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Equalization Claims Against a Bankrupt Spouse

Re Galeano is a recent Superior Court of Justice decision that addresses the issue of whether one can pursue an equalization claim against a spouse absolutely discharged from the bankruptcy process.

Background

The parties in Re Galeano began cohabiting in 2008, married in 2015, and separated in 2016. Shortly before their separation, the parties filed a joint consumer proposal because they both had serious financial issues and were on the brink of insolvency. However, as a result of the breakdown of their relationship, the joint consumer proposal failed, and each party filed for bankruptcy independently. The husband filed for bankruptcy in October of 2016 and wasn’t absolutely discharged until October of 2018. This meant that his obligation to pay all debt claims against him was forgiven, if they were provable in bankruptcy.

The wife filed for bankruptcy in November of 2016 and was discharged by August of 2018. In April of 2019, the wife brought an equalization claim against the husband, alleging that she was entitled to a division of his pension. The wife argued that the pension was an excluded asset in the bankruptcy process and thus it remained available to satisfy her equalization claim. It was also the wife’s position that her equalization claim was either not provable in bankruptcy and therefore survived the husband’s discharge, or the court could set aside the husband’s discharge or subject his discharge to the condition that the wife be allowed to pursue her equalization claim.

Analysis

Per Boileau v. Boileau, the bankruptcy trustee’s consent is required to pursue the bankrupt spouse’s assets. In this case, the wife did not obtain the consent of the husband’s bankruptcy trustee to allow her to make the equalization claim. She also did not commence her equalization claim until after the husband was discharged, despite being informed of the husband’s bankruptcy proceedings. In some cases, the court allowed a spouse to pursue an equalization claim against their bankrupt partner. However, those cases did not apply to the factual circumstances here. For example, in Boileau, the husband was intentionally trying to defeat the wife’s equalization claim by filing for bankruptcy and concealing the bankruptcy from her. Similarly, in Ramsey v. Proffitt, the husband signed a Separation Agreement allowing his pension to be divided yet declared bankruptcy later to avoid complying with the agreement.

In contrast to those cases, the wife in Re Galeano was fully aware of the husband’s bankruptcy. Additionally, the husband applied for a simple divorce in March of 2017 prior to his discharge and he served that application on the wife, who neither contested the divorce nor brought a claim for equalization of assets at that time. Furthermore, the court found that the husband was in financial difficulty and did not declare bankruptcy to defeat the wife’s equalization claim or to bring an end to ongoing matrimonial litigation. Finally, the Court held that the Supreme Court of Canada’s decision in Schreyer v. Schreyer was applicable. In that decision, it was held that even when an asset is excluded from the bankrupt spouse’s property, if the equalization claim is provable in bankruptcy, then the spouse seeking to pursue their equalization claim must still do so prior to the bankrupt spouse’s discharge, after which time the equalization claim will be extinguished.

Trustworthy Family Law Attorneys

The family law lawyers at Feldstein Family Law Group P.C. can help you pursue equalization claims against your spouse. We are skilled in all legal aspects of monetary compensation and will advocate for your best interests.

Contact our firm online or call us at (905) 581-7222 to get started.

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