Bankruptcy and Property

with Lauri Daitchman

Please note: The script may not be exactly what is spoken, but contains the same information as presented in the video.

Hello, my name is Lauri Daitchman and I am an associate lawyer with Feldstein Family Law Group. Today I am going to speak about bankruptcy and property.

The interplay between the Family Law Act’s property division provisions and the Bankruptcy and Insolvency Act’s bankruptcy provisions are fraught with difficulties in the province of Ontario. The timing of a party’s assignment into bankruptcy is important in determining the regime of property division that applies to the parties.

If the one party has been discharged from bankruptcy prior to separation, then a post-separation equalization claim is not affected by the bankruptcy.

However, where the parties’ separate and post-separation one party files for bankruptcy prior to equalization being determined, then the bankruptcy does effect the determination of equalization. For example, say the party who owes an equalization payment files for bankruptcy, then the other party who is owed an equalization payment will likely be treated as an unsecured creditor. Even if that party ends up getting an order for equalization, he or she may be unable to collect on the payment because of his or her unsecured creditor status. There are, however, ways to resolve this issue.

One option is to make a trust claim over property that may survive bankruptcy, for example, a pension or an RSP. A trust claim is when one party seeks an interest in property that is registered in someone else’s name. As pensions and RSPs usually survive bankruptcy, a successful trust claim in such an asset will provide the non-bankrupt spouse with an interest in the asset. It is important to note, however, that trust claims can be difficult to make successfully.

Another option if you are denied an Equalization Payment that would otherwise be owed to you because of a claim for bankruptcy is to seek a larger amount of Spousal Support. If you are entitled to Spousal Support, you may be awarded a larger amount of Spousal Support than you would otherwise be entitled to receive in order to address the inequity that arose when you were denied your Equalization Payment.

If you are considering bankruptcy, or you believe that your former spouse may be considering bankruptcy, it is important that you seek legal advice at the earliest possible time as the timing of your claims may affect the ultimate distribution of property.

I’m glad that you could join me to today to discuss the topic of bankruptcy and property. As bankruptcy’s effects on property claims are very complex, this session is merely an introduction to some of the many issues that may arise upon a party’s assignment in bankruptcy. Thank you.