Partner Angela Thiele, a family lawyer and Cassandra Drake, a family law associate were counsel for the Respondent in the recent decision of the BC Court of Appeal in Maguire v. Maguire, 2016 BCCA 431.
The Appellant husband, Dr. Hugh Maguire, appealed from an order valuing the family property and debt and ordering a compensation payment from him to the Respondent, Ms. Maguire to effect an equal division of family property and family debt. The compensation payment would only be paid upon the eventual sale of the endodontic practice. The Appellant argued that the trial judge erred by failing to account for corporate and distributive taxes payable on the sale of his endodontic practice and on the sale of real property owned by a second corporation. Accordingly, the sole issue on appeal was whether the trial judge erred in ordering a compensation payment without deducting amounts for corporate and distributive personal income tax.
The Appellant argued that the taxes should be accounted for in assessing fair market value, treated as family debts, or alternatively the compensation payment must be adjusted to account for them.
The appeal was dismissed. In doing so, Mr. Justice Savage reviewed the three bases upon which the Appellant based his appeal. He held that the use of “fair market value” in section 87 of the Family Law Act does not provide for the deduction of taxes payable. He further held that because the taxes in question were neither a financial obligation incurred during the relationship, nor a financial obligation incurred post separation for the purpose of maintaining family property, the taxes could not be treated as a family debt.
Finally, with respect to the Appellant’s argument that the trial judge’s failure to take into account the corporate and distributive taxes amounted to an unequal division of family property, without addressing the “significant unfairness” threshold for making an unequal division, the court held that the more practical considerations of the trial judge had merit. More particularly, it was not certain that the endodontic practice would sell or when, or how it would sell, by assets or shares, or at what amount; or what the tax consequences would be. Nor was it obvious that the second corporation would incur tax, depending on the Appellant’s choices. The income set for the Appellant was approximately $100,000 lower than his average income before trial, and because the compensation payment ordered was a fixed amount, the Appellant had the benefit of maximizing the value of the practice prior to sale. He also had the benefit from the “time value” of money because the compensation payment would not be payable until a sale. Accordingly, in the circumstances in question, it could not be said that the trial judge erred in making the order that he did, which took into account the specific circumstances in this case.