Aug 24, 2015

Blaneys COURT OF APPEAL SUMMARIES (AUGUST 17 – 21, 2015)

Korman v. Korman, 2015 ONCA 578 (CanLII)

[Feldman, Cronk and Huscroft JJ.A.]

Counsel:

  1. Waldmann and M. J. Armstrong, for the appellant
  2. K. Rayson and D. L. Solomon, for the respondent

Keywords: Family Law, Divorce, Net Family Property, Equalization, Gifted Interest, Matrimonial Home, Income Imputation, Extraordinary Expenses, Federal Child Support Guidelines, ss. 7,Family Law Act, ss. 10, 14

Facts:

Isaac Michael Korman (the “Husband”) and Susan Korman (the “Wife”) married in 1988. They separated in 2009. The Husband applied for Divorce in 2010 under the Divorce Act, 1985, and for relief under the Family Law Act, 1990 (the “Act”).

The parties have two children together. The eldest is approximately 22 years old and the youngest is almost 17 years old. The youngest is dependent on her parents. She has gone to private parochial schools her entire life. During the 2008 recession, the parents disagreed on her private education. The Husband wanted the child to attend public school, but the Wife refused. The Husband’s mother helped pay for the child’s tuition. The Husband argues he should not contribute to this tuition.

In 2002, the parties bought their Matrimonial Home (“Home”) for approximately $560,000. They paid in full by using money from their jointly-owned first Home, joint savings, and money gifted by their parents. The Home was mortgage-free and title was place solely in the wife’s name. Now, the Home is estimated to be valued at more than $940,000.

The Husband was an investment advisor and received a client complaint. The Wife said that the title to the Home was placed in her name to protect the Home from potential claims made against the Husband. The Husband insists that he did not intend to gift the Home to his Wife.

The Husband argues the trial judge imputed his income incorrectly by using the dividend income and monetary gifts from his parents. The Husband’s parents gifted significant monetary gifts to the Husband to help support a more extravagant lifestyle and business ventures.

The Husband and Wife were granted a divorce at the end of the 8 day trial. The judge ordered the sale of the matrimonial home, the Wife to pay an equalization payment in favour of the Husband, and the Husband to pay child and spousal support, as well as education costs for the youngest child’s private education.

The Husband appeals the orders.

Issues:

(1) Did the trial judge err in finding that the Husband gifted his interest in the Home to the Wife in 2002, when the parties acquired the property?

(2) Did the trial judge err in imputing income to the Husband based on gifts that one or both of his parents had given to him and on dividend income allocated to him?

(3) Did the trial judge err in treating the youngest child’s private secondary school fees as a s. 7 extraordinary expense under the Federal Child Support Guidelines, SOR/97-175?

Holding:

Appeal allowed in part. The Husband is entitled to 50% of the proceeds of the sale of the Home, less his 50% share of the maintenance costs of the Home from V-Day to the date of sale. The Wife is entitled to a credit of $25,296 on account of the Husband’s arrears in child and spousal support, plus further credit for additional arrears from April 1, 2015. The Home will be listed for sale and the recalculated net equalization payment be made to the Husband by the Wife from the net proceeds of the sale of the Home.

Reasoning:

(1) Yes, the trial judge erred because the Wife failed to meet her burden that the presumption of a resulting trust in respect of the Matrimonial Home had been displaced. Section 10(1) of the Act authorizes a court to determine questions of title, including whether legal title actually reflects beneficial ownership. Section 14 affirms the presumption of a resulting trust in determining questions of ownership when there are gratuitous property transfers. If the presumption is invoked, the party resisting the imposition of a resulting trust must disprove the presumption.

The Wife never said that the Husband gifted his interest to her, and the Husband never suggested that he intended to gift his interest to her. The judge’s finding ignores the presumption of resulting trust that operates in favour of the Husband. Even absent the presumption, the evidence at trial does not ground a finding of a clear intention to gift. The Husband is entitled to a one-half share in any post-separation increase in the value of the property.

With regards to the effect of the Husband’s ownership, the Wife says Martin v Sansome confines married spouses’ property claims to the equalization provision in the Act, except in rare cases. The judge on appeal disagrees because that case is about unjust enrichment and does not apply.

(2) The trial judge erred on one issue regarding imputation of income by using declared dividend money, but was correct on including monetary gifts from his parents. Overall, there is no basis to change the trial judge’s imputation of the Husband’s income.

(a) The trial judge erred in calculating the Husband’s income because the divided income should have been excluded because the Husband never received that money.

The trial judge considered the Husband’s income from his employment, monetary gifts from his parents, and annual dividend money from the family’s business. The Husband’s actual annual income in the 3-years prior to trial was $134,858.73, more than the $120,000 per year the trial judge imputed to him. The Husband argued that the divided income should not be used because he never actually received that income. The Husband is a non-voting shareholder, and his mother controls the corporate and dividend declaration policy and allocations through her voting shares. The Husband declared dividends to reduce the mother’s annual taxable income, but did not receive the money himself.

(b) However, the trial judge was correct by imputing global annual income to the Husband at $120,000. The gifts to the Husband by his parents should be included when imputing the Husband’s income. There was a settled pattern of monetary gifts over many years and the gifts were substantial (between 1990 and 2009 the parents gifted almost $960,000). If the monetary gifting changed, it would be open to the Husband would need to request an adjustment.

This case is different from Bak v Dobell because a parent provided financial assistance to support a disabled adult child. The Husband supports himself and the monetary gifts help him maintain a certain lifestyle.

(3) The trial judge did not err in concluding that the youngest child’s private education is a s. 7 expense. Section 7 extraordinary expenses are based on a two-part necessity and reasonableness test. The trial judge examined the child’s best interests, that the child always attended private school, that the oldest child had graduated, and the Husband’s financial ability to meet his share of expenses.

NB: The appeal decision provides additional commentary on the remedy and disposition of the trial decision.

(i) The Husband is entitled to an equal share in any post-separation appreciation in the value of the Home. He has not made any contributions to upkeep of the Home from the date of separation so he is liable for 50% of the expenses. The trial judge based part of the net equalization payment on the finding that the Wife is entitled to benefit from any post-separation increase in the value of the property because of her sole ownership in the Home.

(ii) The net equalization payment should be further reduced by $25,296, and that no interest should be payable on the equalization payment or on the Husband’s outstanding support arrears. The Husband’s child and support arrears are $82,794.

(iii) The Wife seeks an order that her obligation to make the net equalization payment be stayed and that that payment should serve as security for the Husband’s ongoing support obligations until the obligations end. This request will not be granted because supporst are “until further court order”. So, absent further court order, the Husband’s obligations are indefinite which means the Wife’s stay request would permit her to continue to live in the Home for an indeterminate period. This is inconsistent with the trial judge’s division of assets.

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