Case reference: Marinangeli v. Marinangeli, 2003 CanLII 27673 (ON CA)
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Family law — Support — Child support — Variation — Minutes of settlement executed in late 1996 providing for variation of child support in event of material change in circumstances — Father stating in contemporaneous sworn financial statement that he did not anticipate any material changes to information contained in statement — Father cashing in stock options shortly after executing minutes of settlement — Father’s income increasing substantially in year following execution of minutes of settlement — Exercise of stock options and increase in income constituting material changes in circumstances — Father having implicit obligation under minutes of settlement to notify mother of those changes — Trial judge not erring in increasing child support and in making increases retroactive to 1997 — Trial judge erring in ordering father to pay child support in Federal Child Support Guidelines amount from beginning of 1997 when Guidelines did not come into effect until May 1997 — Federal Child Support Guidelines, SOR/97-175.
Family law — Support — Spousal support — Variation — Minutes of settlement executed in late 1996 providing for variation of spousal support in event of material change in circumstances — Husband stating in contemporaneous sworn financial statement that he did not anticipate any material changes to information contained in statement — Husband cashing in stock options shortly after executing minutes of settlement — Husband’s income increasing substantially in year following execution of minutes of settlement — Exercise of stock options and increase in income constituting material changes in circumstances — Husband having implicit obligation under minutes of settlement to notify wife of those changes — Trial judge not erring in increasing spousal support and in making increases retroactive to beginning of 1997.
The parties separated in 1992 after a 19-year marriage, during which the wife initially supported the husband through university and professional training, and then became a full- time homemaker. After four years of negotiations, the parties signed Minutes of Settlement that provided that the husband was to pay child support for the parties’ one child in the amount of $2,000 per month and spousal support in the amount of $6,000 per month. The parties agreed that there would be full disclosure between them in all matters affecting the welfare of the child. The Minutes explicitly provided for variation of child or spousal support in the event of a material change in circumstances. The husband’s financial statement, sworn on the day the Minutes were executed, disclosed his income as $307,925. The portion of the financial statement showing his property indicated that he had phantom stock units, that is, notional units of stock taxed at full rates based on underlying stock performance. They had a value as at the date of separation of $76,361, and there was a notation on the financial statement that it would be “double dipping” to include this property as subject to an order of support. In addition, stock options were listed as a “contingent asset through employer since 1993, approximately 45,000 options, only 15,500 have vested, value unknown as depends upon when options cashed and value of stock at the time”. The sworn financial statement contained a declaration that the husband did not anticipate any material changes in the information set out in it. The day after signing the Minutes, the husband cashed in $27,850 worth of stock options. A little over two [page41 ]months later, he cashed in options totalling $225,186. Moreover, his income increased considerably in 1997. He did not advise the wife that he had cashed in stock options or that his annual compensation had increased. The wife initiated proceedings in 1999 to vary spousal and child support. At the time of the trial, the wife’s net worth was $120,000. She had no special qualifications and felt she was unable to work outside the home. The husband’s net worth was approximately $2.5 million. By 2001, his bonus and salary had increased to $890,039. His current wife worked outside the home. The trial judge found that the profit the husband realized on his stock options and the substantial increase in his income from employment constituted material changes in circumstances and that the husband was implicitly obliged to notify the wife of each material change in circumstances. With respect to child support, he found that there was no clear and compelling evidence for departing from the Federal Child Support Guidelines figures. With respect to spousal support, he found that, if the wife had returned to work post-separation, due to her limited education and lack of recent work experience, she would not have been able to achieve financial independence in any practicable sense. He also found that the husband’s post-settlement enrichment was attributable in part to the contribution made by the wife during the course of the marriage, and that an increase in spousal support and an award of retroactive support were justified. The trial judge ordered the husband to pay child and spousal support retroactive to the beginning of 1997. The husband appealed.
Held, the appeal should be allowed in part.
While the trial judge misapprehended some evidence, his errors were not sufficiently palpable and important, nor did they have a sufficiently decisive effect, so as to justify appellate intervention.
The trial judge did not err in characterizing the husband’s exercise of stock options as income. The granting of options to the husband was not a non-recurring event, and continued on a regular basis as part of his compensation. The receipt of some of the husband’s compensation was deferred from the time the options were first granted in 1993 until he cashed in some of them in 1996 and 1997. The fact that he deferred receipt of some of his compensation by waiting until late 1996 and 1997 to exercise his options did not mean that their essential characteristic as income changed. The trial judge accepted the husband’s evidence that the reason further options had not been exercised since 1997 was that he hoped to realize a greater profit from them by holding them for a longer period of time. The fact that he chose not to take his compensation on a regular basis but to defer taking it in the hopes of realizing a greater amount did not mean that the amounts realized should be excluded in considering the husband’s support obligations. The exercise of the options was simply the taking of deferred income at a particular time. The gain the husband realized from his options in 1997 was an appropriate factor for the trial judge to consider in making an order for spousal support and child support generally.
The trial judge did not err in not excluding the profit from the gain on the phantom stock as income. The general rule against double dipping did not apply to the phantom stock bonus.
A “material change in circumstances”, in the context of the Minutes of Settlement in this case, did not mean a change that was not foreseeable as part of the ordinary course of living at the time the Minutes were signed. On the contrary, it was clearly intended that foreseeable events such as an increase or decrease in income could amount to a material change in circumstances. The husband’s financial statement showed the options as a contingent asset whose value was [page42 ]unknown and depended upon when the options were cashed in. Without knowing the parameters for the exercise of the options, the wife had no way of ascertaining the likelihood that the husband would cash in options within the next few months after the Minutes were signed. The nature of the information about the options provided by the husband before the Minutes were signed made the wife dependent on him for information about their value when they were exercised, and she was content with this. The treatment afforded the options did not mean that their realization would have no impact on support; it only meant that the parties were content to deal with that impact if and when the options were exercised. The trial judge did not err in characterizing the option income as a material change in circumstances. Even if the husband’s exercise of his options was not a material change in circumstances, his increase in salary and the coming into force of the Guidelines were material changes in circumstances that entitled the trial judge to consider the profit from the options in determining the quantum of support.
It was open to the trial judge to imply a term in the Minutes of Settlement that the husband had a duty to disclose material changes in his financial circumstances at least during the period before the wife would first have access to his income tax returns in 1998. The husband’s pre-settlement representations and the almost immediate significant improvement in his financial position after the Minutes were signed provided the factual basis upon which to found such a duty. One of the documents that formed part of the factual matrix when the Minutes were signed was the financial statement. That document indicated that the husband had stock options that were a contingent asset whose value was unknown. The disclosure in the financial statement respecting the stock options was indicative that the parties did not intend the value of the options to be taken into account in respect of support at the time they entered into the agreement, but only if and when they were exercised. Read together and as a whole, the Minutes and financial statement were indicative of an intention that the husband would disclose a change in his financial circumstances that would affect the physical comfort of the child, and that adjustments would be made to spousal and child support on an annual basis beginning in 1998. It was obvious to the trial judge that the policy of encouraging negotiation and settlement of family law matters would be undermined if the court were to approve the husband’s non- disclosure of his changes in circumstances within such a short time after signing the Minutes. The protracted negotiations over four years, the husband’s representation of his financial situation, the disclosure respecting the options combined with the very short time frame after signing the Minutes within which the options were exercised, and the fact that the wife had no means of accessing this information, were all factors supporting the trial judge’s conclusion that the husband had an implicit obligation to disclose his change in circumstances in order to give business efficacy to the agreement.
The trial judge did not err in exercising his discretion to award retroactive child and spousal support. However, he erred in awarding the Guidelines Table amount of child support prior to the coming into force of the Guidelines in May 1997, in light of the differences in the pre-Guidelines approach to awarding child support. Prior to the coming into force of the Guidelines, a narrower view of children’s needs existed. The payee spouse generally prepared and introduced into evidence a proposed budget for the child’s needs, and there was an onus on the payee spouse to justify the budgeted amount. Under the Guidelines, children have a presumptive right to an amount of support based on the payor spouse’s income. The trial judge did not err in the quantum of support he awarded, except with respect to the award of child support prior to the coming into force of the Guidelines.
*source: Canlii
