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News and Views – Epstein’s This Week in Family Law

Saskatchewan Court of Appeal discusses Spousal Support Advisory Guidelines for the first time, provides detailed standard of review analysis

Epstein’s This Week in Family Law

By: Philip Epstein

Spousal Support - The SSAG - Valuation Issues - Post Separation Income - Reviews

Frank v. Linn, 48 R.F.L. (7th) 34 (Sask. C.A.): This is an important and significant judgment of the Court of Appeal of Saskatchewan on a number of different family law issues. Of great importance is the fact that this is the first time that the Court of Appeal for Saskatchewan has comprehensively opined on the Spousal Support Advisory Guidelines and it has much to say on this topic.

The parties cohabited for 16 years. They each had one young child of a first marriage, but from the time the cohabitation began until it ended Ms. Frank stayed home and looked after the children and helped Mr. Linn and his career. The parties never married. Upon separation Ms. Frank applied for a division of assets and for spousal support.

The first task for the Court of Appeal was to sort out whether the trial judge had erred with respect to the valuation of Mr. Linn’s shares of his business. Mr. Linn’s valuator wished to rely on a Unanimous Shareholders Agreement that determined how shares would be valued. Ms. Frank’s valuator wanted to determine the fair market value of the shares based on generally accepted accounting principles and on an adjusted net book value basis.

Counsel at trial reached an agreement that required the trial judge to accept either one of the two different approaches by the valuators.

The trial judge was alive to the issue that notwithstanding the agreement of counsel, he was not bound to choose between the two approaches if it could potentially lead to an error. The learned trial judge said:

My current analysis leads to the conclusion that accepting the agreed statement of facts may result in errors of fact and law. Neither opinion provides a business evaluation wherein value is determined “according to known facts and future probabilities” as specified by Wilkinson J. in Waller v. Waller (1998), 165 Sask. R. 161 (Q.B.), at paragraph 19.

Thus, the trial judge was left with the conundrum of what he was to do if he rejected both reports on the basis that they failed to value Mr. Linn’s shareholder interest in accordance with the law and the relevant principles. He opined that that might to lead to a new trial. Ultimately, the trial judge decided that he would proceed by having a conference call with counsel, on the record, and see where that led counsel and the parties. As a result of the judge’s stated concerns, counsel agreed that they would reconvene the trial and they would call the authors of their respective reports. However, when they did in fact return to court, only Ms. Frank recalled her expert and Mr. Linn decided, obviously for tactical reasons, not to call his valuator.

The trial judge then engaged in a careful analysis of the evidence and determined that he was not bound by the Unanimous Shareholders Agreement for the determination of value, and that he was inclined to and did accept Ms. Frank’s valuation including a 10 per cent minority discount.

The trial judge discounted the tax liability that Mr. Linn would incur upon the sale of his shares. Mr. Linn testified that he would be retiring shortly and selling the shares within a relatively short period of time. He thus wanted to deduct all of the tax that would be triggered on a sale. Ms. Frank’s valuator recommended 75 per cent of the total tax discount and Mr. Linn’s accountant argued that Mr. Linn should be given the full discount. The trial judge referred extensively to the case law, particularly the cases set out in James v. Belosowsky, 23 R.F.L. (7th) 325 (Sask. Q.B.) and determined that an appropriate discount of the tax would be 50 per cent. What is important for all of us to consider is that firstly, the tax must be taken into account, and secondly, it must be discounted to take into account contingencies, but in the end there must be some evidentiary basis for the appropriate discount.

The real significance of this case, however, is the Court of Appeal’s comments about the Spousal Support Advisory Guidelines.

At trial Ms. Frank sought $31,000 per month as spousal support under the Family Maintenance Act. She did this based on the assumption that Mr. Linn’s income was approximately $1,200,000 for the year post separation. The trial judge found that Ms. Frank was entitled to both compensatory and non-compensatory support. The trial judge imputed income to Ms. Frank in the amount of $30,000 per annum as a potential earnings, and $49,000 as investment income, and ordered Mr. Linn to pay $10,000 a month on an indefinite basis. He also ordered a review when Mr. Linn retires and sells his shares at which time the trial judge directed that Ms. Frank will bear the onus to show that spousal support should continue.

The Court of Appeal recognized that since the parties never married, their support obligations fall to be assessed in accordance with the Family Maintenance Act. Nevertheless, they noted that the Spousal Support Advisory Guidelines are relevant and helpful. The Family Maintenance Act support provisions closely parallel section 15 of the Divorce Act, and thus raise the same issues in relation to the Guidelines for the purposes of appellate review as have arisen with respect to the Divorce Act.

As the Court of Appeal carefully notes, the trial judge used the Guidelines in these specific ways in his reasons.

(i) he referred to jurisprudence, which in turn relied on the Guidelines, to impute income to Ms. Frank, (ii) he set forth the range of support that the Guidelines would suggest in this case, and explained his departure from that range (paras. 198 to 200), and (iii) he ordered indefinite support, which he stated “is in line with” the Guidelines (at para. 201).

The full text is continued in the PDF below.

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