2002 SKQB 213 F.L.D. A.D. 1998 No. 387 J.C.S. IN THE QUEEN’S BENCH (FAMILY LAW DIVISION) JUDICIAL CENTRE OF SASKATOON BETWEEN: SUSAN JEANNE BURKE and BARRY RUSSEL BURKE RESPONDENT D. J. Kendall for the petitioner A. Wiebe, Q.C. for the respondent FIAT WILKINSON J. May 17, 2002 [1] In this application to vary spousal support, the issue is whether there has been a material change in circumstances by virtue of a change in either the husband’s or wife’s employment status, or financial means or needs, warranting an increase in spousal support. This is the standard of review prescribed in the parties’ interspousal contract of September 14, 1999. Under that agreement the husband pays $3,000 per month in spousal support. [2] The parties are at odds as to whether the husband has experienced an increase in income and whether the wife’s needs have been affected by cohabitation with new partner. [3] The husband’s position is summarized in his affidavit as follows: .. own 36% interest in trucking company called “Titan Transport Ltd.” As result of general downturn in the economy during the year 2001, the profits of Titan Transport have been significantly reduced. This decline was exacerbated by the events in New York and Washington on September 11, 2001. As result of this economic decline our company closed the Winnipeg Branch and laid off two employees in our Calgary office. Our accountant calculates that the company's bottom line has declined by 62% from between the year end 2000 and the year end 2001. 6. My income consists of base salary, management bonus and shareholder bonus. The bonuses are based on the previous year’s profits of the company. The company bank (Bank of Hong Kong) requires us to pay our shareholder bonus, after tax, back into the company. also have rental income in the amount of $400 per month. [4] The husband broke down his sources of income chronologically, as follows: Salary Working Bonus Shareholder Bonus 169,013 Shareholder bonus is paid out to the three of us to zero down to $200,000 small business limit. My percentage is on my share status of 36% of the total 100 shares in the company. The income tax is paid on the monies and loaned back to the company to keep our cash flow up as per bank. The 2001 bonus of $30,400 is broken down as $18,000 of working bonus and we got “WCB” refund due to low experience and that was paid out to us and my share was $12,400 so it wasn’t on profit for the year as that has dipped significantly. [5] Significant argument was centred on whether the bonuses were paid from the corporation’s current income (the wife’s argument) or from the corporation’s prior year’s income (the husband’s argument). The wife also argues that the “working bonus” does not have to be repaid to the corporation and there is no independent verification that the shareholders bonus must be repaid, or that they are, in fact, being retained in the company. There is no breakdown of shareholder’s loan accounts as between shareholders. The only information available (from the financial statements) is the year end totals in the shareholders loan account and they are as follows: 1996 $105,520 1997 128,000 1998 164,275 1999 116,318 2000 99,055 2001 139,445 The fluctuations are not explained. [6] The company’s retained earnings, year by year are as follows: 1997 $169,561 1998 292,184 1999 422,227 2000 559,785 2001 661,730 (to November 30) [7] The husband’s assertion that his 2001 shareholder bonus represents profits earned by the company in 2000 is more likely correct. With respect to corporate income over $200,000, it is not an uncommon practice to “bonus down” and thereby achieve tax deferral. Business income in Canadian controlled corporation in an amount up to $200,000 is subject to the reduced corporate tax rate. The excess can be distributed to shareholders in the 180 days following the corporation’s tax year. As the individual receiving the bonus is only taxed when in actual receipt, one-year tax deferral may be achieved. Likewise, it is not uncommon that corporation’s arrangement with its bank or lending institution requires the bonuses to be repaid to the corporation in the form of shareholder’s loans, and not withdrawn until certain debt:equity levels are achieved. Similar provisions are sometimes contained within shareholder’s agreements. [8] Thus an individual may have viable income, but the enjoyment of that income is postponed for period of time although it represents significant benefit in the future. When issues of support are involved it is difficult to know how that deferred income should fairly be treated and in some cases, particularly where child support is concerned, it has been treated as current income to the obligor. The restrictions on withdrawal must be objectively justified as legitimate, reasonable business purpose or an unavoidable contractual requirement. That is asserted here, but not objectively proved. The bank’s restrictions are not specified. The fluctuation in shareholder’s loans accounts, without clarification, supports the inference monies can be withdrawn. The company’s financial statements show that debt:equity ratios have improved by considerable margins. In these circumstances it is not sufficient to offer hearsay evidence such as “our accountant calculates the company’s bottom line has declined by 62%...” or bare assertion that the bank requires the bonuses to be repaid to the company. [9] There is another objection that can be made regarding the husband’s analysis of his income. If the practice of “bonusing down” has been consistency applied, it would follow that if one excludes the shareholder bonus from income for present purposes, the bonus would logically have been excluded when calculating his income in 1999. It would not be fair or reasonable or consistent to do otherwise. His salary, plus working bonus, in 1999 was $67,050. His equivalent income currently is $122,488 (salary $92,088, working bonus $30,400). Arguably, it might be reasonable to exclude the non-recurring WCB refund in which case his current income would be $110,088. Even if no bonuses are payable in 2002 as result of lower corporate profits in 2001, there is no indication his fixed salary will decline. His salary level in 2001 was high notwithstanding the assertion that corporate income declined sharply that year. On the most favourable scenario for the husband, his income has increased roughly 50%. It is material and significant increase in income even without regard to the shareholder bonus. There is also the fact the husband has new partner who pays him rental income, and that certain of his expenses for travel and auto expenses are now paid by the company. [10] I am satisfied the only material change in the wife’s means and needs is the fact she is residing with a new partner. Their arrangement essentially allows him to reside in her home at no cost in exchange for his performing yard work and housework. (The wife suffers from MS and is unable to work). Despite this arrangement the wife has claimed annual expenses of $2,450 for house repairs, maintenance and yard care and $2,600 for house cleaning, the very duties her new partner was to perform. He is employed, but his income is not stated. He makes no apparent financial contribution to the household. The benefits inherent in shared living arrangement are not adequately or reasonably accounted for in the wife’s presentation. She has requested 50% increase in support, because the husband’s income had increased 50%. By the same logic, one might argue her expenses should be halved due to the shared cost of living, if those shared costs were reasonably accounted for. These can hardly be endorsed as sound approaches to the determination of spousal support. [11] In all the circumstances, an increase is warranted, but not to the extent claimed by the wife. Spousal support will be varied to $3,500 per month effective May 1, 2002 and continuing on the first day of each month thereafter until further order. [12] The wife will have costs fixed in the amount of $1,000.
FIAT. The issue in this application to vary spousal support was whether there had been a material change in either the husband's or wife's employment status, financial means or needs, warranting an increase in spousal support since their 1999 interspousal contract. The wife requested a 50% increase based on the husband's income increase of 50%. She suffered from MS and was unable to work. HELD: Spousal support was varied to $3,500 monthly. The only material change in the wife's means and needs is that fact she is residing with a new partner who resides in her home in exchange for yard work and housework. Although he worked, he made no apparent financial contribution to the household. The wife was awarded costs fixed at $1,000.