You may want to think twice about your divorce after Canada’s top court ruled Thursday that a discharge from bankruptcy destroys the right to enforce a claim for equalization of property in some cases. Unless you live in BC…
As seen in the Financial Post:
When dividing up family property, if one spouse owes the other a hefty payment, they may be able to dodge it through a bankruptcy claim.
In a unanimous ruling, the Supreme Court of Canada said a claim for equalization in divorce proceedings is a provable claim under the Bankruptcy and Insolvency Act. If the spouse entitled to payment doesn’t pursue the claim as a creditor in bankruptcy, it will be released along with most other claims.
This is unlike claims for spousal support and child support, which cannot be avoided through a bankruptcy claim.
The Court said the matter is “ripe for legislative attention so as to ensure that the principles of bankruptcy law and family law are compatible rather than being at cross-purposes.”
But absent Parliamentary action to change the federal bankruptcy law, the Court warned that spouses owed equalization payments should keep the pitfalls of the legislation in mind.
The couple in Schreyer v. Schreyer were in the midst of divorce proceedings in Manitoba when the husband filed for bankruptcy, unbeknownst to the wife, who was not listed as a creditor. When he was discharged about a year later, the husband remained the sole owner of the family farm, which was exempt from creditors.
Meanwhile, the two had gone through the process of valuing their assets to divide them up under the family law regime in the province and the husband owed the wife about $40,000.
The Supreme Court noted that had she made a claim as a creditor in the bankruptcy, the wife, unlike other creditors, could have sought an ownership interest in the farm and enforced that even after he was discharged.
The Court also said if the wife has an outstanding support claim, a family court could take into account the fact that she never received the property payment and award her more support. But that would be up to the judge hearing the case.
The seven-member panel of the Supreme Court dismissed the wife’s appeal from the Manitoba Court of Appeal but ordered no costs in the case.
What’s more, the Act applies differently to litigants depending on what province they live in. In places like Manitoba and Ontario, where the distribution of family assets upon marriage breakdown is done through an equalization payment based on the value of what both spouses’ own, the claim can be extinguished through a discharge from bankruptcy.
But in provinces that follow a division of property scheme, such as British Columbia, divorcing spouses are entitled to a ownership interest in the assets themselves, not just a monetary claim. In those provinces, a bankruptcy discharge could not destroy that interest.
Mark Fidgett, Your Vancouver Mortgage Broker For Life
604-273-2002 or on the web
604-273-2002
P.S. Who’s the next person you know who needs Help with their Stuff?
Be sure to give me a call so we can help them get on that path!
Comments(0)