COURT OF APPEAL FOR BRITISH COLUMBIA
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Citation |
Smith v. Smith, |
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2008 BCCA 245 |
Date: 20080613
Docket: CA034487
Between:
Judith Karen Smith
Appellant / Cross Respondent
(Plaintiff)
And
Harold Geoffrey Smith
Respondent / Cross Appellant
(Defendant)
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Before: |
The Honourable Madam Justice Newbury |
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The Honourable Madam Justice Saunders |
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The Honourable Mr. Justice Lowry |
| D. Marzban, Q.C. |
Counsel for the Appellant / Cross Respondent |
| F.E. Maxwell, Q.C. |
Counsel for the Respondent / Cross Appellant |
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Place and Date of Hearing: |
Vancouver, British Columbia |
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April 29, 2008 |
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Place and Date of Judgment: |
Vancouver, British Columbia |
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June 13, 2008 |
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Written Reasons by: |
| The Honourable Madam Justice Newbury |
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Concurred in by: |
| The Honourable Madam Justice Saunders The Honourable Mr. Justice Lowry |
Reasons for Judgment of the Honourable Madam Justice Newbury:
[1] This is a family law appeal in which the parties disagree about what assets are family assets, the trial judge’s apportionment of certain corporate shares and shareholder loans, and the amount of spousal and child support payable by the defendant/husband, Dr. Smith. In this, the case is hardly unusual. What makes it different from the ordinary is that during the ten years in which they were together and for seven years after that, the parties lived a very lavish lifestyle, made possible by the husband’s very lucrative orthodontic practice. This lifestyle has left the parties with significantly less valuable assets than one would have expected, and facing the prospect of having to work on into their late sixties and perhaps seventies to provide for their old age.
[2] Dr. and Ms. Smith were married in 1989. Ms. Smith, who had been married twice before, had a child, “S.”, whom the trial judge said was “supported in every respect” by Dr. Smith. S. was 25 years old and able to support herself by the time of trial. Together, the couple also had another child, “K”. She was 16 at the time of trial and suffers from some chronic psychiatric difficulties. The parties agreed to share joint custody and guardianship of K., although she resides primarily with her mother. One of the issues on this appeal is whether the trial judge (whose reasons are indexed as 2006 BCSC 1356) erred in ordering Dr. Smith to pay support for her in the amount of $3,528.21 per month – somewhat less than the indicated Guidelines table amount – plus all her extraordinary expenses (which total some $3,000 per month), to continue as long as she is a child of the marriage.
[3] Both parties worked outside the home during the marriage, although to very different degrees. Dr. Smith, who was age 62 at the time of trial, had been practicing orthodontics since 1975. He now has two offices, and was found to have annual income of $477,206 for Guidelines purposes. Ms. Smith worked as a flight attendant for Air Canada, working only to the extent required to maintain her job, which of course involved being out of town for a few days at a time each month. She took frequent leaves from work, a maternity leave when K. was born, and an extended leave between November 2002 and April 2003. Ms. Smith was the primary caregiver to K. and maintained the home, with the assistance of a nanny, then a housekeeper, and gardener, all paid for by Dr. Smith. The wife retained all the income she received from her employment (approximately $10,000 in her last year) and did not contribute financially to household expenses. With her husband’s agreement, she decided to retire in 2005, and received credit from the airline for 20 years of pensionable service. She took a course in interior design, but has not obtained, or sought to obtain, any employment since leaving Air Canada. She was 51 years old at the time of trial.
[4] The trial judge noted that both parties had enjoyed spending the husband’s income during their marriage, and that together they had spent more than $1,000,000 each on “luxury vacations, cosmetic surgeries, and treatments, clothes and sundries.” (Para. 1.) This spending did not come to an end when they separated in 1999. During the ensuing seven years, Dr. Smith continued to hope for a reconciliation. Although he left the matrimonial home at his wife’s request, he continued to pay all Ms. Smith’s expenses and all expenditures relating to their home. The two even vacationed together. The trial judge found that the husband did not realize until 2005 that there was no hope of reconciliation.
[5] In 1979 Dr. Smith had purchased a rental building on Cornwall Avenue in Vancouver, with the help of a bank loan. By the time of the marriage in 1989, he also owned a home on Puget Drive (bought with the help of an inheritance), a lot at Green Lake, a condominium in Whistler, and an apartment on West 6th Avenue. Most of these assets were sold to enable the couple to buy their first house, but Dr. Smith kept the Cornwall property as a long-term investment that he hoped would provide income once he was no longer practicing.
[6] In 1994, Dr. Smith consulted a financial planner, Mr. Bob Smith, who provided a “Game Plan for Economic Freedom for Geoff and Judy Smith”. It contemplated various steps (most of which were matters of common sense) that they could take to achieve “economic freedom”, by which the planner meant having “enough income and personal resources so you do not have to work if you choose not to”. He recommended that the couple pay off as much debt as possible; that Dr. Smith limit himself to a fixed amount each month from his orthodontic practice, using what was left to repay debt; that he minimize the amount of income taxes he was paying; that RRSPs be used to shield current income from tax; and that the Cornwall property be maintained “at a level that will produce the highest current income, which means regular upgrading and maintenance, as well as increases in the rent charged.”
[7] Perhaps in accordance with these recommendations, Dr. Smith incorporated his Richmond and Coquitlam practices into a personal holding company, Dr. H.G. Smith Inc., and also created a family trust in 1998. He and the trust became shareholders of the holding company. The shares thus received by Dr. Smith were found to be family assets in light of Ms. Smith’s indirect contribution, through “effective household management”, to the family. On this point, the trial judge stated:
Notwithstanding the above evidence, when the plaintiff was not working, there is no doubt she was the primary caregiver of the two children and maintained an attractive, comfortable home. In particular, K.’s health issues have required time consuming attention. During this time the defendant was free to continue to build and run his orthodontic practices. The extent of the plaintiff’s indirect contribution cannot and should not be measured against the defendant’s identifiable financial contribution when determining whether an asset is a family asset or not. I conclude that all of the defendant’s shares and shareholder loans in the Richmond and Port Coquitlam Practices are family assets, whether held directly or indirectly. I note that this includes the 1,000 Class D Preference Shares in Dr. H.G.S. Inc. ... [At para. 13.]
[8] Although the steps recommended by the planner may have reduced their income taxes somewhat, the Smiths were not able to limit themselves to a fixed amount per month or to repay all their debts in accordance with the plan. Nor could they save enough to make any RRSP contributions. The couple decided to build a new house in 1993-4 and “stretched everything” to do so. As well, renovations were needed on the Cornwall building that turned out to be much more costly than expected. Dr. Smith’s entire line of credit, which he recalled was about $600,000, was “lumped all together on one loan” which was secured by a collateral mortgage on the Cornwall property. He testified that roughly one-third of the line was “more for family home purposes” and that once the debt was “paid down somewhat”, he was able to write off the entire mortgage expense. The debt secured against the Cornwall property continued to rise and at one point the company’s liabilities exceeded $1.1 million. According to Dr. Smith’s testimony, it was some $850,000 at the time of trial. Ms. Smith made no financial contribution to the repayment of the loan or to the maintenance of the property.
[9] In 1994, Dr. Smith formed a second company, Cornwall Management Ltd. (“CML”). He testified that beneficial ownership of the Cornwall property was transferred to that company, a fact borne out by its financial statements, even though title was never transferred into CML’s name. CML also became the holder of certain Class ‘B’ preferred shares, redeemable for $356,000, in Dr. H.G. Smith Inc., but there was very little evidence of the circumstances surrounding this allotment. The trial judge held that the shares were family assets – a finding that is challenged on the cross-appeal, to which I will return below. CML owed the sum of $142,777 to Dr. Smith at the time of trial, which loan was also found to be a family asset.
[10] The trial judge declined, however, to find that the Cornwall property or Dr. Smith’s shares in CML, were family assets. In her analysis:
I do not come to the same conclusion with respect to the rental property on Cornwall Avenue held by Cornwall Management Ltd. The defendant owned this property for ten years before marrying the plaintiff. It was never used for a family purpose, either through residing there or using income from the property for a family purpose. The property has its own professional manager and, most importantly, has sustained itself through rental revenues and financing secured against the property. No direct or indirect contribution of the plaintiff has enhanced its value or assisted the defendant to enhance its value.
The plaintiff submits that the Cornwall property was part of a retirement plan whereby it was intended to be used for the future financial security of the parties, as was the case in Hefti v. Hefti (1998), 57 B.C.L.R. (3d) 171, 40 R.F.L. (4th) 1 (B.C.C.A.). I do not find that the plaintiff has established this fact on a balance of probabilities. The hearsay evidence of the accountant Bob Smith’s “game plan” is insufficient, in my opinion, for me to find that the Cornwall property is a family asset and I declare it to be an asset owned by the defendant alone. [At paras. 14-5; emphasis added.]
[11] Accordingly, it was not necessary for her to rule on the value of the shares or the property, on which there was expert appraisal evidence from both parties. The parties did agree that the family home on West 6th Avenue, valued at $2,050,000, was a family asset and it was apportioned equally between them. The parties agreed on the equal apportionment of other assets as well, not including the Cornwall property or Dr. Smith’s shares in CML, his shares (and those held by the family trust) in Dr. H.G. Smith Inc., or the shareholder loan owing by CML. Ms. Smith submitted that the presumption of equal apportionment should apply to these assets, while Dr. Smith sought a re-apportionment of these assets 85% in his favour.
[12] The trial judge instructed herself correctly at para. 20 of her reasons on the operation of s. 56 of the Family Relations Act, R.S.B.C. 1996, c. 128. Considering all the factors listed in s. 65(1), she concluded that an “equal distribution of the [husband’s] interest in his orthodontic practices would be unfair.” (Para. 23.) She continued:
… [Dr. Smith] acquired a significant practice and significant assets through hard work and inheritance before cohabiting with [Ms. Smith]. From the time of marriage to the time of trial he preserved and maintained all assets without any financial contribution by [Ms. Smith], despite her having the means to do so.
I cannot fault [Ms. Smith] for her exorbitant spending habits because they were matched by [Dr. Smith]. However, the failure to recognize [Dr. Smith’s] extensive contribution and generosity, juxtaposed with [Ms. Smith’s] refusal to share her income creates an unfairness in and of itself. The disparity of material contributions at the outset of the marriage adds to this unfairness. The evidence did not bear out that [Ms. Smith] could not work because of lack of skill or good health. She admitted that she has the ability to work and that regardless of her health problems, she could become self-sufficient, although obviously at a much lower standard than that which she is used to.
After this trial, [Ms. Smith] will have a 50% interest in the matrimonial home less her 50% obligation to repay the $50,000 line of credit. On the other side of the equation [Dr. Smith] will also have a 50% interest in the matrimonial home less his 50% obligation to repay the line of credit. In addition, [Dr. Smith’s] economic self-sufficiency is assisted by Cornwall Management Ltd. and the Richard Street property.
Weighing all the evidence and the factors under s. 65(1) I conclude that the shares and shareholder loans in the orthodontic practices should be split 70% in favour of the defendant. [At paras. 23-6.]
[13] The trial judge next considered how the family assets should be distributed. She agreed with Ms. Smith that the matrimonial home should not be sold until K. graduates, and therefore ordered that it be sold “no sooner than July 2007 and that the equity be distributed equally between the parties.” (Para. 27.) With respect to the remaining disputed assets, she said this:
Unlike the disposition of the matrimonial home, the manner of distribution of the shares and shareholder loans may attract certain tax consequences. There appears to be no bar to simply ordering that 30% of the shares in Dr. H.G. S., 30% of the shares in Drs. J. & S. Inc., 30% of the shareholder loan from Drs. J. & S. Inc., 30% of the preferred shares in Cornwall Management Ltd., and 30% of the shareholder loan from Cornwall Management Ltd. be transferred to the plaintiff, and I so order. [At para. 28; emphasis added.]
[14] As I noted earlier, the trial judge determined Dr. Smith’s annual income to be $477,206 for Guidelines purposes. (Para. 34.) This finding is not disputed on appeal. With respect to support for K, the trial judge noted that the Guideline amount would be $3,854.21 per month, but that since Dr. Smith’s income was in excess of $150,000, the Court had a discretion to award something less. The trial judge held:
… I conclude that it is appropriate in this case to reduce the table amount equal to the contribution [Ms. Smith] can make toward K.’s maintenance. I find that [Ms. Smith] is capable of earning about $35,000 a year. That amount should be imputed to her for child maintenance purposes. She has an obligation to contribute $326 per month for K.’s maintenance. This reduces [Dr. Smith’s] obligation to $3,528.21 per month.
[Dr. Smith] has offered to pay all of K.’s extraordinary expenses (about $3,000 per month) directly to the relevant third party. In my view this is appropriate because the nature of these expenses is transitory. [At paras. 35-6.]
[15] Turning next to spousal maintenance, the trial judge noted that Ms. Smith was seeking indefinite support of between $11,000 and $15,000 per month based on Dr. Smith’s Guideline income. Dr. Smith sought to pay $5,000 per month, continuing for only 12 months. The trial judge noted the factors she was bound to consider under the Divorce Act, R.S.C. 1985, 3 (2nd Supp.), and the Spousal Support Advisory Guidelines which, she said, indicated support of $6,500 per month for ten years “based on the highest Guidelines income of $350,000”. (Para. 39.) She then stated:
Due to the unique circumstances of this case, it is my preference to award [Ms. Smith] more money for a lesser period of time. [Dr. Smith] is 63 years old and will likely retire by age 70. At that point it is unlikely he will receive income anywhere near $477,000 per annum. [Ms. Smith] will be 58 and will have another seven years or more of employability. K. should no longer be dependent and [Ms. Smith] should still have capital from her share of the family assets. Therefore I find that seven years of spousal support should be adequate.
K. is still in high school and it will be some time before [Ms. Smith] is capable of being truly self-sufficient. I am going to impose a regime of decreasing spousal support payments to reflect that fact.
For the thirty-six months commencing July 1, 2006, [Dr. Smith] shall pay [Ms. Smith] $13,750 per month. For the twenty-four months following July 1, 2009 [Dr. Smith] shall pay [Ms. Smith] $11,000 per month. For the twenty-four months following July 2011 [Dr. Smith] shall pay [Ms. Smith] $8,000 per month. After June 2013 all spousal support payments shall cease. [At paras. 40-2; emphasis added.]
ON APPEAL
Family Assets
[16] On her appeal, Ms. Smith contends that the trial judge erred in dealing with the Cornwall property as a personal asset of Dr. Smith rather than a corporate asset owned by CML; in finding that the Cornwall property or Dr. Smith’s interest in CML was not a family asset; in ordering the transfer of 30% of the shares and shareholder loans owing by Dr. H.G. Smith Inc. to be transferred to Ms. Smith rather than ordering Dr. Smith to compensate her in cash for their value; and in awarding child support for K. in an amount less than required by the Guidelines in the absence of an express finding that the table amount was “inappropriate”. Dr. Smith cross-appeals, submitting that the trial judge erred in failing to properly consider and apply the relevant factors and authorities regarding spousal support; in failing to award such support “based on an application of the ceiling income per the Spousal Support Advisory Guidelines”; in failing to take into account the fact that Dr. Smith had continued to support Ms. Smith very generously in the seven years post-separation; and in granting Ms. Smith a 30% interest in the preferred shares held by CML in Dr. H.G. Smith Inc.
[17] The first ground of appeal, concerning the trial judge’s treatment of the Cornwall property, may be dealt with simply. I do not find that the Court made the error asserted. Indeed, at para. 8 of her reasons the trial judge noted that CML held the Cornwall property and at para. 14, she referred to the “rental property on Cornwall Avenue held by Cornwall Management Ltd.” Nevertheless, she proceeded to consider whether Ms. Smith had contributed to the acquisition or maintenance of the property and whether it had been used for family purposes. As seen above, the trial judge found that the Cornwall property had not been used for a family purpose –a ruling the wife challenges on appeal. In her submission, the property was used for the future financial security of the parties, which was a family purpose, such that the CML shares held by Dr. Smith should be regarded as a family asset in accordance with the definition of that term at s. 58(3) of the Act.
[18] We were referred to Hefti v. Hefti (1998) 57 B.C.L.R. (3d) 171, 40 R.F.L. (4th) 1, a decision of this court. At issue in Hefti were two investment accounts in Switzerland and one in Canada held by the husband. He had inherited the funds in the Swiss accounts and the trial judge found they had never been used for a family purpose. Similarly, he had inherited the funds originally placed in the Canadian account. On one occasion, he had withdrawn $30,000 to purchase a boat (a family purpose), but the trial judge held that a single withdrawal did not make the account a family asset. On appeal, it was argued that the accounts had been held as “financial security” for the couple’s retirement and should be regarded as family assets, Finch J.A. (as he then was) said that in the absence of clear evidence to the contrary, “it would seem to be a natural inference that monies inherited by one spouse would, in the usual course, be used to the mutual benefit of both parties to the marriage, whether for present or future purposes …”. (At para. 30.) The majority of the Court, however, did not agree that the inherited property had been used for a family purpose under what was then s. 45(2) or s. 42(3)(c) of the Act (now ss. 58(2) and (3)(c).) (Per McEachern C.J.B.C., at para. 40.)
[19] The characterization of investment properties that are not “used” in the ordinary sense but simply held to appreciate during one’s working years with a view to providing a capital fund for retirements purposes, is a vexed one. It is difficult to see how merely holding funds or investments for use at a future time can be said to constitute “ordinary use” in the past or present. However, we were referred to Ogilvie v. Ogilvie (1995) 14 B.C.L.R. (3d) 296 (C.A.), where the property in question was recreational real estate in which the couple and their children had vacationed in the eight years prior to the husband’s inheriting it. He and his wife had paid taxes and water charges from their joint chequing account even before that time. After the husband inherited the property, the family used it only infrequently and for short periods, and the house on the property became uninhabitable. The wife had paid the water charges and had communicated with the local authorities about the property. In 1980, she informed the Waterworks District that the dwelling was derelict and that no water would be used “until some development takes place, for which we have no plans.” The trial judge found that the property had not ordinarily been used for a family purpose after the husband had inherited it, and viewed as “immaterial” the fact that taxes and related expenses had been paid from the parties’ joint chequing account, but this finding was reversed on appeal. Ryan J.A. wrote as follows:
Visits to the property by the family were infrequent after 1976, yet the property was not sold. Both Mr. and Mrs. Ogilvie maintained the property taxes and other payments for fourteen years after Mr. Ogilvie inherited it. The only inference that can be drawn from the evidence is that it was being maintained to provide financial security in retirement if necessary. This was the plan for other monies the Ogilvies had saved. Property may be used for more than its physical enjoyment. Property which is held for investment purposes to provide financial security in retirement may be said to be used for a family purpose. Section 47 of the Family Relations Act places the onus on the spouse alleging that the property is not a family asset to prove on a balance of probabilities that it was not ordinarily used for a family purpose. In my view, given the whole of the evidence that the trial judge ought to have examined, it cannot be said that the husband provided proof that this property was not used for a family purpose. In my view the Bowser property is a family asset. [At para. 10; emphasis added.]
[20] In Evetts v. Evetts (1996) 85 B.C.A.C. 19, the majority of this court dealt with a slightly different question – whether the “occasional” use of income from a capital asset for family purposes made the asset itself a family asset. Lambert J.A. for the majority concluded that the distinction between income and capital was not itself determinative and stated:
… The use of the asset to provide financial security and protection against erosion of income or other family misadventure in the future may constitute a present ordinary use for a family purpose (Tezcan v. Tezcan; Folk v. Folk). The fact that the words "ordinarily used ... for a family purpose" are the governing words in the statute means that the use pattern must be examined in each case to determine whether, in the ordinary course, the present use commitment to meet a present or future need includes a use for a family purpose. Ordinary use for a family purpose is not inconsistent with ordinary use for other purposes. [At para. 23; emphasis added.]
[21] The “use pattern” of the Cornwall property or the Cornwall shares in the case at bar does not lend itself easily to analysis. Certainly the family did not reside in the building or use the rental income to defray family expenses. But as we have seen, when Dr. and Mrs. Smith wanted to build a new house, they increased an existing line of credit that was secured by mortgage against the Cornwall property. Dr. Smith testified that a portion of CML’s debt relating to the house was paid off, after which he was able to write off the entire mortgage interest expense for tax purposes. He did not say over what period this had occurred, but it would seem that it was not only a temporary or ‘bridge’ arrangement. (Of course, the arrangement meant that the house was not mortgaged – a fact that was obviously beneficial to Ms. Smith as well as Dr. Smith.) As well, the corporate vehicle of CML was evidently used to hold two insurance policies, one for personal disability for Dr. Smith and one on his life, under which Ms. Smith was the beneficiary. Dr. Smith contemplated that in the event of his death, she would have been able to pay off the debt, or most of it, on the Cornwall property.
[22] On all the evidence, counsel for Ms. Smith submits that the trial judge committed a palpable error of fact in finding that the Cornwall property was “never used for a family purpose”, and that in fact, it was ordinarily used for family purposes. In light of the ‘mixed’ borrowing for family and business purposes that was secured against CML’s main asset, the use of the corporate vehicle to hold personal insurance policies, and the onus on Dr. Smith under s.60 of the Act to show that the property was not ordinarily used for family purposes (see Rytir v. Rytir (1987) 11 R.F.L. (3d) 239 at 241), I agree. Applying the definition at s. 58(3)(a) of the Act, I would allow the appeal to the extent of declaring that Dr. Smith’s shares in CML do qualify as family assets for purposes of the Family Relations Act. (The value of those shares was contested, and may lie between $1,241,000 and $1,663,000.)
[23] I turn next to an issue raised on the husband’s cross-appeal – whether the trial judge erred in ruling that CML’s preferred shares in the capital of Dr. H.G. Smith Inc. were family assets. Onus is perhaps more important on this issue. We were not referred to any evidence as to the genesis of these preferred shares, but we do know that Dr. Smith carried out a transfer (presumably a ‘rollover’ for tax purposes) of his equity in his orthodontic businesses to his holding company and it seems likely that the Class ‘D’ preferred shares of CML were issued at that time. In the absence of evidence to the contrary, I do not believe the trial judge erred in inferring that the shares likely represented some of Dr. Smith’s equity in his practice, to which value Ms. Smith contributed indirectly within the meaning of s. 59(2) of the Act. Accordingly, I would dismiss this ground of cross-appeal.
In Specie Transfer or Compensation Order?
[24] Ms. Smith’s second ground of appeal is that the trial judge erred in ordering an in specie transfer of shares and shareholder loans of Dr. H.G. Smith Inc. instead of making a compensation order in her favour for the value of her interest in those assets. It will be recalled that at para. 28 of her reasons, the trial judge suggested that the manner of distribution of the shares and shareholder loans “may attract certain tax consequences”. She therefore ordered that 30% of the assets simply be transferred to Ms. Smith. On appeal, however, Mr. Marzban contends that there was no basis for this conclusion. I note that Mr. McMann gave evidence as to possible “distributive taxes” that would be payable if and when CML made a distribution of its value, but we were not referred to any corresponding evidence regarding Dr. H.G. Smith Inc.
[25] There is of course case-law on the question of when future income tax liabilities should be taken into account when the court is being asked to determine the value of assets. (See especially Halpin v. Halpin (1996) 27 B.C.L.R. (3d) 305 (C.A.), at paras. 62-70 and the Ontario cases cited therein, and O’Bryan v. O’Bryan (1997) 43 B.C.L.R. (3d) 296 (C.A.), at paras. 52-4.) These cases make it clear that disposition or distribution costs (of which there must be some evidence) should normally be taken into account in determining value except where “it is not clear when, if ever” there will be a disposition of the property. That is the case here, but the question being considered is whether a compensation order should have been made rather than an in specie distribution. In this context, other factors also come into play, as McLachlin L.J.S.C. (as she then was) explained in Tratch v. Tratch (1981) 30 B.C.L.R. 98 (S.C.). In her analysis:
Section 52 of the Act gives the court the power to make orders as to the ownership, right of possession or division of property. In my opinion, the goal of the court in a case such as this one should be to divide the family assets with as little disruption, including commercial disruption, as is compatible with securing to each party his rightful interest as determined under ss. 43 to 51. One way to achieve this goal may be to grant to the wife the entire interest in the matrimonial home, leaving specified personal assets including business assets to the husband: see Russell v. Russell (1979), 9 F.L.D. 194 (B.C.S.C.); Sinclair v. Sinclair (1979), 13 R.F.L. (2d) 352 (B.C.S.C.). Where it is necessary to give one spouse a share of the business assets controlled by the other in order to effect a just distribution, this may be done by outright transfer of one of several assets to the claimant spouse (Treacher v. Treacher or by giving her a mortgage interest in the business asset (Glover v. Glover, 27 February, 1980, Vancouver, 5936/D833008).
Minimization of commercial disruption is of considerable importance in this case. It was not disputed that the matrimonial home and the Mazatlan property can and should be sold. These pose no problems. Other assets, however, present considerable difficulty. These consist mainly of the business interests in the husband's name in private corporations which the husband does not control. It might be difficult to find a ready sale for these interests at a fair value. There are obvious tax implications. Moreover, the husband is actively employed by at least one of these interests, the Edgewater Motor Hotel in Seattle. To order a sale might deprive him of this work. I therefore conclude that the major disruption incidental to a general order for sale and division of all family assets is to be avoided. [At 112-3; emphasis added.]
See also Blackett v. Blackett (1989) 40 B.C.L.R. (2d) 99 at 104-6, 22 R.F.L. (3d) 337 (C.A.); and Kowalewich v. Kowalewich (1998) 50 B.C.L.R. (3d) 12, 38 R.F.L. (4th) 282 (C.A.), at paras. 12-6.
[26] Mr. Marzban on behalf of Ms. Smith submitted that although the trial judge had a wide discretion, she should have given effect to the principle that where possible, the parties’ financial affairs should be separated, and that it was preferable not to leave one ex-spouse as the minority shareholder of a company that is not only controlled by the other, but dependent on his personal services for its business. Further, no hardship would be visited on Dr. Smith if a compensation order were made, since he will be receiving half the value of the family home, or at least $1,000,000, when it is sold. This should be enough to allow him to satisfy any compensation order without difficulty. (Counsel have agreed that if a compensation order were made, it should be for $202,390, prior to allowing any amount for CML’s shares in Dr. H.G. Smith Inc.)
[27] In all the circumstances, I agree that a compensation order for $202,390 should have been made in respect of the wife’s 30% interest in the shares and shareholder loans. I would allow the appeal on this ground as well.
CML Shares
[28] Different considerations apply to the question of how Dr. Smith’s shares in CML should be re-apportioned and paid for. As has been seen, he had purchased the Cornwall property before he was married; Ms. Smith did not contribute to the property’s maintenance or to the acquisition of the shares in CML; and since CML effectively paid for what otherwise would have been a personal loan to pay for the couple’s new home in 1993-4, she benefited from that arrangement. It seems to me preferable that this court should apportion these shares rather than remit this matter to the trial court. Being of the view that an equal apportionment would be unfair in the circumstances I have described above, I would re-apportion the shares 90% in Dr. Smith’s favour. Further, given that the shares represent an appreciating asset that will provide a source of income in the parties’ later years, and that there will be significant taxes payable on any sale or winding-up of the company, I would make an in specie order with respect to Ms. Smith’s 10% of these shares.
Child Maintenance
[29] I turn next to Ms. Smith’s submission that the trial judge erred in awarding child support for K. in an amount less than that required by the Guidelines in the absence of a finding that the amount required by the Guidelines was “inappropriate”. In my opinion, this submission should not succeed. The trial judge was obviously aware of s. 4 of the Guidelines, which states:
4. Where the income of the spouse against whom a child support order is sought is over $150,000, the amount of a child support order is
(a) the amount determined under section 3; or
(b) if the court considers that amount to be inappropriate,
(i) in respect of the first $150,000 of the spouse’s income, the amount set out in the applicable table for the number of children under the age of majority to whom the order relates;
(ii) in respect of the balance of the spouse’s income, the amount that the court considers appropriate, having regard to the condition, means, needs and other circumstances of the children who are entitled to support and the financial ability of each spouse to contribute to the support of the children; and
(iii) the amount, if any, determined under section 7.
The fact that the trial judge did not state that the onus was on the payor to show that the Guidelines amount was inappropriate, is not in my view an error. She exercised her discretion judicially, and I see no reason to interfere with the reduction of K.’s maintenance to $3,528.21 per month in order to reflect Ms. Smith’s corresponding obligation. That obligation was not carried through to K.’s extraordinary expenses.
Spousal Maintenance
[30] The three remaining errors in judgment asserted on Dr. Smith’s cross-appeal may be dealt with together. Mr. Maxwell says first that the trial judge erred in awarding any spousal maintenance at all and in failing to set out the theoretical basis on which the award was made – namely whether the wife’s entitlement was compensatory, contractual, or based on need: see Bracklow v. Bracklow [1999] 1 S.C.R. 420 at paras. 34-49, 169 D.L.R. (4th) 577. I am not aware of any rule, however, that requires that as a matter of law a trial judge state one (or more) of these “conceptual bases” in finding entitlement. In this case, the trial judge correctly noted the factors she was required to consider under s. 15.2(6) of the Divorce Act. In the context of a ten-year marriage of parties who are now middle-aged, and between whom there is a large disparity in income-earning ability, I cannot agree that the trial judge erred in ordering spousal support.
[31] The remaining two grounds of Dr. Smith’s cross-appeal are that the trial judge erred in failing to award support based on an application of the “ceiling income” referred to in the Guidelines and in failing to consider the fact that Dr. Smith continued to support Ms. Smith, with no apparent diminution in her expenses, for seven years after he moved out of the matrimonial home. Again, I agree with Mr. Marzban’s submission that the trial judge specifically recognized that the $350,000 “ceiling” in the Guidelines, was not an absolute one, a principle emphasized by Profs. Rogerson and Thompson, authors of Spousal Support Advisory Guidelines: A Draft Proposal (2005). The trial judge said at para. 39 of her reasons that the Guidelines are advisory only “and in the case of higher incomes, such as here, they may not be applicable.” Rather than awarding $6,500 per month for ten years as indicated by the Guidelines, she preferred to award Ms. Smith “more money for a lesser period of time”. As noted above, Dr. Smith was ordered to pay $13,750 per month for three years, then $11,000 per month for two years, and then $8,000 per month for two years, after which his support obligations ceased.
[32] I acknowledge that the trial judge had a discretion to depart from the Guidelines both with respect to the quantum and duration of the spousal support award. However, it seems to me that Ms. Smith’s track record indicates that she is unlikely to make any efforts to curb her spending or to find employment while she is receiving the generous amounts ordered by the trial judge. Certainly in the seven years after separation, when she was aware that the marriage would be coming to an end, she made no effort to plan for a future in which she would be living as a single woman. She has apparently made no effort to find a new career or resume employment. By the same token, it does not seem sensible for her spousal maintenance to cease upon her reaching age 65. At that time, she is much more unlikely to be employable than she is now. Dr. Smith on the other hand has already indicated that he wants to scale down his work week and it may well be that by the time he reaches age 65, this wish will become more pressing. The trial judge did not indicate why he should be expected to work to age 70 while Ms. Smith would not be expected to work after reaching 65.
[33] In all the circumstances, I would allow the cross-appeal with respect to the amount and duration of Ms. Smith’s spousal support and order instead that Dr. Smith pay spousal support to her of $8,000 per month for four years and that the support then be reduced to $6,500 per month (in recognition of Dr. Smith’s assumed declining earning capacity), to continue until otherwise ordered by a court of law or agreed to by the parties. (Of course, if and when Dr. Smith retires completely, it will be open to him to apply for a variation based on a change in his financial circumstances.)
Summary
[34] In summary, I would allow the appeal and cross-appeal to the extent of amending the order appealed from as follows:
i) by deleting from the list of assets that are not family assets, the “Defendant’s shares in Cornwall Management Ltd.”;
ii) by ordering that the Defendant’s shares in Cornwall Management Ltd. are family assets in which the Plaintiff has a 10% interest and the Defendant a 90% interest, and that the Defendant transfer 10% of such shares to the Plaintiff;
iii) by setting aside the order requiring that Dr. Smith transfer certain assets to Ms. Smith and ordering instead that he pay the Plaintiff the sum of $202,390, plus $35,600, representing her interest in the preferred shares of Dr. H.G. Smith Inc. held by Cornwall Management Ltd.; and
iv) by setting aside the spousal support ordered and replacing it with an order that the Defendant shall pay to the Plaintiff from July 1, 2006 through June 30, 2010, the monthly amount of $8,000; and thereafter the monthly amount of $6,500 until otherwise ordered or agreed to by the parties.
[35] We are indebted to counsel for their able arguments in this appeal.
“The Honourable Madam Justice Newbury”
I Agree:
“The Honourable Madam Justice Saunders”
I Agree:
“The Honourable Mr. Justice Lowry”