IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Boulton v. Beirne, |
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2008 BCSC 577 |
Date: 20080507
Docket: E024827
Registry: New Westminster
Between:
Russell Christopher Boulton
Plaintiff
And
Erin Anne Beirne
Defendant
Before: The Honourable Mr. Justice Myers
Reasons for Judgment
| Counsel for the Plaintiff: |
Gary Thomas |
| Counsel for the Defendant: |
Janneke P. Lewis |
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Date and Place of Trial: |
March 10 – March 13, 2008 |
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New Westminster, B.C. |
[1] This is a family law case in which the main issue to be determined is the income of Mr. Boulton.
[2] The parties were married for 16 years, having married in October 1989 and separated in August 2005. They did not co-habit before the marriage.
[3] Mr. Boulton, a lawyer, is 44 years old. Ms. Beirne is 43 years old and is not working.
[4] The parties have one child, Carlin, who is now 15 years old.
[5] Carlin attends private school. He is currently in grade 9. He has a non-verbal learning disorder. He also has disgraphia, which, for the purposes of these reasons is sufficient to loosely describe as hand-writing difficulties.
[6] Carlin requires extra help with his school work, particularly math. A psychologist has recommended that Carlin take a special type of tutoring, known as Orton-Gillingham tutoring.
[7] Carlin also requires supervision of his personal grooming, assistance in using a fork and knife and assistance with waking up in the mornings.
[8] Initially after the parents separated in August 2005, Carlin lived with each parent for alternating weeks. In the summer of 2007 he spent most of the time with Ms. Beirne, because Mr. Boulton could not take time off work. Since that time, it appears that Carlin has had his prime residence with Ms. Beirne.
[9] Mr. Boulton is associated with the law firm Kane Shannon & Weiler and provides legal services through a personal law corporation. The financial arrangement is as follows:
(a) Kane Shannon & Weiler bills clients for the professional services rendered to them by Mr. Boulton. The PLC is entitled to 40% of the fees collected below $200,000. The PLC is entitled to 50% of the fees collected over $200,000.
(b) As against its shares of the billings, the PLC is paid a monthly draw of $6,250. Once a year the draw is reconciled against the amounts actually collected and the shortfall, if any, is paid by Kane Shannon & Weiler to the PLC. The reconciliation is usually done in January for the preceding calendar year.
(c) In order to reflect the overhead component which the firm maintains as part of its 60% (for collected billings under $200,000) or 50% (for collected billings in excess of $200,000) of billings, the firm tops up the monthly draw by $6,000 and the PLC writes a cheque back to the firm for the same amount. It was not made clear to me why this was done, but it is of no consequence since it is a revenue-neutral transaction.
[10] It was argued by Mr. Boulton that the law firm required him to incorporate. To the extent that that might be relevant, I do not think the evidence supports that proposition. The most that can be concluded is that the law firm required Mr. Boulton to contract his services to the law firm rather than maintain an employment relationship.
[11] The PLC was, of course, required to pay tax on its income. That was the main true expense of the corporation. The PLC would pay Mr. Boulton dividends out of net income.
[12] The main issue is whether Mr. Boulton’s income for both child and spousal support is his dividend income from the corporation, which is the amount shown on line 150 of his tax form, or whether his income should be determined by the amounts paid by Kane Shannon & Weiler to the PLC.
[13] The Federal Child Support Guidelines, SOR/97-175, are based on pre-tax income. If Mr. Boulton’s income is based on his dividend income (not grossed-up) his income will, in effect, be reduced by the amount of corporate taxes paid by his PLC.
[14] Section 16 of the Guidelines state that subject to sections 17-20 “… a spouse’s annual income is determined using the sources of income set out under the heading ‘Total Income’ in the T1 General form issued by the Canada Revenue Agency… “.
[15] Section 18 of the Guidelines states
18. (1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse’s annual income to include
(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or
(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.
[16] In my view this is a case where the income reported by Mr. Boulton does not represent all of the money available for child support.
[17] The case at bar involves a personal service corporation with one employee. Its sole business is to provide Mr. Boulton’s legal services. Mr. Boulton could have – and still can if he so wishes – provide those services without incorporating. This is not a case where the court risks substituting its own judgment as to legitimate expenses that are necessary for the business to carry on for that of the shareholder(s). Determining guideline income by the amount of fees collected serves to put a lawyer who uses a PLC on the same footing as one who does not.
[18] In 2005 Kane Shannon & Weiler paid the PLC $132,000 for fees billed and received.
[19] In 2006 Kane Shannon & Weiler paid the PLC $132,244 for fees billed and received.
[20] For 2007 the PLC’s revenue from fees billed and collected is $123,000.
[21] Mr. Boulton’s income obviously fluctuates from year to year. There is nothing to indicate that his income is on a permanent downward trend. That said, Mr. Boulton got off to a slow start for 2008 because of the death of his father. I would use the approximate mid-range between the PLC’s receipts for billings in 2007 and 2006 – $127,500 – as the starting point for his Guidelines income.
[22] From that appropriate business expenses should be deducted.
[23] There are only three expenses which should deducted. The first is accounting fees. Although Mr. Boulton spent over $5,000 on accounting fees in 2006 – the last year for which financial statements were prepared – that appears to be an aberration. In prior years, accounting fees were approximately $2,750, and I think that is the appropriate figure to use.
[24] The second expense is amortization (which is, of course, not a true cash expense). Mr. Boulton’s amortization expense in 2006 was $1,535. In 2005 that was $797. I would allow $850 for amortization.
[25] Finally, Mr. Boulton’s telephone expenses were $822 in 2005 and $1,288 in 2006. I would allow the figure for this expense at $950.
[26] Deducting these expenses from $127,500 results in an income of $122,950. That is the amount which should be used to determine child and spousal support.
[27] Mr. Boulton asks that I impute income to Ms. Beirne, who is not working.
[28] By way of background, Ms. Beirne did a B.A. in leisure studies at University of Victoria, graduating in 1990. Some months after graduation she obtained employment with the Red Cross as a first aid and CPR coordinator. Carlin was born in March 1993 and Ms. Beirne took 6 months’ maternity leave. She returned to work in September and worked at the Red Cross until the following July or August. When she left the Red Cross she was being paid $15.00 per hour.
[29] The only work Ms. Beirne did after that was part-time. The last time she worked was 1997. She testified that the most she ever made was $7,000 per year.
[30] Ms. Beirne gave up working outside the home in 1997 because of ill health. This consisted of difficulty breathing, severe coughing and memory loss. In 2001 Ms. Beirne was diagnosed as suffering from food allergies. Her health problems were attributed to those allergies.
[31] In November 2006 she began an M.B.A. in professional communications at Royal Roads University and will graduate in November 2008. The course involves two three-week residence programmes at the University. The balance of the course-work is done on-line.
[32] In 2006 Ms. Beirne was commissioned to do a communications plan for which she was paid $1,300.
[33] Ms. Beirne volunteers weekly at her son’s school’s uniform store.
[34] Ms. Beirne says she cannot work because looking after Carlin and doing her M.B.A. takes too much time. In cross-examination the programme information from the Royal Roads web site was put to Ms. Beirne. It stated that the work for her programme was expected to require 22 hours per week. Ms. Beirne stated that that was an understatement. She says the programme occupies 60-80 hours per week.
[35] Apart from support from Mr. Boulton, Ms. Beirne’s only other source of money is $5,000 of child tax credits.
[36] I do not accept that Ms. Beirne cannot do any remunerative work. First, I do not accept that the work on her M.B.A. occupies 60-80 hours per week when she is not in residence at the university. Second, she has earned money for work done in her home on the communication plan to which I referred above. Third, although Carlin is a special needs child, he is in school and does not require constant care.
[37] I conclude that Ms. Beirne can work 10 hours per week. The minimum wage in the province is $8.00 per hour. When she worked at the Red Cross her hourly rate was $15.00 per hour. Taking a wage rate of $10.00 per hour at 10 hours per week for 45 weeks of the year would result in an income of $4,500, which I would impute as income to Ms. Beirne.
[38] Mr. Boulton argues that the $5,000 child tax credit should be included in Ms. Beirne’ s income. However, I decline to include that amount in income, preferring to follow the dictum of Finch J.A. in E.M.O v. W.R.O., 2003 BCCA 191:
[36] The defendant concedes that under s.2 of Schedule III of the Guidelines, a parent receiving child support otherwise included in income in the T1 General form can deduct the amount in determining Guideline income. However, the defendant contends the other two sources of income, the child tax benefits and investment income, ought to have been included in the plaintiff’s Guideline income.
[37] Although the issue was not adequately addressed either in the parties’ factums, or in oral submissions, it would appear that it may not be correct to include child tax benefits in calculating Guideline income: see Reber v. Reber, [2002] B.C.J. No. 1281 (Q.L.) (S.C.), 2002 BCSC 884; Stokes v. Stokes (2002), 217 Nfld. & P.E.I.R. 81 (Nfld. SCTD). Without expressing any final opinion on the issue, as it makes no difference to the disposition of this appeal, I would exclude child tax benefits in calculating the plaintiff’s Guideline income.
[39] The parties stated their position on the division of their CPPs, RRSPs and an RESP but provided no argument in support of those positions.
[40] In my view the parties’ CPPs and RRSPs should be equalised.
[41] There is an RESP which is in Ms. Beirne’s name. On the assumption that she will use this for Carlin’s benefit if he goes on to college or university I will make no order with respect to this. If it is collapsed in the future, the proceeds should be divided evenly between the parties.
[42] Ms. Beirne holds shares in the PLC. They have no value to her and the parties are agreed that they should be transferred to Mr. Boulton.
[43] The parties are in agreement that they should each keep whatever other matrimonial property they have in their possession.
[44] Carlin is now living primarily with Ms. Beirne.
[45] The parties appear to be in agreement that there be shared guardianship and custody of Carlin with primary residence with Ms. Beirne.
[46] Mr. Boulton shall have liberal and generous access to Carlin, including but not limited to every second weekend.
[47] Using the Guidelines tables based on the income decided above, Mr. Boulton is to pay Ms. Beirne $1,083 per month in child support.
[48] The parties are in agreement that any spousal support order should be reviewable at some point in time after Ms. Beirne graduates or upon a material change in income of either party.
[49] The main disagreement between the parties is the level of support and this, in turn, hinges on what has transpired with respect to the sale proceeds of the matrimonial home.
[50] In 1994 the parties purchased a home, using a $40,000 loan from Mr. Boulton’s father as all or part of a down-payment.
[51] In 2001 Ms. Beirne received a $50,000 inheritance from her father. Fourty-thousand dollars of that was used to pay off the loan from Mr. Boulton’s father. Five-thousand dollars was given to charities.
[52] In 2005 Ms. Beirne received a $29,000 inheritance from her father. That money was primarily used for paying off family debts.
[53] In November 2005 the parties sold their home. The net proceeds of sale was $179,782.69. The money was put into a joint account. The funds were used or distributed approximately[1] as follows:
Ø $17,629 was used to pay off the parties’ Visa debt
Ø $14,500 was used to pay off the parties’ Mastercard debt
Ø $60,246 was used to pay off the parties’ line of credit
Ø $2,500 was given to or used by Mr. Boulton
Ø $2,500 was given to or used by Ms. Beirne
Ø $80,835 was used by Ms. Beirne for legal fees, university fees and living costs.
[54] Although Ms. Beirne says that Mr. Boulton was asked whether he wanted the sale proceeds to be put into a trust account and declined, there is no question Ms. Beirne spent the $80,835 unilaterally.
[55] Mr. Boulton argues that the inheritances were family assets and that Ms. Beirne got more than she was entitled to by unilaterally spending the $80,350. However, he does not make any direct monetary claim in respect of that, recognizing that the money has been spent. He does, however, say that the determination of spousal support should take this into account and therefore be made at the low end of the spectrum.
[56] Ms. Beirne says that the inheritances were not family assets because they were a gift to her. She also says that Mr. Boulton assured her that he “would never go after my inheritances”.
[57] She further argues that she would be entitled to a reapportionment of the house because of the need to become independent. Therefore the $80,835 spent by her should not be taken into account in determining spousal support.
[58] I will deal first with the two inheritances. The first inheritance was used as a family asset to pay off a debt on the family house. In addition, it was received well before the separation. Mr. Boulton’s statements that he “would never go after the inheritance” appear to have been made after the inheritances were received and spent, and possibly after separation. They do not rise to the level of an estoppel or a contractual agreement. I conclude that the first inheritance must be considered a family asset.
[59] The second inheritance was received only months before separation. However, it was used primarily as a family asset, namely to pay off family debts. It must therefore also be considered a family asset.
[60] But - although it was the focus of the parties’ arguments - whether the inheritances were family assets, is not the only determining feature. Section 65(d) of the Family Relations Act, R.S.B.C. 1996, c. 128, provides that when considering reapportionment of family assets, the court must take into account the extent to which the property was acquired by a spouse through an inheritance.
[61] In Lodge v. Lodge (1993), 79 B.C.L.R. (2d) 360, 48 R.F.L. (3d) 365, Prowse J.A. noted:
The significance of an inheritance as a factor in a reapportionment diminishes according to the length of time that the marriage subsists following the receipt of the inheritance.
[62] The first inheritance was received well before the separation, so in my view there should be no reapportionment for that. The second inheritance is different, and in my view, it would be unfair if the entire amount was considered a family asset. I would reapportion the second inheritance such that only 50% of the sum should have been treated like a family asset. This was the submission of Mr. Boulton.
[63] That reapportionment would still not account for the full $80,835 which Ms. Beirne took from the net proceeds of the house. Mr. Boulton argues that taking the reapportionment of the second inheritance into account, he should have received $27,000 from the net proceeds of the house (assuming an equal division of assets) and therefore Ms. Beirne was over-compensated by that amount. (It appears to me that the correct figure should probably be $25,500 but I do not think that makes a material difference to the issue I have to decide.)
[64] The question then becomes whether Ms. Beirne was entitled to a reapportionment in her favour because of the need for her to become independent.
[65] I think there is force to her submission that that is so. She has been out of the work place for a long period of time and has been disadvantaged by looking after Carlin and the home. Because I am not being asked to make an order for reapportionment but, rather, am being asked to look backwards before looking forward in determining maintenance, I do not think it necessary for me to arrive at a precise determination as to the reapportionment.
[66] I turn now to consider the issue of support.
[67] Using the income figures I have arrived at above, the figures for monthly spousal support according to the Spousal Support Advisory Guidelines: A Draft Proposal are
Low: $2,734
Mid: $3,079
High: $3,416[2]
[68] Considering that Ms. Beirne received more for the matrimonial home, that her part of an inheritance was spent on family debt, that she has been out of the workforce for many years while Mr. Boulton has been gaining more skills and experience, that the child has special needs that will occupy more time and resources, and that it was a 16-year marriage, I think it fit to award Ms. Beirne $3,100 per month. The initial award length is indefinite, pending a review as below, with an expected maximum duration of 16 years.
[69] I agree with the parties’ position that the spousal and child support orders should be reviewable. As I have said above, Ms. Beirne will finish her degree in November of this year and then hopefully enter the workplace.
[70] I conclude that the orders should be reviewable in April 2009 or such other date as the parties may agree on. The parties should exchange financial information including tax returns by the end of March 2009. I recognise that this means the parties will have to file their tax returns before the ultimate deadline.
[71] Ms. Beirne claimed retroactive spousal support but in argument it was acknowledged that she did not meet the criteria for this. There will be no order for retroactive support.
[72] The main issue in this case, as acknowledged by the parties at the outset of the trial, was the determination of Mr. Boulton’s income. Ms. Beirne was successful on that. Therefore, unless there were offers to settle which counsel wish to bring to my attention, Ms. Beirne shall have her costs of this litigation at scale B.
“MYERS, J.”
[1] The following figures in evidence do not precisely total $179,782.69
[2] These figures are based on the following factors: Mr. Boulton’s income is $122,950; Ms. Beirne’s income is $4,500; the marriage was 16 years long; the separation was in August 2005; Carlin lives primarily with Ms. Beirne; Carlin was 12 years old at the time of separation; and the special expenses are $21,867.92 per year, with Mr. Boulton paying approximately 96% of those expenses and Ms. Beirne paying approximately 4% of those expenses.