Equalization and Claiming Bankruptcy: Thibodeau v. Thibodeau

In this case, the husband and wife voluntarily attended arbitration regarding their matrimonial matter. The wife was granted a lump sum for spousal support arrears, and an equalization payment. However, subsequent to the arbitration award, the husband went bankrupt. The most contested issue within this matter was whether the wife could claim priority over other creditors to the husband’s half share of the sale proceeds of the jointly owned matrimonial home. The wife decided to bring the matter to the Court one day before the husband declared bankruptcy.

The total amount of spousal support due to the wife was about $182,000.00. The Bank of Nova Scotia acted as a trustee in bankruptcy for the husband. The Bank of Nova Scotia was agreeable to the wife having a priority claim for the above amount. However, two issues remained. These issues were whether the wife could claim priority over the husband’s half share of the sale proceeds to satisfy the equalization payment to her and whether the wife could satisfy the balance of her equalization claim against the husband’s RRSP. This became an issue as recent amendments to the Bankruptcy and Insolvency Act have made RRSP’s beyond the reach of a normal creditor. The Bank argued that the wife would not have any priority over the husband’s share of the sale proceeds of the matrimonial home regarding the equalization payment that the husband owed to the wife. The wife contested that her equalization claim could be satisfied against the husband’s share of the sale proceeds of the matrimonial home and his RRSP. Thus, the wife wanted her claim for an equalization payment to have priority over the Banks.

Given that the Ontario Superior Court of Justice had jurisdiction to enforce the arbitration award of the wife’s equalization payment, the Court dealt with the two mentioned issues. The first issue about the wife claiming priority over the husband’s half share of the sale proceeds to satisfy the equalization payment was accepted by the Court. The Court acknowledged that when the Bank is acting as a Trustee for the husband, their interests in the matrimonial home proceeds are secondary to any existing equities such as the obligation to satisfy the equalization payment to the wife which was determined in the arbitration award prior to the husband filing for bankruptcy.

The second issue about the wife satisfying the remainder of her equalization claim against the husband’s RRSP was also accepted by the Court. The Court decided that a bankrupt’s pension should be used to satisfy a claim for equalization as a pension does not form one of the assets under the control of the Trustee. This meant that the Court could order such remedy as the pension is an exempt asset from bankruptcy. The Court found that if the husband could concurrently claim bankruptcy and keep his pension without paying the equalization payment, this would be unfair. The Court decided that since the husband could not satisfy his equalization obligation to his wife, a more intrusive order was suitable. Thus, the Court ordered that the husband’s RRSP be transferred to the wife through a spousal rollover.

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