a poor employment history or has indicated he will leave his employment including where the payor spouse had an extravagant lifestyle and was uncooperative with the payee in the past.
where the payor spouse is out of the jurisdiction at the time of the hearing, but has assets in Ontario capable of forming the basis of a security order.
where the payor spouse has declared that he will not pay an eventual support order.
¶ 134 I have reviewed the decision of Glazier v. Glazier (1991) 36 RFL (3d) 84. As in the present case there was a real risk that the husband would fail to honour an order for periodic support. However, as Walsh J. stated in Glazier v. Glazier, a court should not give lump sum support a "property" appearance by setting it off against a property entitlement unless no other reasonable alternative exists.
¶ 135 Regretfully, I find that Mr. Davids has unequivocally demonstrated a profound lack of consideration for his family, and that it is highly unlikely that he will pay periodic child and/or spousal support at least with a degree of regularity consistent with the best interest of the children. I find that he has deliberately diverted assets to avoid seizure of them to satisfy support orders. He has consistently manipulated both his income and his assets for no other purpose than to defeat court orders.
¶ 136 The fact that he has alienated several of his children appears to be of little importance to him. I find that Mr. Davids was not a credible witness. His testimony is replete with fabrication and deception. In particular, his answers were unresponsive or deliberately evasive when he was questioned about the incorporation of Renart Construction, the transfer of his shares to his parents and the transfer of vehicles to his father. Mr. Davids is a very articulate and intelligent person who I find feigned misunderstanding and incomprehension on major substantive issues where he had purposefully mislead the court concerning his income and assets.
¶ 137 I therefore order that the matrimonial home will be sold and the wife will hold in trust the sum of $52,302.32, which represents the balance of the payment of the equalization payment to the husband. In the event that the husband fails to make one or more of the child or spousal support payments, then she may deduct the same from the funds being held in trust. If the husband does make all the required child and spousal support payments, then he will be able to request payment of the trust funds to him at some future date.
¶ 138 The trust fund will be invested in an interest bearing account and the husband will receive the interest on those funds annually, provided he has made all child and spousal support payments.
¶ 139 It is my finding that there is no other reasonable alternative to secure support payments other than to employ s. 34(1)(k) of the Family Law Act and s. 15(2) of the Divorce Act, and have the equalization payment held as security for payment of support.
¶ 140 Counsel for the wife asks the court to apply an unequal division of net family property pursuant to s. 5(6) of the Family Law Act. He argues that the following facts support the application and finding that Mr. Davids committed unconscionable acts:
The conveyance of the Marissa Court home to the husband's company Core Developments was a deceptive act as the wife understood that the property was being conveyed into the husbands name for the purpose of administrating a tenancy.
The husband did not pay the wife back her inheritance of $130,000 out of the proceeds of sale of Marissa Court.
The husband diverted the equity of Marissa Court into his company and he did not provide an accounting for the same.
The husband significantly encumbered the Marissa Court home and failed to account for what he did with the proceeds.
¶ 141 There is no conflict in the evidence that Mr. Davids encountered very serious financial difficulties with the company Core Development in the late 1980's, and that he was pressed to find funds to rescue the company. There is no evidence before me that he diverted any of the equity or mortgage funds to some purpose other than to keep his company operating. The fact that he cannot at this point in time provide a detailed accounting of the debts and liabilities of that company does not persuade me that there has been unconscionable conduct on his part as it pertains to that particular period of time. There is no evidence that Mr. Davids in the late 1980's personally benefited himself at the expense of his family.
¶ 142 While Mr. Davids may have promised his wife that he would pay her back the inheritance funds which she applied to the purchase of the matrimonial home, nevertheless, it is equally clear that Esther Davids was fully aware of financial difficulties of her husband and accordingly, she was likely aware of the risk involved in putting her funds into the purchase price of the home. As was stated in Verdun v. Verdun (1994) 9 RFL (4th) 54 (Ont. Gen. Div.), the fact that husband may have acted arrogantly and inequitably, does not necessarily constitute unconscionable conduct. I find that there was no unconscionable conduct relating to the acquisition or disposition of the Marissa Court property justifying an unequal division of net family property under s. 5(6) of the Family Law Act.
Quantum of Child Support
¶ 143 I hereby order Mr. Marvin Davids to pay support for the three children Michelle, Sari and Jonathan, pursuant to the Federal Child Support Guidelines. I have imputed an income of $168,000 to Mr. Davids.
¶ 144 While the child Sari is expected to attend Community College in the fall of 1998, I have no evidence of her post secondary education expenses at this time.
¶ 145 I have considered s. 3(1) and (2) and s. 4 of the Federal Child Support Guidelines, and I am satisfied that notwithstanding that Mr. Davids has an income in excess of $150,000, the amount of child support determined under s. 3 will be appropriate subject to certain s. 7 "special or extraordinary expenses" that I will refer to.
¶ 146 Pursuant to the table of the Guidelines, Mr. Davids will pay child support for the three aforementioned children in the amount of $2,524 per month, and which payments shall commence on July 1, 1998.
¶ 147 As previously stated, Jonathan has orthodontic expenses which qualify under s. 7(1)(c) of the Guidelines as an "add on" expense. The present arrangement requires payment of $100 per month until the account is paid in full. Mrs. Davids has no significant income to contribute to this expense at this time. I therefore order Mr. Davids to pay $100 per month in addition to the above noted child support until such time as the orthodontic treatment is paid in full, or Mrs. Davids obtains employment, at which time the payment would be modified in accordance with s. 7(2) of the Guidelines.
¶ 148 Provided that the child Sari attends a post secondary institution in September, 1998 on a regular full time basis, then her expenses will qualify as special or extraordinary expense which is to be added on to the basic order of child support pursuant to s. 7(i)(e) of the Guidelines. However, there was no evidence presented to me at trial concerning those expenses or particulars of the course of studies and goals or career objectives of Sari. Therefore, I make no order as to this matter of post secondary education expense.
¶ 149 Esther Davids is in need of support. Her limitations in becoming self supporting are rooted in the roles assumed by the parties in the marriage, and as well the present mental health of two of her children. During the marriage Esther Davids withdrew from the workforce and began working at home where she cared for the children and assumed the major responsibilities for the upkeep and maintenance of the household. Mrs. Davids has experienced serious economic disadvantage arising from the breakdown of the marriage. She has sacrificed her own career for her family and as of the date of separation, found herself disadvantaged in her ability to obtain suitable or adequate employment. Her years out of the work force combined with age, have made her prospects for employment and self sufficiency quite limited.
¶ 150 Esther Davids has obtained training in electrolysis and she has completed a few courses in order to become qualified as an esthetician. Her testimony was that she planned to complete a few more courses and then establish a business as an esthetician out of her home. While she stated that she anticipated earning $20,000 a year from this employment, it also evident that this is nothing more than a wish at the present time.
¶ 151 Within a reasonable period of time after the date of separation, Mrs. Davids proceeded to obtain career counselling personally through a private company as well as with the assistance of the Jewish Vocational Services. After an assessment of her skills and counselling, it was determined that her skills as a legal secretary were outdated and the limited business experience assisting with ledgers in her husbands business were not likely to result in her achieving any meaningful employment. Therefore she was counselled to take courses and become proficient as an esthetician. Esther Davids stated that she had some experience selling Avon cosmetics, but what particularly interested her in the aesthetics business was that she could earn $20,000 working out of her home.
¶ 152 At the present time, Esther Davids has made every reasonable effort to become employable. Her desire to work out of her home is very reasonable having regard to her present circumstances. Two of the three children who reside with her suffer from severe psychological and emotional difficulties including depression, eating disorders and concerning one child an attempt at suicide.
¶ 153 The result of course is that Mrs. Davids has been limited in her ability to train and look for work and there are serious demands on her to be close to home and available to her children. Her evidence is that one of the affected children refuses medical or psychological treatment at the present time, and the other child was to commence further psychiatric/psychological treatment at Sunnybrook Hospital in Toronto in June, 1998.
¶ 154 I have considered the provisions of s. 15(5) and s. 15(7) of the Divorce Act, as well as the principles of Moge v. Moge (1992) 43 RFL(3d) 345 (S.C.C.) in determining the matter of spousal support. It may be that with the termination of this litigation and the resolution or successful treatment of the serious psychological and emotional problems of the children, Mrs. Davids may become a very enterprising esthetician. She impressed me as a sincere person who is willing to attempt to become self sufficient. However, whether her chosen career will make her self sufficient involves simply speculation and conjecture at the present time.
¶ 155 I find that Mrs. Davids has made every reasonable effort to become employable since the date of separation, notwithstanding the adversity and difficult challenges which confronted her.
¶ 156 I have reviewed the financial statement of Esther Davids sworn May 1, 1998, and the expenses detailed therein. I also considered the lifestyle of the parties during the course of the marriage. The Davids enjoyed a relatively high standard of living. At least two of the children at any time attended a private school, paid for by the husband. Following the birth of the eldest child and until the youngest child Jonathan was 6 years of age, the parties employed a full time Nanny to help with the care of the children and the household. While Mr. Davids' financial circumstances waned in the late 1980's, nevertheless from 1989 to the date of separation the parties employed a housekeeper three times a week. I have previously detailed the money that Mr. Davids provided to his wife for family expenses in the two year period prior to separation. The family enjoyed two vacations a year.
¶ 157 While the Davids had a $95,000 mortgage debt on the date of separation, there was little of any other substantive debt.
¶ 158 Mr. Davids, through his relationship with a Mr. Uri Sacks both prior to and after separation had privileges to use a Yacht Club facilities, as well as the use of a sail boat throughout the summer months.
¶ 159 I find and order that a reasonable amount of spousal support to be paid by Marvin Davids to Esther Davids is $3,000 per month commencing July 1, 1998. In determining the quantum of support, I have excluded all child related expenses, and I have reviewed a calculation of the tax consequences of this spousal support order.
Health & Dental Coverage
¶ 160 I order that Marvin Davids shall continue to maintain health and dental coverage for Esther Davids and the children.
Cost of Living
¶ 161 The spousal and child support order will be indexed in accordance with s. 34(5) and (6) of the Family Law Act.
Life Insurance Policy
¶ 162 Mr. Davids has a $500,000 insurance policy. Counsel for the wife has requested the court to make an order directing that the Gerling Global Insurance Policy or an equivalent policy in the amount of $500,000 be continued and that Esther Davids on her own behalf and as trustee on behalf of the children be named beneficiary of the policy. Mr. Davids at the conclusion of the trial advised that he was in agreement with this proposal. He then wrote me a letter, which is in the court file, indicating that he was content to name the children as beneficiary of the policy, but he opposed his wife being named a beneficiary. In his letter of June 12, 1998, Mr. Davids indicates that he intends to remarry.
¶ 163 I order that Esther Davids and the children are to be named as beneficiaries of the Gerling Global Life Insurance policy or an equivalent policy until such time as Mr. Davids no longer has an obligation to support his wife and children.
Registered Education Plan
¶ 164 I hereby order and direct that the RESP presently registered in the name of Marvin Davids is to be registered in the joint names of Marvin and Esther Davids.
¶ 165 I shall hear Mr. Davids and Mr. Cole on the question of costs on a date between August 10 and 21, 1998, to be arranged through the Judges' Secretary at Whitby. The parties should be ready with dockets and other material to argue the quantum of costs, as I propose to fix the costs.
¶ 166 On the matter of costs, I do wish to note that a very significant amount of the 8 days at trial was devoted to establishing the imputed income of Mr. Davids in order to fix the amount of child and spousal support. There was a considerable amount of time dealing with the diversion of assets to avoid the support obligations. I propose to comment further on this matter at the time I hear the submissions on costs. Order accordingly.