SUBMISSION TO THE SENATE COMMITTEE
ON BANKING, TRADE AND COMMERCE
Robert A. Klotz, B.Sc., J.D., LL.M.
August 13, 2003
INDEX OF RECOMMENDATIONS
1. Integrity of Support Enforcement After Bankruptcy
2. Integrity of Support Enforcement During Bankruptcy
3. Bankruptcy Being Used to Frustrate Pension Division
4. Trustee's Right to Sue for Matrimonial Property Division
5. Malicious or Fraudulent Dissipation or Concealment of Property
1. Integrity of Support Enforcement After Bankruptcy
Recommendation
Amend the BIA to ensure that bankruptcy does not prevent support claimants from recovering 100% of their support arrears from the bankrupt spouse.
Background
This proposed reform is intended to address the injustice resulting from the recent Cameron decision of the Alberta Court of Appeal.1
In 1997, Parliament amended the BIA to provide for the provability and limited priority for child and spousal support arrears. This has resulted, in many cases, in payment of a dividend to the claimant spouse on account of support arrears, whereas before 1997 such a claimant would receive nothing from the bankruptcy. Any unpaid remaining claims for support arrears still survive the bankruptcy discharge. This was a benevolent reform.
As in the case of all dividends paid by the trustee to creditors, the Superintendent of Bankruptcy receives a 5% levy on all such dividends. So if the support claimant, say the wife, is owed $10,000 in child support arrears, and she is entitled to receive this amount as a priority dividend from the trustee on account of the claim, she will actually receive only $9,500. The 5% levy, or $500, is payable to the Superintendent as, in effect, a bankruptcy tax. The issue, however, is whether she can recoup the unpaid $500 from the husband after his discharge. The Cameron decision says that she cannot: she must give him credit for $10,000 even though she only receives $9,500. This portion of the support arrears will never have to be paid.2
The Court's analysis, regrettably, does not reflect the important public policy favouring the collection and payment of spousal and especially child support that has been articulated in numerous provincial and federal statutes across Canada, and such cases as the Supreme Court of Canada's decision in Marzetti v. Marzetti.3 The Court does not focus on the real question, which is who should bear the burden of the 5% levy as between the support payor on one hand, and the support recipient, normally the wife and children, on the other? There is no policy reason to ignore the special vulnerability of support claimants. After all, the bankrupt is getting the benefit of extinguishing all his other debts, along with a bankruptcy stay period. As between the two (protected support claimant versus debtor who has voluntarily declared bankruptcy), clearly the bankrupt should pay the 5%.
The support claimant, and the children, should not suffer from the bankrupt's choice to declare bankruptcy. It runs contrary to current social and legislative policy to give the bankrupt more credit than the monies actually received by the claimant. The fundamental premise of the 1997 support amendments to the BIA was not to prejudice the collection of support in any manner.4
In my submission, this decision reflects bad policy and should be legislatively reversed, both generally for all s. 178 creditors, but in particular for those holding claims for support arrears.
Detailed Recommendation
This issue can be resolved in various ways:
(a) The BIA could clarify that for all s. 178 creditors whose claims survive bankruptcy under s. 178, they need give credit to the bankrupt only for dividends actually received from the trustee. This was the normally understood situation before the Cameron decision.
(b) Alternatively, this clarification could be provided only for support claimants, that is, those who receive dividends under s. 121(4) or whose claims survive discharge under s. 178(1) (b) or (c).
(c) Alternatively, or additionally, an amendment might be made to eliminate any superintendent's levy on dividends paid in respect of support arrears. I favour this solution, as we are not talking about significant sums and there are good policy reasons for exempting this kind of creditor from the levy requirement. It is likely that such an exception would have a negligible impact on funding the Office of the Superintendent of Bankruptcy.
(d) Finally, the amendment could eliminate the levy solely in respect of dividends for child support arrears, leaving spousal support arrears out. This might be a challenge for interpretation, as often it is unclear to what the support claim relates (ie indemnity obligations, cost awards) as between spousal or child support.
2. Integrity of Support Enforcement During Bankruptcy
Recommendation
Amend s. 69.41 to clarify that only court orders made under s. 68 have priority over the enforcement of spousal and child support against the bankrupt's income during bankruptcy.
Background
An ambiguity in the BIA is causing difficulty for spouses who try to collect their support from the wages of a bankrupt spouse when the bankrupt spouse has entered into a surplus income agreement with his or her trustee in bankruptcy. This results from the awkward interaction of s. 69.41 with s. 68 and the Superintendent's Standards.
In theory, and under proper bankruptcy policy, the bankrupt should not be paying surplus income to his trustee unless there are sufficient monies available after providing for his family's welfare. In the case of a separated family, this means that the support obligations, whether under separation agreement or court order, come first. Only if there is an excess after support obligations, should surplus income be payable. Indeed, this approach is reflected in s. 68(3) and 68(10) -- which require the trustee, and the court, to have regard to the personal and family situation of the bankrupt; and in the Superintendent's Standards -- which require that the trustee permit the bankrupt to deduct both child and spousal support payments when calculating surplus income.5
However, s. 69.41(2)(b) provides that the enforcement of support claims is stayed against "amounts that are payable to the estate of the bankrupt under s. 68". Some trustees have interpreted this provision to mean that once they make a surplus payment agreement with the bankrupt, without any judicial scrutiny and without notice to the support claimant, they can enforce this obligation in priority over the support claimant's wage garnishment. In effect, by merely serving a notice upon the employer, the trustee thwarts full payment of spousal and child support.6
This can cause real hardship in several ways:
• The bankrupt may harbour malice toward his or her spouse, and may therefore agree to high surplus income payments that will preclude proper payment of support;
• The bankrupt's income may drop, resulting in the trustee receiving undiminished surplus income payments, but the spouse and children bearing the sole and full brunt of the reduced income.
• The trustee may be overzealous, or may misinterpret the calculations or overlook the extent of any support arrears.
• The surplus income agreement may be made before separation, resulting in a payment obligation that frustrates the enforcement of a subsequent court order for support.
To control this problem, the BIA should clearly specify that support payments have priority over the bankrupt's income except to the extent of a court order made under s. 68. Simple agreements made between the bankrupt and the trustee ought not to have prioritizing effect over support obligations, without sanction or scrutiny of the Bankruptcy Court. This should be clarified by replacing, in s. 69.41(2), the reference to s. 68 with the phrase "an order made under s. 68". Such a clarification would alleviate unnecessary suffering. As a practical matter to ensure that all facts are before the bankruptcy court making such an order, s. 68 should provide that notice of such proceedings ought to be served upon any person to whom the bankrupt is obligated to pay spousal or child support.
3. Bankruptcy Being Used to Frustrate Pension Division
Recommendation
The BIA should be amended to provide that bankruptcy does not stay or release any claim for equalization or division against exempt assets under provincial laws relating to equalization or division of matrimonial property.
Background
Bankruptcy is being used in some provinces to frustrate division, under family law principles, of the bankrupt's pension and other exempt assets such as exempt RRSP's. This will become a more serious and prevalent problem if and when Parliament enacts an RRSP exemption. There is no policy reason for permitting bankruptcy, which does not distribute such assets among creditors, to frustrate the principles of matrimonial property division against these assets. The idea that this could occur mocks the importance the courts place on dividing pension assets between otherwise assetless spouses. It would amount to rehabilitating the bankrupt at the expense of his or her spouse. This possibility has been described in bankruptcy cases as "blatantly unfair",7 "unjust",8 and "grossly unfair, if not deplorable".9 Outside the bankruptcy setting, the Supreme Court of Canada considers this result "intolerable".10 But the current structure of the BIA permits it in many cases.
Canada's provinces have, by and large, two different kinds of matrimonial property statutes. Some have "division of property" schemes which allow exempt assets to be divided despite bankruptcy.11 It is the other provinces, whose schemes provide for "equalization of property", where serious problems occur in connection with bankruptcy and exempt assets. These provinces are Ontario, Manitoba, P.E.I. and, to a lesser extent, Québec.
In the early 1990's, several Ontario cases reached the unfortunate result that bankruptcy precluded equalization of exempt assets such as a pension.12 In response to this injustice, a practice developed in Ontario to overcome this problem through judicial discretion. The pension claimant can now seek and obtain an Order from the Bankruptcy Court lifting the bankruptcy stay of proceedings, by granting leave to proceed with the equalization claim against the pension or other exempt asset notwithstanding the bankruptcy or the discharge. Such an order permits the matrimonial court subsequently to quantify the equalization claim and then effect an "if and when" division, or a division in specie, against the exempt asset. This remedy does not contravene bankruptcy policy as it imposes minimal hardship on the debtor's cash flow or rehabilitation.13
This is an imperfect solution however, since several serious problems remain:
• If the leave order is not obtained before the bankrupt's discharge, the pension claim is forever extinguished.14 This severely penalizes spouses who do not obtain legal advice in time or who cooperate with the other spouse's bankruptcy, or perhaps who do not receive notice of the bankruptcy.
• The cost of retaining a lawyer and obtaining the requested Bankruptcy Court order is not insignificant, costing upwards of $1,500 in some cases. This cost is an unfortunate burden on the spousal claimant at such a vulnerable time.
• Although there is no case law yet directly on point, it is possible that a bankruptcy proposal will also extinguish the equalization claim against the pension unless preventive steps are taken.15 The proposed increase in the debt ceiling for consumer proposals will make this a more serious threat.
By virtue of federal paramountcy, this problem cannot be easily fixed at the provincial legislative level. While provincial legislation providing for division at source may in future solve the problem as regards pensions, it will likely not cover exempt RRSP's. The best solution is a modest amendment to the BIA. The BIA should be amended to provide that bankruptcy does not stay or release any claim for equalization or division against exempt assets under provincial laws relating to equalization or division of matrimonial property. This would have the effect, in the equalization provinces, of both eliminating an unnecessary cost to needy claimants, and preventing the unjustifiable extinction, through bankruptcy or a proposal, of the right to obtain division against exempt assets. Finally, this proposed amendment has minimal or no impact on the bankruptcy trustee or the creditors.
This amendment might best be made in a new s. 69.41(3).
4. Trustee's Right to Sue for Matrimonial Property Division
Recommendation
The BIA should be amended to exclude from the assets vesting in the trustee, the right to sue the bankrupt's spouse for equalization or division of property under provincial matrimonial property legislation.
Background
Under current law in Ontario, Manitoba and Québec, and perhaps in other provinces, the trustee in certain circumstances acquires the bankrupt's right to sue the non-bankrupt spouse for matrimonial property division or equalization. The right to sue - called a "cause of action" - is treated as an asset which vests in the trustee.
Specifically, if an action for equalization or property division is underway against the bankrupt's spouse at the date of bankruptcy, the trustee acquires the right to litigate or settle the claim.16 This is sometimes referred to as the Bosveld rule.17 The right accrues to the trustee even though the applicable legislation usually defines it to be a "personal" right as between the spouses.18
Other jurisdictions have rejected the transmissibility of the matrimonial property claim in bankruptcy on public policy grounds. In Australia, the bankrupt's right to claim division remains with him or her despite the bankruptcy, and does not vest in the trustee.19 The Australia Family Law Council20 has rejected the notion that the trustee should be able to continue proceedings for division against the non-bankrupt spouse. The Council wished to avoid the remaining assets of the non-bankrupt spouse being dissipated in litigation. New Zealand jurisprudence precludes the trustee in bankruptcy from enforcing a spouse's right to a discretionary property division.21
In addition to the policy grounds against transmissibility, there is a practical side to this problem. The matrimonial property claim is normally not a valuable right in the trustee's hands, for many reasons. The trustee faces many risks when conducting a bankrupt spouse's matrimonial property claim, all of them impeding, in the ordinary case, the trustee's ability to fully realize the value of the claim. Usually, there are insufficient funds in the estate to pay for the substantial legal costs required to conduct the litigation. This has two consequences. The trustee will not only have difficulty funding its own counsel, but will also become personally liable for any cost order if the opposing spouse is successful. This risk may be minimized by obtaining funding, and an indemnity, from the creditors - but in practice this is often unavailable.
The bankrupt is often an unreliable witness. Since he or she does not stand to gain from the property claim, there is no personal incentive for the bankrupt to counter any allegations of misconduct. More subtly, the bankrupt may be motivated to give less than enthusiastic evidence if the solvent spouse is entitled to spousal or child support. The bankrupt eventually realizes that if the trustee succeeds in the matrimonial property claim, the solvent spouse might require or be entitled to increased support, which the bankrupt spouse must fund out of his or her future income. It is difficult to wage a hotly defended lawsuit where the key witness has no motivation to help and may have good reason to hurt the case.
No matter how objective and "non-discretionary" the matrimonial property claim is characterized in the jurisprudence and the legislation, the plain fact is one cannot reliably bring this kind of claim to fruition when it has been detached from the spouse for whose benefit the remedy was designed. Matrimonial court judges often hold strong prejudices in favour of the spouses and the family, and against the impersonal creditors represented by the trustee.22 The legislation can be stretched or applied to frustrate the trustee's claims in several ways. Exemptions from division may be granted or denied on a host of discretionary grounds. Reconciliation may extinguish the claim at any time.23 The court may apply the unconscionability or inequitability factors to grant unequal division.24 Since these factors include many elements traditionally associated with support entitlements, the court may be persuaded to reduce the equalization payment to account for child or spousal support factors. Even if the court cannot do so directly, the discretion exists to do so indirectly through an unequal apportionment. In theory there is no reason to preclude the matrimonial court from setting off or securing support-related claims against the trustee's equalization entitlement. Provided the discretion to do so is exercised judicially, this may be quite proper. In the matrimonial setting, discretion is commonly exercised by trial courts to cut out creditors' interests.
All of this demonstrates that even if the right to sue for equalization or division accrues to the trustee, the sad fact is that the trustee is rarely in a position to realize upon this asset in any meaningful way. It must usually be settled for a steep discount, or surrendered for nothing. However the effect of this reality is to undermine confidence in the system. The bankrupt spouse is deprived of the opportunity to obtain matrimonial justice; the non-bankrupt spouse retains all but a fraction of the bankrupt spouse's share of the family assets; and the creditors get a pittance, which itself is often shared only among the professionals in the system. The bankrupt spouse is unable to trade off his or her equalization claim against a reduction or extinction of spousal or child support. The bitterness this creates can be enormous. The marginal, minimal benefit to the creditors is arguably not worth the cost of matrimonial justice denied.
There is much to commend what I refer to as the Alberta rule, namely that the matrimonial property claim does not vest in the trustee unless and until it has been exercised and crystallized, either legislatively25 or in a judgment or agreement. The creditors still obtain the benefit of any statutory vesting, or any judgment or agreement that is made before the date of discharge; however the trustee does not participate in the litigation or the negotiations.26
Note that this rule allows for some chicanery and manipulation. For example, the Alberta rule would allow the claimant spouse to discontinue a pending equalization claim when his or her creditors threaten, and indeed even after bankruptcy.27 The claimant could await his or her discharge, and then renew the claim after sloughing off the creditors. Or the claimant could declare bankruptcy, then sign an agreement setting off his or her equalization claim against future support obligations, or exchanging equalization for a future support stream. Or the claimant could settle the claim by providing for an in specie transfer of exempt assets such as a pension rollover, rather than a money payment which would accrue to the trustee.28 To some extent the bankruptcy discharge hearing may be used to control these improprieties. If the bankrupt is poised to reap a large matrimonial property settlement following the bankruptcy, this can be raised at the discharge hearing.
In short, the Bosveld rule is highly problematic, both in practical terms and on policy grounds. The matrimonial property claim ought to be personal between the spouses, even after one of them has commenced an application under matrimonial property legislation.
Detailed Recommendation
All this commends the following proposal:
(a) The BIA should be amended to exclude from the assets vesting in the trustee, any cause of action for equalization or division of property arising solely under provincial matrimonial property legislation. Thus the trustee will not become a party to the matrimonial property claim, nor will the trustee have the right to reach a settlement with the non-bankrupt spouse on account of the claim.
(b) The following rights will, however, continue to vest in the trustee: any statutory vesting which occurs by operation of law; any trust, property or contractual entitlements that do not derive solely from such provincial matrimonial legislation; and any rights accruing to the bankrupt for non-exempt property pursuant to a judgment or agreement made before the date of bankruptcy or up to the date of discharge.
(c) If matrimonial property litigation is underway, the trustee shall have the right to obtain a stop order or other protective disposition to preserve the estate's entitlement to any proceeds once they have been crystallized in a judgment or agreement.
(d) If the matrimonial property litigation is not settled by the date of discharge, the trustee or creditors should be entitled to seek a remedy at the discharge hearing.
5. Malicious or Fraudulent Dissipation or Concealment of Property
Recommendation
Amend the BIA to exclude from the bankruptcy discharge, any provable claim for matrimonial property division that arises from the bankrupt's malicious or fraudulent dissipation or concealment of property, limited to the amount of the dividend that the creditor would have received but for such conduct.
Background
The problem of malicious spouses frequently arises in both family law and bankruptcy. Separation can unleash powerful and destructive emotions between the spouses. This results in many instances seen in the jurisprudence, where one spouse is determined to ensure that the other spouse receives nothing. Bankruptcy is sometimes used as a step in such a plan, which can also involve deception, dissipation, concealment, destruction of property, phony creditors, fraudulent transfers, corporate machinations, and other schemes limited only by the depths of human cunning and antipathy.
This problem cannot be addressed in a simple fashion, as the allegations are more easily made than proven. There are several techniques that can be utilized to address the problem where bankruptcy intervenes, including an annulment application, fraudulent conveyance remedies, and spousal support orders. The option of opposing the bankruptcy discharge hearing is useful only if there are few other creditors, since any benefit from the discharge hearing must accrue to all creditors generally. These techniques are usually expensive and uncertain, requiring lengthy hearings and often resulting only in paper judgments.
If we are to take seriously the injustice created by such conduct, we ought to provide a simple remedy to the victim, if we can, that does not embroil him or her in a fresh round of litigation once bankruptcy ensues. At the same time, we must be concerned that this remedy be appropriately designed so as not to prejudice an honest but unfortunate debtor.
Therefore I suggest the following remedy. Section 178 of the BIA should be amended to add a new category to the debts which survive bankruptcy, namely a debt for equalization or division of property under provincial matrimonial property legislation, to the extent that such debt arises from the bankrupt's malicious or fraudulent dissipation or concealment of property.
The misconduct might occur before the trial of the matrimonial dispute, in which case a finding of malicious or fraudulent dissipation might be incorporated into the judgment itself. The misconduct might also arise subsequent to a judgment or separation agreement, in which case a court would have to make a finding on this point after bankruptcy.
The remedy must be limited to the amount of the dividend that the spousal creditor would have received but for the bankrupt's misconduct. This limitation is needed to prevent a larger remedy than is intended, as the following example illustrates. Let us imagine a wife who owes her husband $100,000 for equalization, and who has $200,000 of other creditors. If she declares bankruptcy holding an asset worth $150,000, the husband would receive a dividend of about 33%, namely $50,000, and the balance of his claim would be extinguished by her discharge. But if she had maliciously dissipated this asset, he and the creditors would receive nothing. Hence the most he can "blame" her for is the loss of this $50,000. The specific loss from her misconduct is $50,000, not $100,000, even though there has been $150,000 of dissipation.
Note that it would be bad policy to exempt entirely, debts for equalization or division of property. Such debts may not reflect the subsequent vicissitudes of the economy, or health, or loss of employment, or the expenditure of assets to pay support obligations, or fresh family obligations imposed upon the payor by virtue of remarriage, or the innocent happenstance of circumstance. Nor would it be appropriate, in my view, to permit mere "reckless" dissipation to survive bankruptcy. Conduct that is merely reckless does not demonstrate the degree of moral opprobrium that is necessary to justify overriding the rehabilitative and restorative functions of the bankruptcy discharge.
There are certain drawbacks in this recommendation. First, it may encourage spouses to make unwarranted allegations in matrimonial litigation, for tactical advantage. Matrimonial legislation has moved toward eliminating "fault" as a criterion of both property division and divorce, largely for the purpose of reducing the hostility and expense in litigating over marital breakup. Introducing fault into the BIA may revive some of this in pre-bankruptcy matrimonial litigation.
Secondly, there is the risk that the court could frustrate the rehabilitative policy of bankruptcy by reaching the wrong decision on dissipation. The bankrupt spouse may have insufficient assets or surplus income to fund the proper defence of a dissipation allegation. Financial exhaustion through legal fees is a not infrequent cause of bankruptcy in the matrimonial context. An innocent, or merely reckless, spouse who has already lost everything, may in addition have his or her financial future destroyed through such a finding. There is no fresh start.
August 13, 2003
Respectfully submitted,
"Robert A. Klotz"
KLOTZ ASSOCIATES
Barristers & Solicitors
405 - 121 Richmond St. West
Toronto, Ontario
M5H 2K1
Phone: (416) 360-4500 ext. 206
Fax: (416) 360-4501
Email: bobklotz@klotzassociates.com
NOTES:
1. Cameron (Bankrupt), Re, 2003 ABCA 142, sub nom McKay v. Cameron, [2003] A.J. No. 562 (Alta C.A., May 8 2003), affirming Cameron, Re, [2002] 6 W.W.R. 687, 32 C.B.R. (4th) 176, 25 R.F.L. (5th) 252, 301 A.R. 228, 2 Alta. L.R. (4th) 86 (Q.B., Veit J.), affirming Cameron, Re (2002), 31 C.B.R. (4th) 204 (Alta. Registrar Funduk)
2. The Court's reasoning, to summarize, is as follows: The new priority amendment benefits support claimants by giving provability and priority. The payment of a 5% levy is a small price to pay for access to this system. Not every law of general application needs to be re-interpreted to give special status to women. There is no discernible policy reason for relieving support creditors from the general obligation of bankruptcy creditors to help support the public service provided by the Superintendent. If there is any ambiguity, the new support priority is "a more than fair trade-off" for the levy, by adding an enormous benefit to the pre-existing situation of support creditors. That advantage is clearly worth payment of the 5% levy. In effect, the public policy expressed by Marzetti has been expressed, indeed exhausted, by the 1997 amendments. There is no ambiguity in the legislation, and thus social policy issues need not be addressed.
3. Marzetti v. Marzetti, [1994] 2 S.C.R. 765, 5 R.F.L. (4th) 1, 26 C.B.R. (3d) 161, 169 N.R. 161, 20 Alta. L.R. (3d) 1, [1994] 7 W.W.R. 623 (S.C.C.)
4. This policy is clearly articulated in another recent Alberta decision, Watson v. Schellenberger (2002), 38 C.B.R. (4th) 130, [2003] 3 W.W.R. 75, 9 Alta. L.R. (4th) 192, 321 A.R. 371 (Q.B., Watson J.), where the court noted that the 1997 BIA support amendments were enacted at about the same time as the Federal Child Support Guidelines and changes to the Divorce Act regarding the precedence of child support. The court stated that "Parliament was sending a strong message in more than one piece of legislation about the importance of child support." ¶31. "The intent of Parliament was to ensure that child maintenance support orders and agreements would survive bankruptcy and that the effort to enforce them would be given a special status." ¶38. Provincial legislation also shows a clear legislative intention that child support be paid and enforced. "It is my conclusion that the policy as to child maintenance and support as reflected in legislation would trump the policy as to bankruptcy protection for debtors to the extent that there might be any conflict or ambiguity as between the policies when it came down to application of s. 178(1)(c) of the [BIA] to a particular situation."
5. Superintendent's Directive No. 11R, s. 6(3): The family unit's available monthly income is determined by subtracting from the family unit's total monthly income the monthly non-discretionary expenses applicable to the personal and family situation of both the bankrupt and the bankrupt's family unit: (a) child support payments; (b) spousal support payments; ...
6. This has been the subject of complaint by at least one provincial support enforcement agency (Alberta) to the author.
7. Schroeder v. Schroeder (1993), 47 R.F.L. (3d) 290, 19 C.B.R. (3d) 316, 110 Sask. R. 232 (Q.B.)
8. Gingras c. Gingras, [2002] O.J. No. 924 (Ont. S.C.J., Charbonneau J., 21 février 2002), ¶38.
9. Rombough v. Rombough (1993), 89 Man. R. (2d) 82 (Q.B., MacInnes J.) at p. 85
10. Clarke v. Clarke, [1990] 2 S.C.R. 795, 28 R.F.L. (3d) 113 (S.C.C.), quoting with approval the comments of Hall J. in Lefort v. Lefort (1988), 13 R.F.L. (3d) 359 (N.S. S.C.) at 365: "The problem here, however, is that there are not adequate assets to respond to an order for an unequal division that would be of any practical benefit to the wife. The only asset of any consequence, matrimonial or otherwise, owned by the parties other than the rather modest household goods and furnishings and the husband's automobile is the husband's pension fund. In my opinion it would be intolerable and contrary to the intent of the Matrimonial Property Act to permit the husband to claim for himself sole entitlement to this asset with the benefit of future security accruing only to him, while the wife, who has the principal responsibility of the care of the children, is left with a few sticks of furniture."
11. Such provinces include B.C., Alberta, Saskatchewan, Newfoundland and Labrador, New Brunswick and Nova Scotia.
12. Balyk v. Balyk (1994), 3 R.F.L. (4th) 282 (Ont. Gen. Div.); Helwig, Re (1995), 36 C.B.R. (3d) 141 (Ont. Dep. Registrar Stevens)
13. See, for example, Hughes, Re (Unreported, October 23, 1997, Greer J., Ont. Gen. Div. #32-071120): "The wife's claim for equalization against the Bankrupt's pension has no effect on any of the rights of the other creditors in bankruptcy, as the pension does not form one of the assets under the control of the Trustee .. The lifting of the stay does not affect the assets controlled by the Trustee nor does it prevent the Bankrupt from making a "fresh start", if he is discharged in November. Such a declaratory order is a special remedy against exempt assets, and in my view this takes the case at bar out of the line of cases which hold that leave will not be granted to continue an action against the Bankrupt where the creditors claim is provable in bankruptcy."
14. Stiles v. Stiles (1999), 11 C.B.R. (4th) 315 (Ont. S.C.J., Platana J.): Unless the bankruptcy court has already granted leave to proceed against the pension, "Once the bankrupt wife is discharged, the husband's claim for equalization (against the pension) will be released, and the husband will have lost any right he has to ask a court to grant any remedy against the wife's pension." (p. 318, ¶11); Janakowski v. Janakowski (2000), 7 R.F.L. (5th) 117 (Ont. S.C.J., Gauthier J.)
15. See R. Klotz, Bankruptcy, Insolvency and Family Law, 2nd Ed. (Carswell, 2001, supplemented) (hereinafter "BIFL"), §10.3(e)
16. The rule applies in Québec solely in respect of the right to claim division of family assets. While the nuances of Québec law on this point are complex and in flux, numerous cases and commentators confirm that the division remedy is transmissible to the trustee, as discussed in BIFL §6.1(f) and such cases as G.B. c. V.B., [2001] J.Q. no 2665 (C.S. Qué., Chaput J., 22 mai 2001); D.L. c. R.O.W., [2002] J.Q. no 923 (C.A. Qué., 29 avril 2002); Droit de la famille - 1809, [1993] R.J.Q. 1522, [1993] R.D.F. 546 (C.S.Q.); Charbonneau (Syndic de), [1991] R.J.Q. 2040 (C.S.Q., Registraire). The rule does not apply to those provinces (Alberta, Québec's compensatory allowance remedy) whose matrimonial remedies are wholly discretionary; though a recent questionably reasoned Alberta case has reconsidered this point, holding that the matrimonial property claim indeed accrues to the trustee under Alberta's fairly discretionary legislation: Tinant v. Tinant, [2003] A.J. No. 856 (Alta. C.A., July 2, 2003, Ritter J.A. in Chambers). These issues are discussed at length in BIFL, Chapter 6.
17. Bosveld, Re (Unreported, January 10, 1986, Ont. S.C. at London, Bankruptcy File No. 35-023467, per Sutherland, J.), also referred to as Kelly v. Bosveld.
18. Blowes v. Blowes (1993), 59 R.F.L. (3d) 27, 21 C.B.R. (3d) 276, 16 O.R. (3d) 318 (C.A.).
19. In the Marriage of Page (No. 2) (1982), 8 Fam. L.R. 316; [1982] F.L.C. 91-241 (Australia Fam. Ct.): The right to claim division of property is personal to the bankrupt, does not accrue to the trustee. Luxton v. Luxton, [1969] A.L.R. 93, [1968] V.R. 540 (Victoria S.C.): The bankruptcy trustee does not acquire the wife's right to apply under the Australia Marriage Act nor her right to pursue the claim, though proceeds vest in her trustee. McLeod v. Johns, [1981] 1 N.S.W. L.R. 347 (S.C., Eq. Div.): personal rights do not vest in the trustee ("the right to make an application under the Testator's Family Maintenance and Guardianship of Infants Act, 1916 (the TFM Act) does not constitute any species of property, it being a merely personal right which does not vest in the official receiver of a bankrupt's estate" (p. 349). Audet, In the Marriage of (1994), 19 Fam. L.R. 291, 118 F.L.R. 466, [1995] F.L.C. 92-607 (Australia Fam. Ct.) at 298: personal rights do not vest in the trustee. Wallmann, Re (1982), 7 Fam. L.R. 945 (Australia): The right to make a property application does not pass to the trustee even if the bankrupt spouse has a pending property application at the time of the bankruptcy. O'Neill v. O'Neill (1998), 145 F.L.R. 237, [1998] Fam. C.A. 67 (Australia Family Ct., Full Ct., June 5 1998): The cause of action for a matrimonial property claim does not accrue to the trustee, may be pursued by the undischarged spouse; though any non-exempt property acquired must vest in the trustee.
20. Australia Family Law Council, The Interaction of Bankruptcy and Family Law, AGPS, Canberra, June 1992, 7 Australia J.F.L. 3, §4.23 - 4.40
21. A New Zealand bankruptcy trustee cannot bring proceedings for property adjustment: Griffiths v. Griffiths (1979), 2 M.P.C. 78 (N.Z. S.C.); Tonkin v. Tonkin (N.Z.H.C., Napier, CP 55/86, 11/21/86, McGechan J.). The trustee can use New Zealand's Matrimonial Property Act to claim the bankrupt's legal and equitable rights against the solvent spouse, but cannot apply for property adjustment: Official Assignee v. Hooker (1993), 10 F.R.N.Z. 680 (N.Z. H.C.).
22. The orientation of the matrimonial courts is discussed in BIFL §9.10. As an instance of this attitude, consider Baker v. Baker, [1998] O.J. No. 5496 (Ont. Gen. Div., Métivier J., 28 août 1998) where matrimonial litigation proceeded after the husband's bankruptcy. After dividing the husband's pension at source, the judge considered the equalization question at ¶39: "I hold that any other right to an equalization payment is satisfied by the division of contents which took place at the time of separation. No claim was made since then and one can conclude that the spouses were satisfied with this division in the years between 1993 and now. Furthermore, any other conclusion would result in an equalization payment being payable to the husband's trustee in bankruptcy." [author's translation, emphasis added].
23. Guillevin International Inc. v. Willems (1994), 95 B.C.L.R. (2d) 281 (S.C.)
24. Clifford v. Clifford, [1995] O.J. No. 3636 (Ont. Gen. Div. Marshman J., November 10, 1995): Where the husband is about to go bankrupt, it is unconscionable to award an equalization payment to him where he had incurred debts in the year before separation. Macedo v. Macedo (1996), 19 R.F.L. (4th) 65 (Ont. Gen. Div.) (non-bankruptcy case): The husband's post-separation conduct (failure to pay debts and court costs) justified unequal division.
25. Matrimonial legislation in Newfoundland and Labrador vests one half of the matrimonial home in each spouse upon separation, and hence the trustee accrues that entitlement automatically. In B.C., a triggering event, as defined, operates to vest one half of the matrimonial assets automatically in each spouse, which entitlement accrues to the trustee with some exceptions. The amendment proposed herein would not affect those automatic vested statutory entitlements.
26. Save, perhaps, for a stop order or similar injunction which provides that no monies be paid out to the bankrupt spouse without prior notice to the trustee.
27. This is precisely what occurred in Sluis v. Roche (1997), 124 Man. R. (2d) 191 (Q.B., Steel J.)
28. I am not passing judgment here as to whether or not such choices are improper. There are different points of view on this. Suffice it to say that the Bosveld rule precludes these dispositions if the matrimonial property litigation was outstanding on the date of bankruptcy; the Alberta rule permits these dispositions.