CANADIAN BAR ASSOCIATION - ONTARIO

1999 ANNUAL INSTITUTE

WHAT'S HAPPENING IN BANKRUPTCY/FAMILY LAW?

Robert A. Klotz⁽¹⁾

This paper will address three topics in the bankruptcy/family law area which are the subject of recent developments. These topics are first, the new support remedy contained in the 1997 amendments to the Bankruptcy and Insolvency Act (BIA); second, the problem of pensions; and third, the ongoing priority fight over the matrimonial home.

1. NEW SUPPORT REMEDY IN BANKRUPTCY

This section of the paper will focus on the new support enforcement remedy effected by Bill C-5, which came into force in this respect on September 30, 1997. The BIA now contains a new and powerful support enforcement remedy which applies to all bankruptcies commenced after that date.

An earlier article of mine⁽²⁾ commented on the version of the proposed new remedy contained in the first reading of Bill C-5. Subsequently, the consultative process resulted in new language. The BIA now provides as follows (my headings):

Not extinguished by discharge

178(1) An order of discharge does not release the bankrupt from ...

(a.1) any award of damages by a court in civil proceedings in respect of (i) bodily harm intentionally inflicted, or sexual assault; or (ii) wrongful death resulting therefrom;

(b) any debt or liability for alimony;

(c) any debt or liability under a support, maintenance or affiliation order or under an agreement for maintenance and support of a spouse or child living apart from the bankrupt; ...

Provability of support

121(4) A claim in respect of a debt or liability referred to in paragraph 178(1)(b) or (c) payable under an order or agreement made before the date of the initial bankruptcy event in respect of the bankrupt and at a time when the spouse or child was living apart from the bankrupt, whether the order or agreement provides for periodic amounts or lump sum amounts, is a claim provable in proceedings under this Act.

Support exempted from automatic stay

69.41(1) Sections 69 to 69.31 [automatic stay of provable claims when insolvency proceeding is commenced] do not apply in respect of a claim referred to in subsection 121(4).

(2) Notwithstanding ss (1), no creditor with a claim referred to in ss 121(4) has any remedy, or shall commence or continue any action, execution or other proceeding, against (a) property of a bankrupt that has vested in the trustee; or (b) amounts that are payable to the estate of the bankrupt under s 68 [surplus income payments established by the court].

Priority for limited support

136(1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

... {funeral expenses; trustee's fees and legal costs; Superintendent of Bankruptcy's 5% levy; unpaid wages of employees up to $2,000.00 each} ...

(d.1) claims in respect of debts or liabilities referred to in paragraph 178(1)(b) or (c), if provable by virtue of ss 121(4), for periodic amounts accrued in the year before the date of the bankruptcy that are payable, plus any lump sum amount that is payable; ...

These provisions give special rights in bankruptcy to spousal and child support arrears under a pre-bankruptcy separation agreement or court order. First, all the arrears become provable in the sense that they give an entitlement to participate as a creditor in the bankruptcy and obtain a dividend; the companion provisions ensure that enforcement of the support arrears is not stayed or impeded by the bankruptcy, and that the arrears are not extinguished by the discharge.

Secondly, a limited portion of the pre-bankruptcy support arrears receive priority in the bankruptcy. While this priority falls behind secured creditors, the trustee's administrative and legal fees, and the Superintendent's 5% levy, it ranks ahead of all other unsecured claims. Excluded from this priority entitlement are periodic arrears which accrued more than one year before the date of the bankruptcy.

Former Treatment of Support in Bankruptcy: To appreciate the effect of this amendment on support enforcement, it is useful to compare (at some risk of over-simplification), the previous treatment of support claims when the payor became bankrupt under the former provisions of the BIA, with the current treatment:

Before reviewing the manner in which these provisions can best be utilized, it is important to note that there are several traps that may cause a great deal of grief.

(a) Bankruptcy Proposals: The first pitfall applies to bankruptcy proposals. Section 62(2) provides that:

62(2) A proposal accepted by the creditors and approved by the court is binding on creditors in respect of (a) all unsecured claims ... but does not release the insolvent person from the debts and liabilities referred to in section 178, unless the creditor assents thereto.

This section says that if the proposal is accepted and approved in accordance with the normal statutory requirements, all unsecured provable claims are released, except those referred to in s. 178. However, even s. 178 claims are released by the proposal if "the creditor assents thereto". Thus a support claimant's "assent thereto" will extinguish all of the pre-bankruptcy support arrears other than those paid out through the proposal.⁽⁵⁾

Let us take an example. Suppose that the wife is a support creditor to the extent of three year's arrears, for a total of $60,000.00. Let us say that the husband files a bankruptcy proposal paying to all of his creditors $.25 on the dollar. Under the new legislation, the wife will have a vote for her $60,000.00 arrears claim. If she does not exercise her vote, or votes against the proposal and it is nonetheless accepted, the amendment provides that she will obtain her priority for the previous year's arrears ($20,000), and her dividend under the proposal (25% of the $40,000 balance, or $10,000), without prejudice to her rights to proceed for the outstanding remainder of $30,000. This is quite appropriate.

However, interpretive problems arise if the wife votes in favour of the proposal and it is subsequently approved. Both Sections 62 (2) and 66.28 (2) provide that her provable claim, (ie. the full $60,000.00 claim) is released if she "assents" to the proposal. This she has clearly done.

Thus, when she attempts to enforce the outstanding balance of $30,000.00 after she has received her priority and her 25% dividend, she will be met with a strong legal argument that the balance has been released by her act of assenting to the proposal.

What does "assent" mean? Hopefully, the courts will interpret this provision to require that for the balance of the pre-bankruptcy arrears to be extinguished, the claimant spouse must specifically agree to waive s. 178 protection.⁽⁶⁾ But that is not how the courts have historically interpreted the phrase. Houlden & Morawetz states "The debtor is not however, released from the debts and liabilities referred to in s. 178 unless such creditors assent to the proposal."⁽⁷⁾ But the citation given for this assertion does not support it. Under British case law, "assent" means either voting in favour of the proposal, or perhaps participating in its benefits, or perhaps actively procuring its acceptance.⁽⁸⁾ Until this issue has been clarified, support creditors who do nothing more than file a proof of claim in the proposal proceeding, risk having the unpaid balance of their pre-bankruptcy support arrears extinguished by s. 62(2) or 66.28(2).

The harm this may cause is substantial when one considers that children are involved. It was definitely not the intention of this amendment to prohibit or deter support claimants from participating in bankruptcy proposals. This trap is a negligence minefield. It deserves to be clarified by a test case immediately.

(b) Allocation of support payments against arrears: The second pitfall arises in determining which arrears qualify for priority. The problem here is that s. 136(1)(d.1) gives priority to periodic arrears which accrue in the year before bankruptcy. What if, for example, the payor spouse missed five years of payments but, in the year before bankruptcy, made 12 monthly support payments? Can the recipient argue that the payments were applied against the oldest outstanding arrears, leaving the recent arrears within the priority period unpaid and therefore entitled to priority? This takes us into the law of apportionment.

The common law provides that a payor can allocate payment, at the time of payment, as he or she sees fit. If the payor does not do so, the recipient has the right to allocate the payment.⁽⁹⁾ But where a government service collects support⁽¹⁰⁾, Ontario, like most provinces, has statutorily reversed the common law rule. The legislation of each province except, it seems, Manitoba, New Brunswick and Quebec, contains a provision analogous to s. 19 of the Regulations to Ontario's Family Responsibility and Support Arrears Enforcement Act:

"Money paid on account of a support order and support deduction order shall be credited in the following order:

1. To the principal of the most recent support accrual due and then to any interest owing on that principal.

2. To the principal balance outstanding and then to any interest owing on that principal in the manner set out in paragraph 1."

Thus in most cases of provincially enforced support collection, support payments are statutorily credited against the most recent months, leaving the older arrears unpaid.⁽¹¹⁾ In our example, this will deem the unpaid arrears to be those outside the priority period. Therefore, to maximize the priority claim in an intermittent payor's bankruptcy, I have suggested that matrimonial lawyers include in any support order a provision along the following lines:

Since this wording conflicts with the allocation provided by Ontario's support enforcement legislation, it is questionable whether this will reverse the mandatory reduction of recent, rather than stale, support arrears.

(c) Definition of "Spouse": The new amendment does not define who is a "spouse". Nor does the remainder of the BIA. The only reference to a definition of spousal status is found in s. 4, which defines "related groups" for the purpose of scrutinizing pre-bankruptcy transactions with related and non-arms length parties and limiting their right to vote. This section provides as follows:

4(2) For the purposes of this Act, persons are related to each other and are "related persons" if they are ... (a) individuals connected by blood relationship, marriage or adoption; ...

4(3) For the purposes of this section, ... (f) persons are connected by marriage if one is married to the other or to a person who is connected by blood relationship to the other; ...

Arguably, the definitions of s. 4(3) are limited to the purposes of s. 4, which is to address only the anti-collusion aspects of the BIA.⁽¹²⁾ Sections 91, 92 and 93, which deal with collusion in regard to spouses, treat the terms "spouse" and "marriage" interchangeably. It would appear, from a view of the legislation as a whole, that "spouse" means a married spouse. What is one to do with support entitlements of common law spouses, and gay spouses,⁽¹³⁾ under the new amendments?

Clearly the social purpose of the new amendments would be frustrated if support orders and agreements on behalf of common law spouses were excluded from the ambit of the BIA. On the other hand, it would be unfair to married spouses that they alone be subject to the limitations of the BIA as "deemed" related parties. It would be inappropriate to ignore the key importance played in bankruptcy administration by the anti-collusion remedies that are tied in to the definition of related party. To give common law spouses the benefit only of spousal status, while they fall outside the deeming definition of "related party" for anti-collusion purposes, would be to frustrate the balance established by parliament. The importance of simplicity of administration, and certainty, in bankruptcy practice is one justification for prescribing an easily verifiable criterion, namely an existing marriage, on both privileges and disabilities under the BIA. If that criterion is to be abandoned, it ought to be replaced with another which is amenable to easy verification.

It may be that a constitutional or Charter challenge is required so that if the BIA is read down to include common law,⁽¹⁴⁾ or gay,⁽¹⁵⁾ spouses in the new priority amendment, the anti-collusion and "related party" provisions may be "read up" as a counterbalance. This would require fairly aggressive judicial legislating of a balance between spousal rights and anti-collusion protection; it may well be a balance which is more appropriately left to parliament.⁽¹⁶⁾ Indeed, the Senate Report on Bill C-5 recommended that the federal Superintendent of Bankruptcy closely monitor the collusion problems anticipated in the new support amendments, to ascertain whether further legislative controls are required.⁽¹⁷⁾

(d) Obtaining spousal priority in bankruptcy: While the BIA contains detailed anti-collusion protection against pre-bankruptcy conveyances of property, preferential payments and transfers to creditors, there is very little anti-collusion control on the new priority amendment. Thus a separation agreement, made the day before bankruptcy, to pay lump sum spousal support in the amount of the debtor spouse's net assets, may well be immune from attack. This applies even more so if it is a court order which provides for such payment. Why is this so? Existing remedies against settlements of property (BIA s. 91) and fraudulent conveyances, apply only to transfers and conveyances of property rights. Existing fraudulent preference remedies are arguably inapplicable where it is the BIA itself, and not the spouse's agreement or the court order, which creates the priority. When one combines the canon of statutory construction favouring support claims as articulated by the Supreme Court of Canada⁽¹⁸⁾ with the examples provided by Canadian⁽¹⁹⁾ and Australian⁽²⁰⁾ case law, it would seem that there is little to deter or discourage highly aggressive utilization of the new remedy where the support payor is insolvent. This author has strenuously argued, in various forums, for the imposition of specific statutory anti-collusion controls to set clear ethical and statutory limits in this area.⁽²¹⁾ No such controls were enacted. Therefore the following considerations will be subject to the possible application of the anti-preference provisions of the BIA⁽²²⁾ and provincial legislation,⁽²³⁾ any tests developed by the case law, as well as the all-important ethical limitations of counsel.

i) The remedy applies only to support. But it is clear that a support obligation need not be specifically characterized as such.⁽²⁴⁾ There is a wealthy body of case law, mostly dealing with the issue of dischargeability, that addresses the problem of non-characterized or mis-characterized support obligations. Preferably, support obligations ought to be characterized, and specifically described, as support in the Order or agreement that creates them.⁽²⁵⁾ Almost any periodic obligation such as payment of a mortgage on the matrimonial home, can acquire priority if it is properly characterized. Lump sum indemnity obligations can likewise acquire priority if validly defined as support. The priority will extend to any cost obligation undertaken or ordered in reference to a support claim. The limitation of priority for periodic arrears to the one year period before bankruptcy, suggests that an obligation to make monthly mortgage payments will be limited to one year's arrears of priority; but an obligation to pay the mortgage itself, if properly drafted, might well qualify as a lump sum support obligation qualifying for full priority for the total amount owing on the mortgage.⁽²⁶⁾

The basic test for differentiating support from other obligations is set out in Moore v. Moore⁽²⁷⁾ as follows:

It must be a question of fact in each case whether the debt or liability arises under an agreement for maintenance and support. The nature of the liability, the words of the agreement, and the circumstances surrounding the negotiation of the agreement may all be looked to in order to make a finding of fact about the nature of the debt or liability. The task in these cases is to determine as a question of fact whether the money owing under the agreement is really in the circumstances a form of maintenance and support, or is basically intended as maintenance and support, or is in effect maintenance and support or a substitute for it. [emphasis added]

The case law suggests the following guidelines that have been employed by the courts to identify support obligations:⁽²⁸⁾

• Would the claimant have been entitled to support had the debt not been granted? If so, the obligation may be a substitute for support.⁽²⁹⁾

• Does the debt reflect a specific valuation of an asset, or can it be traced in amount or nature to a property interest claimed in the proceeding? If so, the quantum was not likely negotiated as a substitute for support.⁽³⁰⁾

• A debt or indemnity which relates to the claimant's occupation in the matrimonial home or to necessaries of life is more akin to support than an indemnity over non-lifestyle related debts.⁽³¹⁾

• The court will examine the wording of the agreement or order to attempt to glean an intention from the descriptive language used and the degree of integration with or differentiation of the debt from other parts of the document.⁽³²⁾

• An debt which is conditional on such support-related events as remarriage or death of the claimant, is more akin to support. One which bears interest, or which is governed by an acceleration clause on default, is less akin to support.

• The labels used in the document are not determinative.

ii) The two remedies (provability and limited priority) apply only to pre-bankruptcy orders or agreements made at a time when the spouses are separated. It appears that the spouses must still be separated at the time of the bankruptcy, or perhaps the time of payment of dividends. Thus any spouse contemplating a separation, may well consider separating before the payor spouse's bankruptcy in order to utilize these remedies through a well-timed support order or agreement. Likewise, separating spouses will be advised to defer filing for bankruptcy until they have had an opportunity to grant some priority for spousal and child support through a separation agreement or Order.

iii) "Separation" is a flexible concept in family law. The BIA utilizes the older term "living apart". This wording may be sufficiently broad to encompass the not uncommon situation of spouses who are living "separate under the same roof". For example, the spouses in Cannon v. Cannon⁽³³⁾ lived separate but apart in the same house for eight years after 'separation'. The case law on this concept has developed in the tax setting in connection with the deductibility of support. The test is well set out in M.N.R. v. Longchamps.⁽³⁴⁾ It requires physical separation within the home, along with conduct demonstrating a mutual withdrawal from the matrimonial obligation with the intent of destroying the matrimonial consortium, such as termination of rapport, non-communication, no socializing, little consultation, and acting as strangers. Given the collusion risks, presumably this test will be applied strictly in the bankruptcy setting.

iv) If the payor spouse's bankruptcy appears imminent, the other spouse will consider seeking an interim ex parte lump sum support order, or perhaps interim retroactive periodic support, or an appropriately drafted charging order for support. Most insolvent payors will eventually realize that it is in their self-interest to let this happen, at least to the limit of the value of their exigible assets. The payor's support obligations will be satisfied out of funds that would otherwise go to his or her creditors, as a result of a court order for which the payor cannot be criticized. The question of whether the court in this situation ought to grant the order is a vexing one which I have discussed at length elsewhere.

v) Where both spouses are insolvent, the new remedy may perhaps be utilized to effect what I call a "1-2 flip". This is a series of steps which result in the extinction of the wife's liabilities, following which she utilizes matrimonial legislation to obtain priority over her husband's assets. An example of this disturbing device, outside the support setting, can be seen in Ivanochko v. Ivanochko,⁽³⁵⁾ where despite the spouse's joint liability to a creditor on a guarantee which exceeded the value of both spouses' assets, the wife, after her bankruptcy, obtained priority over the creditor against half of the husband's assets. This might be done in the support setting by converting the husband's exigible assets, through a separation agreement, into a non-exigible priority support entitlement favouring the wife. Both spouses could become bankrupt after they have such a separation agreement, buttressed by a court order, requiring the husband to pay lump sum support in an amount equivalent to the value of his exigible assets. The wife becomes entitled to this amount as a priority support claim in his bankruptcy. Her own trustee cannot intervene to claim this amount on the theory that support entitlements are exempt from attachment [see below]. Additional protection against exigibility may be obtained if the obligation is cast as child support.⁽³⁶⁾

vi) The previous example raises the question of whether a support entitlement owing or accruing to the bankrupt spouse, may be treated as property of the estate. Traditionally, the right to support has been treated as a personal right which is not exigible by creditors.⁽³⁷⁾ The best precedent is Walls (J.), Ltd. v. Legge,⁽³⁸⁾ where the wife's creditors sought unsuccessfully to have a Receiver appointed to get at her rental income from a jointly held house, which the family court judge considered as maintenance from her husband. He held that maintenance was not assignable; her interest in the house, as result of the family court order, was in the nature of alimony, and could therefore not be attached.⁽³⁹⁾

As to lump sum support, the law is unclear. In Wolch v. Wolch,⁽⁴⁰⁾ the wife's creditors (her former solicitors) succeeded in garnisheeing a lump sum maintenance order owing to her, on the basis that lump sum support is both garnishable and assignable. The more flexible approach is suggested by commonwealth precedents: treat lump sum support not as property of the estate, but as income in the hands of the bankrupt that is subject to a surplus income order (subject, of course, to the wonderful process of mediation).⁽⁴¹⁾ Canadian cases have utilized this approach in respect of lump sum severance pay in the hands of the bankrupt, which is an approximate, albeit imperfect analogy to support.⁽⁴²⁾ In one case, the bankruptcy court awarded to the trustee, two thirds of the bankrupt's $40,000 severance package.⁽⁴³⁾ In another case, the trustee was awarded 75% of a $54,000 severance package relating to a pre-bankruptcy termination of employment.⁽⁴⁴⁾ While this approach may in some instances be suitable for spousal lump sum support, one might question its applicability to lump sum child support which, in law, is held to the use of the recipient parent for the benefit of the child.⁽⁴⁵⁾

vii) Priority obtained by virtue of a court order will invariably be more difficult to attack than that obtained through a separation agreement. Unlike agreements, pre-bankruptcy consent orders cannot generally be attacked in bankruptcy court; the trustee must usually apply to the court which made the order to set it aside.⁽⁴⁶⁾ Matrimonial courts are loathe to do so when family needs are at issue, children are involved, and full disclosure was made to the court of first instance. Under existing jurisprudence, matrimonial courts rarely give standing to creditors' concerns unless there is clear evidence of collusion.⁽⁴⁷⁾

viii) Speed may become crucial if these options are to be utilized. Creditors who learn of a matrimonial separation may begin to more frequently commence bankruptcy petitions as a way of foreclosing the exercise of these new support remedies. Under s. 121(4), the support order or agreement must predate the issuance of the bankruptcy petition.

ix) The problem of enforcing support arrears against certain "problem assets" may, in appropriate cases, be overcome through a bankruptcy petition. For example, Delaire v. Delaire⁽⁴⁸⁾ highlights the limitations of the garnishment remedy against RRSP investments. A bankruptcy petition, if successful, will allow the trustee to collect all exigible assets, wherever located, and thus to overcome such technical barriers. Support arrears, being provable, grant the recipient status to issue the petition.

x) A bankruptcy filing may now furnish the only means to avoid the federal Crown's priority, through Crown prerogative, over the Ontario Creditors Relief Act. While that Act provides that support arrears take priority over all other execution creditors,⁽⁴⁹⁾ the paramountcy doctrine shields the federal Crown, and therefore all tax debts, from this priority. Under the Creditors Relief Act, the tax debts are paid in full before any other execution creditor, including the support claimant, receives any distribution.⁽⁵⁰⁾ A bankruptcy filing may be necessary in these circumstances to ensure the priority for support while recasting the tax debt as a non-priority unsecured claim.

xi) Section 137(1) of the BIA may afford the trustee some protection against a pre-bankruptcy separation agreement that "strips" the estate by providing for an excessive lump sum support payment to the non-bankrupt spouse. This section provides as follows:

137 (1). A creditor who entered into a reviewable [i.e. non-arms length] transaction with a debtor at any time prior to the bankruptcy of the debtor is not entitled to claim a dividend in respect of a claim arising out of that transaction until all claims of the other creditors have been satisfied unless the transaction was in the opinion of the trustee or of the court a proper transaction.

According to the case law, married spouses are by statutory definition to be considered non-arms length, notwithstanding their hostility to one another.⁽⁵¹⁾ Thus if the separation agreement is found to be "improper", the support priority may be reversed. Support priority becomes support subordination - in effect returning to the treatment of support claims before the recent amendments. Both priority and, in effect, provability, might be lost. Since there is virtually no case law on s. 137, one searches in vain for the criteria by which to assess whether the separation agreement was a "proper transaction". The section does not specify any look-back period. One senses that this section sets out an extraordinarily crude and vague standard. Does this section apply where a court order has been obtained?

It is important to understand that matrimonial courts routinely grant lump sum support to protect the needy spouse from the risk that the payor spouse will not make his periodic payments. Obviously, an impending bankruptcy would create such a risk. Lump sum spousal support may be made to address the economic disadvantages and relieve the economic hardship arising from the marriage or its breakdown,⁽⁵²⁾ or to ensure the "security" of the needy spouse. Courts have awarded lump sum support to remedy particular needs such as the purchase of a home,⁽⁵³⁾ the payment of debts or legal fees, or to ensure a degree of financial stability.⁽⁵⁴⁾ The orientation of the matrimonial courts is to protect the family, and particularly the children, from the vicissitudes of debt. Judges in these courts do not accept that there is anything "improper" about a court order, or separation agreement, that provides for lump sum support to ensure the needy spouse's financial security and that of the children.

xii) Nowhere do these support amendments require that the "agreement" for support be written. British Columbia's Family Relations Act is a similar instance of legislation which does not specify that a separation agreement must be in writing. Case law from that province has fully accepted that oral agreements may be sufficient to qualify under that statute.⁽⁵⁵⁾ For example, in Spoklie, Re⁽⁵⁶⁾ the court accepted that an oral separation agreement between the spouses, made before bankruptcy, that disposed of all issues other than the matrimonial home, constituted a separation agreement sufficient to constitute a triggering event and vest in the wife, half of the husband's solely owned matrimonial home.

Thus it is likely that an oral support agreement, if sufficiently "concrete and formal",⁽⁵⁷⁾ and perhaps acted upon, may give rise to provable and priority claims for arrears. Given the benevolent canons of construction applicable to support claims as laid down by the Supreme Court of Canada,⁽⁵⁸⁾ it would be no surprise to see this development.

xiii) Although one always speaks of 'support arrears' when referring to these provisions, in fact the word 'arrears' appears nowhere. Time limitations are imposed only on the date of the order or agreement ("made before the date of the initial bankruptcy event") and on periodic amounts ("accrued in the year before the date of the bankruptcy"). The only temporal restriction on lump sum amounts is that they be "payable". How ought one to treat a pre-bankruptcy obligation to pay lump sum support after the date of bankruptcy? Surely such obligations, while not yet due, are nonetheless payable on the date of bankruptcy. However, the BIA appears to use the word 'payable' to mean 'due' when it addresses, in s. 121(3), the question of debts 'payable' at a future time. This issue will be grist for a future dispute, depending on whether 'payable' is given its ordinary meaning or a specialized bankruptcy meaning.

The above considerations should be regarded as tactical ideas which must be weighed against the language of the new legislation, the flexibility of existing anti-collusion controls, and the attitudes of the judiciary. I reiterate that some of these ideas may not pass the "smell test" of ethical behaviour. The line differentiating proper from improper behaviour is notoriously difficult to draw when balancing spousal and child support against creditors' rights. Different individuals and interest groups, and hence judges too, have strongly held views, often diametrically opposing ones, on where that line should be drawn. We can expect some very interesting case law as our courts grapple with these questions.

2. PENSIONS

Pension rights are exempt from execution,⁽⁵⁹⁾ and hence do not fall within the bankrupt's estate for distribution to creditors. If one spouse, say the wife, obtains a money judgment for equalization without a division of the husband's pension in specie, she may be prejudiced if the husband subsequently becomes bankrupt.⁽⁶⁰⁾

If the separation occurred after the husband had become bankrupt, the wife is safe - her equalization or division claim is neither provable in his bankruptcy nor released by his discharge, since the factual basis for the claim arose after bankruptcy.⁽⁶¹⁾ If bankruptcy occurs after permanent separation, the wife may claim against the pension without further ado provided the spouses reside in a province governed by a division of property regime.⁽⁶²⁾ It is in equalization jurisdictions, primarily Ontario, where problems arise if bankruptcy occurs after the date of separation.

The risk is that the court will determine that the claim against the pension, under equalization principles, is merely a provable debt claim which is entitled to no special or unique treatment. If so, the claim is stayed and ultimately extinguished by the husband's bankruptcy discharge. This conclusion, which a later Manitoba judge adverted to as "grossly unfair, if not deplorable",⁽⁶³⁾ was reached in Balyk v. Balyk.⁽⁶⁴⁾ Prudence dictates, therefore, that a fairly cumbersome procedure be used in Ontario to ensure that the wife's equalization claim is not released and extinguished by the husband's discharge before the pension remedy can be exercised. Thus, she ought first to obtain leave from the bankruptcy court to proceed against the pension.⁽⁶⁵⁾ She should ensure that the pension is divided before the date of the discharge hearing; or alternatively, she should oppose the discharge hearing and seek a condition that the discharge be without prejudice to the pension claim.⁽⁶⁶⁾

Note that this problem can also arise in respect of any exempt asset such as an insurance-type RRSP, a "locked-in" RRSP, or land on an Indian reservation.

Since the recent cases on this point are all unreported, I will summarize and liberally quote from them here:

(a) Hughes, Re:⁽⁶⁷⁾ The wife's equalization claim, commenced before husband's bankruptcy, comprised 77% of his debts, the other debts having been improperly incurred. The court granted leave to pursue the equalization claim against the husband's pension:

"Bankruptcy proceedings were not, in my view, intended to wipe out property equalization claims against persons under the Divorce Act and Family Law Act, which were instituted prior to the Bankruptcy. 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." (page 2)

(b) Panth, Re:⁽⁶⁸⁾ Registrar Stevens' decision at first instance:

"This is an application for leave to continue in the Ontario Court (Gen. Div.) Family Court, File No. F429/97, against the Respondent, who made an assignment on July 25, 1997. The matrimonial home has been sold and it remains to value the Respondent Bankrupt's pension to ascertain the equalization payment. It is the submission of counsel for the Applicant that the Family Law action should proceed and be determined outside of the bankruptcy process and a number of authorities have been provided in support.

While there may be discretion in the court lifting the stay provided by s. 69.3 of the BIA, in my view that discretion must be exercised in a judicial manner. As I understand it, the law in Ontario on this issue is as set out by Justice Wright in Balyk v. Balyk [cite], as referred to in Helwig v. Helwig. The Applicant has a claim provable in bankruptcy and, of course, may oppose the Bankrupt's discharge as an unsecured creditor. The federal government has amended the BIA from time to time and could do so to obviate the concerns raised by Applicant's counsel. Accordingly, the application is dismissed and leave pursuant to s. 69.4 of the Act is refused."

An appeal from this decision of Registrar Stevens was successful before Mr. Justice Valin on January 21, 1998:

"In order to succeed in this appeal, the Appellant must satisfy the Judge that the Registrar has erred in principle or erred in law. In this case, the Registrar refused the application by the Appellant for leave to continue her application in this court against the Respondent for an equalization of family property. He based his decision on the decision of Wright J. in Balyk v. Balyk [cite]. I have two concerns about that decision. First, it did not involve an application for leave to continue. Second, Wright J. appears to have followed the case of DiMichele v. DiMichele [cite], which case was subsequently reversed by the SCC in Maroukis v. Maroukis [cite]. The Registrar heard the application which is the subject of this appeal on October 27, 1997. He was not informed of the unreported decision of Greer J. in Re Hughes - October 23, 1997 (Ontario Court - GD), in which she made a declaration in the nature of the declaration sought by the Appellant in this case. I agree with the reasons set out in the endorsement of Greer J. in the Hughes case, the facts of which are remarkably similar to the facts in this case. I am of the view that the Registrar erred in law. The appeal is therefore allowed. The order of the Registrar dated Nov. 5/97 is set aside. An order will issue declaring that ss. 69 to 69.3 of the BIA no longer operate in respect of the Appellant. I am satisfied that the Appellant is likely to be materially prejudiced by the continued operation of those sections. The issue in this appeal was somewhat novel. In this circumstance I make no order as to costs."

(c) King, Re; Geddes v. King:⁽⁶⁹⁾ The courts are now granting costs if the bankrupt opposes this motion; and are granting both leave to proceed, and a declaration that the discharge will not prejudice the equalization claim against the pension:

"This Court orders that the stay of proceedings is lifted so as to permit [the Husband's estate) to proceed with the estate's equalization claim against the bankrupt's pension in action no. .. in the Ontario Court (General Division) Family Court, notwithstanding the bankruptcy or subsequent discharge. Applicant's costs fixed at $250.00."⁽⁷⁰⁾

A similarly worded order was granted in Orlowski, Re,⁽⁷¹⁾ where Registrar Ferron commented as follows:

"[T]he general principle which is derived is that the relief asked for should in equity be afforded the moving party. That is, the bankrupt should not be seen to use the BIA to shield an exempt asset or preclude the spouse from attempting to obtain equalization with respect to this asset."

(d) Stefina v. Stefina:⁽⁷²⁾ After the husband's bankruptcy, the wife obtained leave from the bankruptcy court to proceed against the pension. She then applied for equalization of the husband's pension while he remained undischarged. The husband did not attend. Mr. Justice Killeen refused to equalize the pension:

"I must say that I do not agree with Mr. Klotz' analysis of this issue and reject the submission that, in these circumstances, I have any power under Section 9 to make the order, as suggested. Mrs Stefina is an unsecured creditor in the bankruptcy and in my view, has no further claim against Mr. Stefina's pension stream entitlement. To allow this claim would be to distort the Bankruptcy Act and to allow Mrs Stefina to "double dip" into her husband's pension entitlement, something egregiously unjust and not permitted under the Family Law Act or the Bankruptcy Act. In the result, the requested order against the future pension income stream is refused."

This unfortunate decision was overturned by the Ontario Divisional Court in a brief endorsement:

"The Respondent is still an undischarged bankrupt. The Appellant's equalization claim has therefore not been extinguished. Her equalization claim is $38,259.85 plus interest from July 22, 1996 at 6% per annum. We cannot see that this is double dipping. This does not affect any other creditor because they have no claim against the pension. The claim for equalization comes fully out of the pension. We are influenced by the decision of Walsh J. in Marsham v. Marsham, 7 R.F.L. 3rd and the observations of Robert A. Klotz in the publication entitled "Bankruptcy and Family Law" at pages 228 to 229. An order will go pursuant to s. 9 of the Family Law Act declaring that the Respondent holds in trust part of his Teachers' Pension Plan in trust for the Appellant to the amount of $38,059.55 plus interest as aforesaid. Costs to the Appellant fixed at $750.00."

These steps would be unnecessary if -- as determined in Schroeder v. Schroeder⁽⁷³⁾ under Saskatchewan's division of property scheme -- the equalization claim against the pension, in specie, were not provable in bankruptcy. I have suggested this argument elsewhere.⁽⁷⁴⁾ In Ontario, however, and pending further judicial clarification, one must assume that unless the above steps are taken, the equalization claim may be extinguished even as against exempt pension funds. This may easily lead to injustice, particularly in the case where both spouses become bankrupt after matrimonial litigation has commenced and only one of them has a pension. The technique for dividing a pension where there is a "double bankruptcy" is tortuous and fraught with the risk of failure on technical grounds.⁽⁷⁵⁾

An alternative remedy, not foreclosed by bankruptcy, is to allege a resulting or constructive trust against the husband's pension. This argument has had several recent successes.⁽⁷⁶⁾ Likewise, bankruptcy does not constrain the availability of support enforcement measures against the pension,⁽⁷⁷⁾ nor an application to vary support.

If these techniques fail, the claimant spouse must oppose the bankrupt's discharge and hope for the best. Where the matrimonial claim is the predominant or sole debt, it is not unusual for the bankruptcy court in these circumstances to grant a 50% discharge order payable over time without interest.⁽⁷⁸⁾ This results in the bankrupt in effect retaining more than 75% of the value of his exempt pension, and sharing the remainder among the spouse, the trustee's fees, and the other creditors. If the exempt pension was the sole surviving asset of the family breakup, this outcome is wholly inadequate from any policy perspective.

3. PRIORITY

This section addresses the techniques and doctrines that are available in the priority battle between the non-bankrupt spouse and the trustee. Note that the new support priority under s. 136 is a key development in this contest, and is discussed at length in the first section of this paper.

The Supreme Court of Canada's decision in Maroukis v. Maroukis⁽⁷⁹⁾ sets the jurisprudential stage on which the priority battle is fought. In Maroukis, the court was required to determine the exact moment on which the wife's property interest arises in the matrimonial home under Ontario's then Family Law Reform Act. The court concluded that the FLRA conferred no property rights in the absence of an order of the court. The legislation granted the spouse only a prima facie right to an order for equal division, subject to specifically enumerated inequitability considerations. The entitlement to equal division is not in effect until an order for distribution is made, but is merely a personal right to require the court to determine the ownership of family assets. The vesting of a spouse's share of property takes place upon the date the order is made. There is no authority to make a retroactive vesting order.

This decision continues to apply under the Family Law Act ("FLA"), and has evident applicability to the bankruptcy setting. The spouse has no priority or property right against a trustee under the FLA where bankruptcy occurs before a court ordered division or consensual property transfer.⁽⁸⁰⁾

The impact of this decision was demonstrated in Burson v. Burson,⁽⁸¹⁾ where the spouses jointly owned their matrimonial home. After their separation, the property was sold and the net proceeds were held in trust by the wife's solicitors pending agreement between the spouses or the judicial disposition of the equalization claim. As it transpired, the wife's entitlement exceeded the value of the husband's half interest. Had his bankruptcy not intervened, she would have recovered the entire proceeds. However, his assignment into bankruptcy had the effect of vesting in the trustee his half interest in the home (and hence his half of the funds).⁽⁸²⁾ Burson confirms that unless the bankrupt spouse's property has been conveyed or divided prior to bankruptcy by a conveyance, agreement or court order, the trustee acquires the bankrupt's property interests and the wife has only a debt claim in the bankruptcy.⁽⁸³⁾

So if the matrimonial dispute has not yet been settled or adjudicated, one must look outside the FLA for tools to overcome the trustee's claim to a matrimonial home in which the bankrupt holds the sole, or a one-half, interest. These tools come in two varieties: procedural devices requiring, often, ingenuity by counsel prior to bankruptcy; and equitable doctrines.

(a) Procedural Steps

The best procedural technique is speed: if an order or separation agreement is made quickly, the creditors will be pre-empted - subject, of course, to the threat of fraudulent conveyance/preference attack. Conversely, a lengthy trial process, or a protracted reserved decision, can be fatal due to intervening creditors' rights.

The existence of a restraining or non-dissipation order does not help.⁽⁸⁴⁾ However, there are other preventive steps which may be taken that, if completed before bankruptcy or the filing of a writ of execution, may eliminate the need to resort to equitable remedies. These include the following:

• Paying the disputed monies into court pending the trial, thus securing them against the trustee according to one line of cases;⁽⁸⁵⁾

• The spouses, pending the litigation, can establish an express and formal trust over the proceeds, the beneficiary being defined to be the winner of the litigation to the extent declared by the court;⁽⁸⁶⁾

• Granting and perfecting consensual security over the proceeds;⁽⁸⁷⁾

• Obtaining an interim charging order, or an order requiring the husband to grant security over the proceeds pending trial;⁽⁸⁸⁾

• Entering into a pre-bankruptcy separation agreement which divides or allocates the proceeds;⁽⁸⁹⁾

• In B.C., registering a certificate of pending litigation, in conjunction with obtaining a judicial declaration of marriage breakdown.⁽⁹⁰⁾ In Alberta, a lis pendens may grant priority over subsequent execution creditors.⁽⁹¹⁾ The other provinces do not appear to have analogous legislation.

• In Newfoundland and New Brunswick, entering into a domestic contract which excludes the mandatory equal sharing rules in those provinces.⁽⁹²⁾

(b) Equitable Doctrines

There are a variety of equitable principles which are not vulnerable to creditor pre-emption. No pre-bankruptcy steps need necessarily be taken to utilize these remedies, to the extent that they are applicable. These remedies, being equitable, are heavily fact-based and subjective. They include:

• Resulting Trusts: Re Croteau⁽⁹³⁾ illustrates a common scenario where, in defence of a pre-bankruptcy transfer of the matrimonial home from the husband's name alone to the wife alone, the wife alleged that the property at all times was owned by them jointly, in equal shares, notwithstanding that the deed had been registered in his name alone. As such, she claimed a half interest. The spouses had not separated. The trial judge found that a resulting trust existed on the basis that there had been a common intention between the spouses from the outset of the marriage, and from the first acquisition of property, that any property would be held on a 50/50 basis between them.⁽⁹⁴⁾

• Constructive Trust:⁽⁹⁵⁾ A constructive trust may arise where the beneficiary spouse's contributions to a property are neither financial nor direct. It is the lack of a direct financial contribution -- traceability, in trust jargon -- that usually distinguishes a constructive from a resulting trust. The other important distinction is that there is no need to establish intention, either presumed or implied. This kind of trust claim is best known from "farm wife" cases like Pettkus v. Becker.⁽⁹⁶⁾ The key aspect of constructive trust claims is that unlike resulting or express trust claims, the interests of creditors must be considered before the constructive trust is imposed.⁽⁹⁷⁾

• Equity of Exoneration: Where a mortgage has been placed against the matrimonial home for the sole or principal benefit of the bankrupt spouse, the non-bankrupt spouse may require that the bankrupt's half share of the property account for the full amount of the mortgage.⁽⁹⁸⁾

• Equitable Charge or Lien: "It is a well-established principle that a husband who pays off or reduces encumbrances upon his wife's property is entitled, in the absence of proof of an intention to the contrary, to a lien on the property for the sums so paid."⁽⁹⁹⁾

• Equitable accounting: Where joint property has been sold, and one party (the non-bankrupt spouse) has contributed more than a half share to the purchase or upkeep thereof, the court may grant an allowance out of the proceeds.⁽¹⁰⁰⁾

• Equitable Assignment: An agreement between a debtor and a creditor that a debt owing would be paid out of a specific fund coming to the debtor operates as an equitable assignment of the fund and creates a valid equitable charge on the fund.⁽¹⁰¹⁾

• Trustee's Duty of Fairness: The old case of Re Condon; Ex parte James⁽¹⁰²⁾ stands for the proposition that the trustee must apply the principles of honesty and fair dealing in the administration of the bankruptcy estate. This proposition is a long shot when one must argue that although the law entitles the trustee to a certain priority, this is just not "fair" or "moral".⁽¹⁰³⁾

This author would gratefully appreciate receiving, with attribution, any unreported or overlooked precedents on any of the points in this paper, from counsel who may unearth or litigate the case. And so the law evolves.

Robert A. Klotz

Klotz Associates

700 - 347 Bay Street

Toronto, Ontario M5H 2R7

(416) 360-4500

(416) 360-4503 (fax)

Website: http://www.worldlaw.com

Email: bobklotz@worldlaw.com

NOTES:

1. B.Sc., LL.B., LL.M., of Klotz Associates, Toronto, Ontario. Author of Bankruptcy and Family Law (Carswell, 1994, 2nd edition pending, pending, ... )

2. R. Klotz, New Support Enforcement Remedy when Payor becomes Bankrupt, 16 R.F.L. (4th) 214 (1996)

3. As to support orders: Dudgeon v. Dudgeon (1980), 17 R.F.L. (2d) 204, 34 C.B.R. (N.S.) 308 (Alta. Q.B.); Re Taylor (1985), 58 C.B.R. (N.S.) 274 (B.C.S.C.); Re Freedman, [1924] 5 C.B.R. 47, 3 D.L.R. 517 (Ont. C.A.); Saberi v. Saberi (1979), 30 C.B.R. (N.S.) 314, 10 R.F.L. (2d) 381 (Ont. C.A.); C.I.B.C. v. McFadzean (1978), 28 C.B.R. (N.S.) 87, 90 D.L.R. (3d) 84 (Man. Q.B.); Saunders v. Saunders (1988), 72 C.B.R. (N.S.) 83, 18 R.F.L. (3d) 298 (N.B.Q.B.); Craig v. Bassett (1988), 71 C.B.R. (N.S.) 82, 17 R.F.L. (3d) 225, 53 D.L.R. (4th) 465 (N.S.C.A.); Re Paré; Bourgeois v. Michaud (1980), 35 C.B.R. (N.S.) 199 (Que. S.C.); Brazeau v. Cardinal (1984), 28 A.C.W.S. (2d) 167 (Que. C.A.). The non-provable status of support arrears under a separation agreement, even if incapable of variation, has now been judicially upheld in the reasoned decision of Feldman J. in Re Burrows (1996), 42 C.B.R. (3d) 89 (Ont. Gen. Div.)

4. See 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.)

5. A similarly worded provision, s. 66.28(2), applies to consumer proposals.

6. This argument has been made by the draftspersons of the legislation, in correspondence with the author. Although this argument contradicts established case law, it is supported by the benevolent canons of construction outlined by the Supreme Court of Canada in Marzetti v. Marzetti, supra, note 3: For public policy reasons, the court should err on the side of caution where family needs are at issue. "[T]here are related public policy goals to consider ... [T]here is no doubt that divorce and its economic effects ... are playing a role in the "feminization of poverty" ... A statutory interpretation which might help defeat this role is to be preferred over one which does not." (p. 189-90 C.B.R.)

7. Houlden & Morawetz, Bankruptcy and Insolvency Law of Canada (Carswell), at §E18, citing Trade Collection & Mercantile Agency v. Derome (1934), 16 C.B.R. 158 (Que. Cir. Ct.)

8. Halsbury (3rd Ed.), v. 2, Bankruptcy, §671; Re Sewell, White v. Sewell, [1909] 1 Ch. 806 at 809: "Shortly after approval of the scheme of arrangement ... the creditor proved for and accepted the composition, thereby, in my opinion, assenting to the composition within the meaning of [the section]."; Victor Weston (Fabrics) Ltd. v. Morgensterns, [1937] 3 All E.R. 769 (C.A.), where a creditor was found to have "assented" to a deed of arrangement by responding to the trustee's circular, which announced the deed of arrangement and asked for statements of accounts, by sending in its statement of account [analogous to sending in a proof of claim]; Thorp v. Dakin (1885), 52 L.T. 856 (taking active part in procuring acceptance of composition).

9. Byrne v. Clarke (1996), 138 N. & P.E.I.R. 343 (Nfld. U.F.C.); Malva Enterprises Inc. v. Rosgate Holdings Ltd. (1993), 14 O.R. (2d) 481 (C.A.); Cory Bros. & Co. v. 'The Mecca', [1897] A.C. 286 (H.L.)

10. This is now the presumptive norm for all support orders granted in the province, unless the court expressly provides otherwise. Likewise, separation agreements containing support obligations can be registered with the Family Responsibility Office which then becomes responsible for collecting the support payments.

11. This corresponds to the treatment of payments within the priority period (in this case 30 days under s. 81.1 for repossession claims) in People's Department Store Ltd. (1992) Inc., Re (1994), 37 C.B.R. (3d) 28 (Qué. C.S.), where the supplier unsuccessfully alleged that the payments had been applied to the older outstanding accounts, leaving the recently supplied goods unpaid. Held: the recent payments had in fact been made in respect of the recent goods.

12. Section 96 of the BIA extends the look-back period from three months to twelve months in connection with a fraudulent preference to a related party under s. 95.

13. British Columbia has recently amended its support legislation to specifically provide for support obligations as between gay spouses. In other provinces, gay spousal support orders are being sought through constitutional challenges under the Charter. However, no special legislation or judicial activism is necessary to establish the enforceability of separation agreements between gay spouses dealing with support.

14. The current jurisprudence relating to common law spouses includes the following authorities: Miron v. Trudel, [1995] 2 S.C.R. 418, 13 R.F.L. (4th) 1, 10 M.V.R. (3d) 151, 124 D.L.R. (4th) 693, [1995] I.L.R. 1-3185: Marital status is discrimination per Charter s. 15(1); the Legislature cannot exclude common law spouses from benefits available to married spouses in the Ontario Standard Auto Policy. See W. Holland, Miron v. Trudel: Unmarried Couples and the Charter, 13 R.F.L. (4th) 131 (1996). Taylor v. Rossu (1998), 161 D.L.R. (4th) 266, 53 C.R.R. (2d) 219 (Alta. C.A.): the "married" restriction on entitlement to claim support under the Alberta Domestic Relations Act, is unconstitutional. Law declared invalid, but declaration of invalidity suspended for 12 months to provide the Alberta government an opportunity to legislate provisions for common law support rights. R. v. Middleton (1997), 45 C.R.R. (2d) 151 (Ont. Gen. Div., LaForme J.): Criminal Code s. 215(4)(a) which restricts 'failing to provide necessaries of life' to a married spouse, violates equality rights because it excludes common law and same sex couples from the rights and protections it grants; though saved by s. 1 (justifiable restriction in a free and democratic society). Do not read in common law relationships to the term 'lawfully married'; "[I]t may be appropriate to do so in respect of other legislation and in certain well-defined circumstances where, for example, the intent of Parliament is less clear and it is apparent that deficiencies in the legislation appear as mere oversights or misstatements ..." at p. 168.

15. The jurisprudence relating to gay spouses includes: M. v. H. (1996), 25 R.F.L. (4th) 116, 142 D.L.R. (4th) 1, 31 O.R. (3d) 417 (C.A.), leave to appeal granted (1997), 32 O.R. (3d) xv (S.C.C.): Ontario F.L.A. definition of "spouse" must be read up to include same sex couples. Vriend v. Alberta (1998), 50 C.R.R. (2d) 1 (S.C.C.): failure to include sexual orientation under Alberta's Individual's Rights Protection Act offends Charter. Rosenberg v. Canada (A.-G.) (1998), 38 O.R. (3d) 577, 51 C.R.R. (2d) 1 (C.A.), reversing 127 D.L.R. (4th) 738, 25 O.R. (3d) 612, [1996] 2 C.T.C. 78, 11 C.C.P.B. 121: 'spouse' in the federal Income Tax Act, s. 252(4), which restricts spousal status to opposite sex spouses, infringes the Charter, read up to include gay spouses. Kane v. Ontario (A.-G.) (1997), 152 D.L.R. (4th) 738 (Ont. Gen. Div.): Ontario Insurance Act, s. 224(1), which provides for payment to the insured's "spouse", violates the Charter because it excludes same sex couples. R. v. Middleton (1997), supra.

16. In this respect, the Alberta Court of Appeal's reasoning in Taylor v. Rossu, supra, note 14, is directly applicable to the choice of remedy if these provisions of the BIA come under Charter challenge.

17. Twelfth Report of the Standing Senate Committee on Banking, Trade and Commerce on Bill C-5, February 11, 1997:

"The Committee, however, is concerned that the bill does not adequately deal with the potential for collusive activities between spouses that would serve to defeat other creditors. The example provided to the Committee by Mr. Klotz illustrates how a relatively simple agreement between spouses could leave other legitimate creditors of a bankrupt spouse with nothing.

The Committee favours measures that would control collusion and improper behaviour in conjunction with the granting of provability and a limited priority for support claims. There are conflicting views, however, as to whether the present provisions of the BIA are adequate to guard against collusion. The Committee believes that it is important to assess the operation of the provability and priority provisions in light of the general anti-abuse measures of the BIA before specific new provisions are added to deal with the support provisions. The Committee, however, urges the Office of the Superintendent of Bankruptcy to closely monitor the operation of these provisions and to introduce specific anti-collusion measures on a timely basis, if necessary."

18. Marzetti v. Marzetti, supra, note 4

19. See the benevolent treatment of pre-bankruptcy support agreements in Rakus, Re (1991), 3 C.B.R. (3d) 25 (Ont. Gen. Div.); C.I.B.C. v. Shapiro (1985), 54 C.B.R. (N.S.) 134, 44 R.F.L. (2d) 47, 49 O.R. (2d) 333 (H.C.); Caldwell v. Simms (1995), 11 R.F.L. (4th) 28 (B.C.S.C.); MGM Grand Hotel Inc. v. Liu (1997), 75 A.C.W.S. (3d) 284 (B.C.S.C.)

20. Caruana, Caruana and Fenech (Re), [1988] F.L.C. ¶91-903 (Fed. Ct. of Australia)

21. See New Support Enforcement Remedy When Payor Becomes Bankrupt, 16 R.F.L. (4th) 214 (1996); Submission of the Canadian Bar Association on Bill C-5, August 1996; Testimony of R. Klotz before the House of Commons Standing Committee on Industry, September 17, 1996, Internet: http://www.parl.gc.ca/committees352/indu/evidence/17_96-09-17/indu-17-cover-e.html; Letter of the Canadian Bar Association to the Honourable Senator Michael Kirby dated November 27, 1996; Testimony of R. Klotz before the Senate Committee on Banking and Finance, December 2, 1996; and substantial private correspondence.

22. BIA ss. 95 and 96, taken together, provide that "... every obligation incurred and every judicial proceeding taken or suffered by an insolvent person in favour of any creditor ... with a view to giving that creditor a preference over the other creditors shall, if the person making, incurring, taking, paying or suffering it becomes bankrupt within [12 months] after the date of making, incurring, taking, paying or suffering it, be deemed fraudulent and void as against the trustee in the bankruptcy." Quaere whether this provision has any application to a preference which is created not by the parties, but by the statutory preferential scheme of the BIA itself.

23. E.g. Ontario Assignments and Preferences Act, s. 4 (not by its terms applicable to payment obligations imposed by agreements or court orders); Ontario Fraudulent Conveyances Act, s. 2 (possibly applicable to a "bond, suit or judgment").

24. For example, "The fact that the parties have not treated this payment as a spousal support payment for income tax, and perhaps other purposes is inconsequential": McCowan v. McCowan (1995), 14 R.F.L. (4th) 325 (Ont. C.A.) at 339 (non-bankruptcy case).

25. Failure to apportion between support and property can sometimes be fatal. In Peterson v. Peterson (1995), 37 C.B.R. (3d) 76, 132 D.L.R. (4th) 329, 18 R.F.L. (4th) 207 (Alta. C.A.), the separation agreement provided for the husband to pay money in satisfaction of both property and support claims, but did not apportion as between them. Held: onus on wife to prove apportionment. Where spouses never agreed on apportionment, court should not do so. Court should not ask whether a court would have ordered support. "In answering the question, a judge should apply the usual rules for the interpretation of agreements, but should not trespass on those rules by asking what a court might have ordered if support had been sought or by asking what the parties might have agreed to in a case where they did not agree ... A judge in a case like this should not be seduced into a hearing on issues that should have been resolved long since." @83 C.B.R., 336 D.L.R.

26. See Droit de la famille - 2181, [1995] R.D.F. 269 (C.S.Qué. March 30 1995, Chaput J.): Separation agreement, husband goes bankrupt, seeks modification of support. Agreement required husband to pay wife lump sum, when matrimonial home sold, equal to $95,000 less encumbrances. Mortgagee seizes home, husband goes bankrupt, wife claims the amount ($17,000) as support. Held: debt not extinguished. "According to the agreement adopted by the Divorce Judgment, [the wife] has the right to live in the home, with the children, until the sale and [the husband] is obliged to pay the monthly mortgage, the taxes and the insurance, and to carry out important repairs. In the context of the settlement, this falls within the meaning of s. 178(1) ... this debt is not released by the bankruptcy" at 274 [translation]. But the court modifies the obligation, reduces to $9,000 plus interest.

27. (1988), 72 C.B.R. (N.S.) 50, 17 R.F.L. (3d) 344, 67 O.R. (2d) 29 (S.C.) at p. 55-56 C.B.R.

28. See R. Klotz, Bankruptcy and Family Law (1994, Carswell) at pp. 61-72.

29. See Hiebert v. Hiebert (1997), 124 Man. R. (2d) 206 (Q.B., Master Harrison)

30. Cf. Provencher (Syndic de), Re, [1996] R.D.F. 271 (C.S. Qué., Feb. 15 1996, Vézina J.): Wife opposes husband's discharge, seeking order that arrears under separation agreement fall within s. 178. Agreement reduced husband's support from $300 to $200/week in exchange for $25,000 payment at $2,500/year over ten years, specified to be composed of $4,000 for property division, $9,000 for 'wages' for working for husband over five years (husband a solicitor); $10,000 compensation for wife working to put husband through lawschool; $2,000 for support arrears, all under the heading 'alimony' in agreement, referred to as 'somme globale' [lump sum]. Held: support, despite the breakdown of the amount, because was in consideration for reduction of support. The 'cause' of the obligation suffices to qualify it as a support debt under s. 178. So debt not extinguished; bankrupt gets absolute discharge. Maule-Ffinch v. Maule-Ffinch, [1996] O.J. 1580 (C.A., May 7/96): Even though the amount was based on value of equity in the matrimonial home, the wording used in the separation agreement "The parties agree that the property divisions as set out above are to be construed as a lump sum payment in lieu of ongoing spousal or child support" meant that the obligation survived bankruptcy per s. 178. "The plain and simple meaning of the words in the separation agreement is that the property division and the payments calculated in reference to the value of the wife's interest in the property, were in lieu of ongoing spousal and child support. We see no ambiguity in the agreement." Upheld decision of Clarke J.: "The separation agreement is clear that the Financial payments were in lieu of child and spousal support. I find this to be a Fact. Put differently, the financial obligations are in effect a substitute for maintenance and support. Therefore, I find the personal bankruptcy in 1993 did not eliminate the Financial obligations set out in the Minutes of Settlement. S. 178(1)(c) applies."

31. Cf. Miller, Re (1981), 37 C.B.R. (3d) 316 (Alta. C.A.), reversing 34 C.B.R. (N.S.) 172 (Q.B.): Husband's indemnity in separation agreement, and decree nisi, re matrimonial home second mortgage, not support.

32. See Guemili v. Guemili (1989), 19 R.F.L. (3d) 347 (Man. C.A.)

33. (1997), 117 Man. R. (2d) 312 (Q.B.) (non-bankruptcy case).

34. (1986), 86 D.T.C. 1694 (T.C.C.)

35. (1994), 4 R.F.L. (4th) 425 (Sask. Q.B.)

36. Lang v. Ball, [1988] W.D.F.L. 2209 (Ont. H.C., Vannini L.J.S.C.), refusing a solicitor's charging order against child support arrears collected through the solicitor's efforts: "Money for child maintenance is not money to the parent having custody but money of the child for his support although the order directs payment to the custodial parent."

37. Re Robinson (1884), 27 Ch. D. 160 (C.A.); Paquine v. Snary, [1909] 1 K.B. 688, 25 T.L.R. 212 (C.A.); Cairns v. St. Amour, [1913] 5 W.W.R. 115 (Sask. Dist. Ct.); Re Freedman, [1924] 5 C.B.R. 47, 55 O.L.R. 206, 3 D.L.R. 517 (C.A.); Jachowicz v. Bate (1958), 66 Man. R. 174, 24 W.W.R. 658, 14 D.L.R. (2d) 99 (Q.B.); Saberi v. Saberi (1979), 30 C.B.R. (N.S.) 314, 10 R.F.L. (2d) 381 (Ont. C.A.); Diamond, Fairbairn v. Kaporovsky (1992), 45 E.T.R. 307 (Ont. Gen. Div., Borins J.)

38. [1923] 2 K.B. 240, 92 L.J.K.B. 717, 129 L.T. 129 (C.A.). This case was followed and applied in Taylor (formerly Kräupl) v. National Assistance Board, [1956] P. 470, [1956] 2 All E.R. 455 at 460-61, 465, 466; on appeal on other points [1957] P. 101, [1957] 1 All E.R. 183 (C.A.); [1958] A.C. 532, [1957] 3 All E.R. 703 (H.L.).

39. In a more recent instance, Menuiserie Chibougamou inc. c. Paré, [1996] R.J.Q. 2042 (C.Q., July 8/96, Abud J.), the wife garnisheed her husband's pension to enforce a support order; one of her creditors attempted to seize the money. Held: These monies were support monies and therefore exempt from seizure as 'aliments accordés en justice' pursuant to Article 553 of the Quebec Civil Code.

40. (1981), 10 Man. R. (2d) 232 (Q.B.)

41. Maintenance ordered by Divorce court to be paid to bankrupt wife during the joint lives of wife and former husband (Landau, In Re; Ex parte Trustee, [1934] Ch. 549 (C.A.)), and £50 monthly payments in consideration for wife's release of maintenance claims (Tennant's Application, In re, [1956] 1 W.L.R. 874 (C.A.)) held to be income in wife's bankruptcy, can be subject of surplus income order. See also Hawkins, Re, [1996] 1169 FCA (12/20/96, Fed. Ct. of Australia, Spender J., Brisbane #QB410/96)

42. The critical limitations of this analogy are the availability of a variation application by the support payor; and the issue of public policy.

43. Marion v. Keith G. Collins Ltd. (1997), 45 C.B.R. (3d) 143 (Man. Registrar)

44. Goulet (syndic) c. Canadien National, [1996] A.Q. No. 704 (C.S. Qué., Lévesque J.)

45. Mirlin, Re, [1996] S.J. No. 633 (Sask. Q.B., July 31 1996, Registrar Herauf): Do not treat receipt of child support as income for bankruptcy purposes.

46. Donovan v. Official Trustee in Bankruptcy (1991), 15 Fam. L.R. 253 (Fam. Ct. of Australia); Sabri, Re (1995), 19 Fam. L.R. 710 (Fed. Ct. of Australia); Bank of Montreal v. Coopers & Lybrand Inc. and Ostapowich (1996), 40 C.B.R. (3d) 161 (Sask. C.A.)

47. Saskatchewan's courts take the lead in ignoring creditors in matrimonial proceedings. See Kalinocha v. Kalinocha, [1985] 3 W.W.R. 137, 48 C.P.C. 247, 38 Sask. R. 50 (U.F.C.); Meleschak v. Meleschak (1988), 15 R.F.L. (3d) 80, 69 Sask. R. 5 (C.A.); C.I.B.C. v. Thaler (1980), 20 R.F.L. (2d) 283 (Ont. S.C.)

48. [1996] 9 W.W.R. 469 (Sask. Q.B.). This case concluded that a bank holding an RRSP for the support payor is not subject to garnishment because the RRSP is held in trust for the payor. Since there is no debtor-creditor relationship between the bank and the payor, there is no debt which can be garnished. This renders support enforcement cumbersome where, for example, the RRSP is held through a bank outside the province, which can only be attached through execution proceedings, requiring extra-provincial registration of the support judgment.

49. Note that under the Family Responsibility and Support Arrears Enforcement Act, 1996, amended the Creditors Relief Act to give priority to all periodic support arrears outstanding at the time of seizure or attachment. Section 43 of the FRSAEA, in force June 29, 1998, provides for registration of support arrears under the PPSA so as to give them secured status.

50. Wright v. Canada (A.G.) (1987), 62 O.R. (2d) 737, 67 C.B.R. (N.S.) 93, 13 R.F.L. (3d) 343, 23 C.P.C. (2d) 218, 88 D.T.C. 6041, [1988] 1 C.T.C. 107, 46 D.L.R. (4th) 182 (Div. Ct.)

51. Sibbit v. M.N.R. (1954), 54 D.T.C. 65 (Tax Appeal Board): irrebuttable presumption. See, however, Battiston Bros. Construction Ltd., Re (1986), 62 C.B.R. (N.S.) 50 (B.C.S.C.): rebuttable presumption. The Battiston holding, that a spouse may rebut the statutory presumption that she is not at arm's length, has been disapproved by the B.C. Court of Appeal, with a strong dissent, in Skalbania (Trustee of) v. Wedgewood Village Estates Ltd. (1989), 74 C.B.R. (N.S.) 97, [1989] 5 W.W.R. 254, 60 D.L.R. (4th) 43, 37 B.C.L.R. (2d) 88 (C.A.), leave to appeal to S.C.C. refused (1989), 76 C.B.R. (N.S.) xxix (note), 62 D.L.R. (4th) viii (note). Whether non-married spouses are at arms length is a question of fact: s. 3(2).

52. Divorce Act, s. 15.2(6)

53. Rossiter-Forrest v. Forrest (1994), 129 N.S.R. (2d) 130 (S.C.)

54. Droit de la famille - 1955, [1994] R.D.F. 247 (C.S., March 22 1994, Crépeau J.); varied as to timing and calculation of payments, sub nom. L.G. c. L.D. (1995), 67 Q.A.C. 224 (May 26 1995, C.A.) at p. 226: Lump sum support of $50,000 awarded (payable over 5 years; extended to 8 on appeal), in view of fact that at some point, the wife would have to buy out the trustee's half interest in the matrimonial home or find another home, and pay off family debts which became her responsibility as a result of the husband's bankruptcy.

55. Rutherford v. Rutherford (1981), 23 R.F.L. (2d) 337; Speed v. Speed, [1995] W.D.F.L. 212 (B.C.S.C.) at pp. 6-8

56. (1996), 39 C.B.R. (3d) 7, 18 B.C.L.R. (3d) 229 (S.C.)

57. Speed v. Speed, supra, at note 55.

58. See Marzetti v. Marzetti, supra, note 4. Two subsequent cases have reiterated the importance the Court places on family welfare, so as to give the benefit of the doubt to the claimant: Willick v. Willick, [1994] 3 S.C.R. 670, 6 R.F.L. (4th) 161 (S.C.C.) at p. 192: social reality is relevant to interpretation of the BIA; Wallace v. United Grain Growers Ltd. (1997), 152 D.L.R. (4th) 1 (S.C.C.)

59. E.g. Ontario Pension Benefits Act, ss. 66(1) - (3): Moneys payable under a pension plan, and monies transferred from a pension fund to, or payable from, a prescribed retirement savings arrangement or for the purchase of a life annuity, are exempt from execution, seizure or attachment.

60. This is known as the conditionality problem. See, for example, Droit de la famille - 3054 (April 30/98, C.S.Qué., 1998 CarswellQue 829, Chabot J.): Separation agreement and divorce judgment required husband to pay $15,000 for property division, no later than two weeks after judgment taken out; and provided for a full release of all claims. Husband tried but failed to raise the money, then unsuccessfully applied to vary the judgment so as to allow him to transfer pension monies to wife instead. He then filed for bankruptcy, ten months after original judgment, retaining his exempt pension. Wife proved claim, didn't oppose discharge, then sued after discharge for division of family property. Held: the release was unconditional. Her only remedy was within the bankruptcy. This problem can be avoided through the use of a conditionality clause in the separation agreement or court order. See R. Klotz, Pitfalls and Pointers in High Debt Cases, 15 Cdn. Fam. L.Q. 187 (1998), Section 2.

61. Malboeuf v. Malboeuf (1994), 27 C.B.R. (3d) 86, 7 R.F.L. (4th) 133 (Ont. Gen. Div.)

62. Schroeder v. Schroeder (1993), 47 R.F.L. (3d) 290, 19 C.B.R. (3d) 316, 110 Sask. R. 232 (Q.B.); Walton v. Walton (1985), 56 C.B.R. (N.S.) 104, 62 B.C.L.R. 334 (S.C. in Chambers). For a practical example of how to divide a pension when the holder is bankrupt, see Cavers v. Cavers, [1996] 4 W.W.R. 726 (Sask. Q.B.), where the husband was an undischarged bankrupt with no assets other than a pension. Because of his status, the retirement method of pension valuation was deemed to be inappropriate; the wife was given the option to choose between an 'if & when' division and a maximum commuted value transfer to a locked-in RRSP for her.

63. See Rombough v. Rombough (1993), 89 Man. R. (2d) 82 (Q.B.)

64. (1994), 3 R.F.L. (4th) 282 (Ont. Gen. Div.). This poorly reasoned case reached the contradictory conclusions that an equalization claim against a pension is not provable in bankruptcy, but is wiped out by the bankruptcy. The judge in this case was not presented with the applicable precedents. See the criticism of this case in R. Klotz, Bankruptcy and Family Law (Carswell, 1994), Ch. 10 at pp. 229-30.

65. BIA s. 69.4. Such leave should be straightforward, as proceeding against the pension does not prejudice the bankrupt estate, nor does it violate in any meaningful way the rehabilitative goals of bankruptcy, particularly when juxtaposed against the public policy favouring equal sharing of matrimonial assets. This argument was wholeheartedly accepted by Greer J. in Re Hughes, October 23 1997, Ont. Gen. Div. #32-071120, an unreported endorsement kindly sent to me by David Seed of Burlington, Ontario. However, leave was refused in Re Helwig (1995), 36 C.B.R. (3d) 141 (Ont. Registrar in Bkcy), another regrettable decision where the losing party was bamboozled. The bankruptcy court refused to lift the stay to permit the wife, with a $17,000 equalization judgment based on the husband's pension, to seek to vary the judgment to obtain a division of the pension after his bankruptcy. This decision makes no sense. Clear justification for lifting the stay in the pension scenario can be found in Ingles, Re (1997), 46 C.B.R. (3d) 202 (B.C.S.C.) (non-matrimonial case).

66. This recommended procedure has been approved in a contested discharge case, Collins v. Collins, November 8, 1996, Ont. Gen. Div., Toronto #31-303199, where McPherson J. made the following unreported endorsement: "Discharge granted with one condition: The bankrupt's discharge is without prejudice to the Wife's claim against the bankrupt's pension, under equalization principles. This claim is being dealt with in separate proceedings flowing from the dissolution of the parties' marriage. No costs." I thank Lisa Gelman of Toronto for bringing this unreported case to my attention.

67. October 23, 1997, Greer J., Ont. Gen. Div. #32-071120, unopposed. Thanks to David Seed of Burlington, Ont. for bringing this case to my attention.

68. Ont. Gen. Div., Valin J., Jan. 21 1998, London Bankruptcy #35-068811, currently under appeal; reversing Registrar Stevens, Oct. 27 1997. Thanks to Marie Tukara of London, Ont. for bringing this case to my attention.

69. Sept. 30 1998, Dep. Registrar Stevens, London #35-071463, unreported, contested by bankrupt; thanks to Denise Korpan of London, Ont. for bringing this case to my attention.

70. A comparable order was granted in Geeson, Re (Jan. 14/98, Registrar Ferron, Toronto #31-343313), where costs of $535.00 were awarded by virtue of the Husband's refusal to consent to the order. The writer acts for the wife. The Registrar commented orally that in normal circumstances, the order could be obtained on the trustee's consent without notice to the husband. In the writer's view, such procedure might be unfair to a husband whose impecuniosity prejudices him from defending the equalization claim without a hiatus period. He ought to have an opportunity to seek, as a condition of lifting the stay, that the claim not proceed for a given number of months or years to allow him to finance his legal representation: Bowles v. Barber (1985), 60 C.B.R. (N.S.) 311 (Man. C.A.). Such a condition, in appropriate circumstances, would be consistent with the rehabilitative object of bankruptcy, since the burden of matrimonial legal fees can be a significant contributing cause of insolvency.

71. Unreported endorsement, Registrar Ferron, Jan. 13/98, Ont. Gen. Div., Toronto #31-330842. The author acted for the claimant wife.

72. Unreported, July 22/96, Ont. Gen. Div. #15621 at London, Killeen J., reversed May 27, 1998, Ont. Div. Ct., No. 715/96. Thanks to Lawrence Blokker of London, Ont. for bringing this case to my attention.

73. (1993), 47 R.F.L. (3d) 290, 19 C.B.R. (3d) 316, 110 Sask. R. 232 (Q.B.)

74. R. Klotz, Bankruptcy and Family Law, at p. 231. Further support for the unique nature of equalization claims against a pension can be analogized from the comments of Weiler, J.A. in Burgess v. Burgess (1995), 24 O.R. (3d) 547, 16 R.F.L. (4th) 388 (C.A.) at 556 O.R.

75. If the husband commences his equalization claim before he is discharged, the claim vests in his trustee (Blowes v. Blowes (1993), 49 R.F.L. (3d) 27, 21 C.B.R. (3d) 276, 16 O.R. (3d) 318 (C.A.)) and he has no status to pursue the claim. If equalization proceedings were outstanding at the time of his bankruptcy, he must wait until his discharge and then re-acquire the claim from his trustee by way of assignment (perhaps for some consideration). However if the wife has already been discharged from bankruptcy, she can argue that the equalization claim has been erased by her discharge (Balyk v. Balyk, supra, note 64). This conundrum leaves little room for manoeuverability, and requires both art and some degree of artifice to overcome.

76. Thibert v. Thibert (1992), 66 B.C.L.R. (2d) 29 (C.A.); Dorflinger v. Melanson (1994), 3 R.F.L. (3d) 261 (B.C.C.A.); Bigelow v. Bigelow (1995), 15 R.F.L. (4th) 12 (Ont. Div. Ct.). In Green v. Melnyk, [1998] W.D.F.L. 681 (B.C.S.C., Davies J., 6/17/98), a resulting trust was declared over the common law husband's pension (non-bankruptcy case).

77. See, for example, Vellow v. Vellow (1995), 10 R.F.L. (4th) 402 (B.C.S.C.)

78. Taylor, Re (1996), 41 C.B.R. (3d) 171 (Ont. Gen. Div., Registrar Stevens); Helwig, Re (1996), 41 C.B.R. (3d) 268 (Ont. Gen. Div., Registrar Stevens); Webster, Re (1997), 69 A.C.W.S. (3d) 19 (Ont. Gen. Div., Registrar Stevens, Jan. 27 1997, 4pp)

79. [1984] 2 S.C.R. 137, 12 D.L.R. (4th) 321, 41 R.F.L. (2d) 113, 54 N.R. 268, 34 R.P.R. 228.

80. This principle also applies to (non-exempt) personal property. In the case of a writ of execution (short of bankruptcy) against personal property, the Executions Act specifies that delivery of an execution to the Sheriff binds the debtor's goods, subject to certain bona fide conveyances to purchasers who have no actual knowledge of the execution: Ontario Execution Act, s. 10.

81. (1990), 29 R.F.L. (3d) 454, 4 C.B.R. (3d) 1 (Ont. Gen. Div.)

82. See also Starko v. Starko (1993), 16 C.B.R. (3d) 236, 6 Alta. L.R. (3d) 64 (Q.B.), which reached the same result on analogous facts (save that the proceeds of sale had been paid into court) under Alberta's distribution of property scheme.

83. This principle also applies in Australia and New Zealand: Official Assignee v. Davidson (1988), 4 N.Z.F.L.R. 513 @ 523: ".. although the wife may have had a claim to the [asset vested in her husband] as being matrimonial property prior to the husband's bankruptcy she did not have a proprietary interest in the property. It ceased to be matrimonial property on the commencement of the bankruptcy and any claim that she had in respect of it disappeared."; Sonenco (No. 77) Pty. Ltd. v. Silvia (1989), 13 Fam. L.R. 511 (Fed. Ct. of Australia, on appeal): matrimonial division rights inchoate until granted by order or agreement; no priority if bankruptcy first. For a recent application in Ontario, see Ferguson v. Ferguson (1994), 7 R.F.L. (4th) 384 (Ont. U.F.C.): husband's solicitor's writ for unpaid fees has priority over wife's subsequent equalization claim.

84. Neustaedter v. Neustaedter (1986), 56 O.R. (2d) 769, 32 D.L.R. (4th) 627, 60 C.B.R. (N.S.) 173 (S.C.); Gaudet v. Young Estate (1995), 11 R.F.L. (4th) 284 (Ont. Gen. Div.) ("a spouse should not have priority over business creditors. Spouses should only share in the profits of a marriage generated during the relationship" at 289-90), distinguishing Beck v. Beck (1984), 2 F.L.R.A.C. 117 (Ont. H.C.)

85. See Re Hansard Spruce Mills Ltd., 33 C.B.R. 217, [1954] 1 D.L.R. 326, 10 W.W.R. (N.S.) 344 (B.C.S.C.); Re Charisma Fashions Ltd. (1971), 15 C.B.R. (N.S.) 207 (Ont. Registrar); V.I. International Holdings Ltd. v. Henbar Invts Ltd. (1982), 41 C.B.R. (N.S.) 304, 19 Alta. L.R. (2d) 92 (Q.B.); Re McDermott (1984), 54 C.B.R. (N.S.) 37 (S.C.O.); Re Chastko, [1986] 4 W.W.R. 94, 61 C.B.R. (N.S.) 305 (Man. C.A.); Re Mordant, [1996] 1 F.L.R. 334 (Ch. D.); Stewart v. Hoch (1998), 21 C.P.C. (4th) 352 (Ont. Gen. Div., Hoilett J.). Cf. Tradmor Investments Ltd. v. Valdi Foods (1987) Inc. (1995), 33 C.B.R. (3d) 244 (Ont. Gen. Div.), affd. (1997), 43 C.B.R. (3d) 135 (Ont. C.A.): Money paid into court as security for Plaintiff's claim per court order dismissing Plaintiff's summary Judgment motion. Two weeks later Defendant went bankrupt. Held- money still property of bankrupt, trustee gets; McNeill Electronics Ltd. v. American Sensors Electronics Inc. (1998), 39 O.R. (3d) 33, 3 C.B.R. (4th) 137 (Gen. Div., Swinton J.): Money paid into court to credit of action accrues to trustee, though not letter of credit.

86. See, for example, Re Frechette (1991), 3 O.R. (3d) 664, 6 C.B.R. (3d) 75, 41 E.T.R 289 (Gen. Div.), a case outside the matrimonial setting, in which the court enforced a trust where the identity of the beneficiary hinged on the outcome of pending litigation. Also Ferguson Gifford v. B.C. (1997), 47 C.B.R. (3d) 226 (B.C.S.C., Boyle J.): Money held in trust by solicitor pending outcome of appeal, is valid trust (non-matrimonial case).

87. To be effective, the security must be registered under the Personal Property Security Act.

88. There may be problems here, under BIA s. 70(1), s. 136 and on constitutional grounds. Bunn, Re (1989), 14 Fam. L.R. 69 (Fed. Ct. of Australia): Charging order = secured creditor; Official Assignee v. Davidson (1987), 4 N.Z.F.L.R. 513 (H.C.): Matrimonial charging order is a remedy by way of execution, ineffective against bankruptcy; Mattes, Re, [1998] N.S.J. No. 13 (N.S.S.C, Registrar). Compare the following two cases: Bascello v. Bascello Estate (1997), 33 O.R. (3d) 30, 48 C.B.R. (3d) 235, 146 D.L.R. (4th) 289 (Gen. Div.): "The Trial judge's reference to s. 9(1) of the FLA makes it clear that the charging order was not meant to be a mere aid in execution of the judgment, nor was it meant to be a mere direction of the Court .. This was in fact a situation where a charge was imposed by way of security." at ¶26; Protz v. Protz (1997), 30 R.F.L. (4th) 434, 49 C.B.R. (3d) 63 (Sask. Q.B.): Wife's matrimonial charging order for division of assets against farm machinery and RRSP, constituted her secured creditor in husband's bankruptcy. The order was made without reference to the Matrimonial Property Act, so was a charging order within the court's general jurisdiction, and the charged assets were specifically itemized, so constituted her a secured creditor.

89. Such an agreement may be vulnerable to attack as a settlement (BIA s. 91) or fraudulent conveyance or preference under the BIA or provincial legislation.

90. This result flows from the wording of s. 43 of the B.C. FRA, along with the unusual provisions of the B.C. Land Titles Act, ss. 31 and 213(1), (6) which specifically provide for the registration of a lis pendens in connection with spousal property claims. See Misic v. Misic (1989), 21 R.F.L. (3d) 417, 38 B.C.L.R. (2d) 290, 60 D.L.R. (4th) 312 (C.A.), affirming 12 R.F.L. (3d) 310 (B.C.S.C.); Swayze v. Swayze (1994), 6 R.F.L. (4th) 15 (B.C.S.C.)

91. Alberta Matrimonial Property Act, s. 35. See Markey v. Revenue Canada (Taxation) (1997), 26 R.F.L. (4th) 168 (Alta. Q.B.); Pieroway v. Pieroway (1998), 35 R.F.L. (4th) 318, 212 A.R. 227 (Alta. C.A.); Hunt v. Smolis-Hunt (1998), 61 Alta. L.R. (3d) 279 (Q.B.)

92. See Newfoundland Family Law Act, ss. 8 and 33; Sheriff of Newfoundland v. Hefferton (1983), 36 R.F.L. (2d) 44, 44 Nfld. & P.E.I.R. 16 (Nfld. C.A.); New Brunswick Marital Property Act, s. 20.

93. (1985), 50 O.R. (2d) 629, 47 R.F.L. (2d) 45 (H.C.J.)

94. "A presumption of a resulting trust arises in favour of persons who contribute financially to the purchase of property but do not take title in their own name, and do not intend to give a gift of the entire beneficial interest in the property to the registered or recorded title holder. Equity presumes that the non-titled party does not intend a gift when he contributes to the purchase price of a property. The beneficial interest is proportionate to the financial contribution made to acquire the property. The presumption of a resulting trust is rebuttable on a showing by the title-holder that the non-titled party intended the title-holder to have the property for his or her own benefit. The presumption of a resulting trust is also rebuttable on a showing that the transfer to the titled party was not gratuitous.": Hamilton v. Hamilton (1996), 92 O.A.C. 103 (Ont. C.A., July 31/96), ¶39 (non-bankruptcy case). Miles v. Conkin (1996), 24 R.F.L. (4th) 211 (B.C.C.A.): common law spouses take title jointly to matrimonial home, but wife paid 90% of price. Separation 1 year later. Held: no agreement between spouses at time of purchase as to what their respective interests would be. No common intention for husband to have half interest; husband would be unjustly enriched to get half. Each spouse gets back initial contribution, split profits equally. Hitchcox v. Harper, [1996] B.C.J. No. 1861 (Aug. 21 1996, S.C., Wilson J.): Common law husband and wife joint tenants in matrimonial home for 99/100, husband's parents joint tenants for 1/100 (to qualify for mortgage loan). Sold 6 months after purchase. Husband contributed 80% of price. Held: distribute proceeds proportionately to parties contributions, rather than as per registered interest. Midland Bank v. Cooke, [1995] 2 F.L.R. 915, [1996] 1 F.C.R. 442 (Eng. C.A.): Where joint tenancy but no express evidence as to respective proportions, judge must survey the whole course of dealing between the spouses re their ownership and occupation of the home. Court not bound to strictly apply trust resulting from cash contributions; court free to attribute an intention to share the beneficial interest.

95. Restrictive interpretation of unjust enrichment remedy in bankruptcy: Best, Re (1997), 33 O.R. (3d) 416 (Ont. Registrar) at 418; Barnabe v. Touhey (1995), 26 O.R. (3d) 477, 37 C.B.R. (3d) 73 (C.A.): "While a constructive trust, if appropriately established, could have the effect of the beneficiary of the trust receiving payment out of funds which would otherwise become part of the estate of a bankrupt divisible among his creditors" .. "a constructive trust, otherwise unavailable, cannot be imposed for that purpose." at 479 O.R.; Cowger v. Cowger, [1998] N.W.T.J. 20, [1998] W.D.F.L. 1053 (N.W.T. S.C., Apr. 3 1998, Vertes J.), supp. reasons [1998] N.W.T.J. No. 82 (May 28, 1998): Retroactive imposition of constructive trust against trustee in bankruptcy is "a highly dubious proposition", ¶43. Marangos Hotel Co. v. Stone, [1998] E.W.J. No. 481 (Eng. C.A.): No remedial constructive trust in England in insolvency setting. ¶64: "The effect of the statutory scheme applicable on an insolvency is to shut out a remedy which would, if available, have the effect of conferring a priority not accorded by the provisions of the statutory insolvency scheme. ... The insolvency road is blocked off to remedial constructive trusts, at least when judge-driven in a vehicle of discretion." McCoy v. Hucker, [1998] O.J. No. 2831, 80 A.C.W.S. (3d) 1204 (Gen. Div., Ferrier J.): No constructive trust on the facts. "A constructive trust is not meant to be a tactical tool used routinely in family law cases. It is a potent and important remedy to redress inequity when it clearly exists." at 8; Bouma v. Pass, [1998] B.C.J. No. 1745, [1998] W.D.F.L. 819 (July 6 1998, S.C., Wilson J.): Application of trust principles was not necessary as the legal remedy of spousal maintenance could adequately compensate the wife. In Roberts Estate, Re (1998), 3 C.B.R. (4th) 318 (Ont. Gen. Div., Hockin J.), the court granted a constructive trust as against the bankruptcy trustee, based on unjust enrichment. Shares had been purchased in the husband's name with funds raised from mortgage on wife's solely owned matrimonial home. Husband dies insolvent, his estate is petitioned into bankruptcy. Court awards wife a 50% constructive trust against the shares.

96. [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257, 19 R.F.L. (2d) 165

97. John Glover, Bankruptcy and Constructive Trusts, [1991] Australia Bus. L.R. 98, at p. 119: "The operation of the constructive trusts in insolvency has considerable intuitive appeal -- vindication of the claimant's title to property wrongfully misappropriated by the bankrupt, or the bankrupt's being required to disgorge wrongfully acquired benefits. But the real question of justice in insolvency does not arise between the claimant and the bankrupt, where the equities are clear. It arises between the different classes of creditors of the bankrupt, where the equities are much more difficult to distinguish. The main "victims" of an expanded constructive trust are the trustee's unsecured creditors."

98. See Slan v. Blumenfeld (1997), 34 O.R. (3d) 713 (Gen. Div., Kitely J.), supp. reasons [1997] O.J. 3107 (3pp.): Wife with four young children, husband bankrupt; husband's unpaid solicitor gets s. 38 order to realize on husband's half interest in matrimonial home; court finds equity of exoneration in favour of wife, vests husband's half interest in wife. Johnston v. Mainwaring (1997), 31 R.F.L. (4th) 261 (Alta. Q.B., Johnstone J.): priority of husband's solicitor's writ for unpaid legal fees vs. claim of wife and wife's mother; equity of exoneration. Creditor loses against wife because husband's half share of matrimonial home already used up to pay his obligation for child support, so husband has no interest, husband's solicitor's writ loses. 317363 Canada Inc. v. Doctor (1997), 50 C.B.R. (3d) 264 (Ont. Gen. Div., Ferrier J.): Equity of exoneration refused on the facts where wife consented to increasing collateral second mortgage on matrimonial home, used for husband's investments in husband's name. Although wife received no benefit from the investments, this allowed husband to deduct the interest payments on the mortgage so as to reduce tax, which allowed him to pay off the first mortgage quickly, so wife benefited by increased equity in the property. McCoy v. Hucker, [1998] O.J. No. 2831, 80 A.C.W.S. (3d) 1204 (Gen. Div., Ferrier J.): equity of exoneration denied on the facts. Mortgage debts incurred to meet family expenses - including husband's income tax arrears - in living beyond their means; so wife received benefit of the debt. Kleinas v. Kleinas, [1998] B.C.J. No. 211 (1/13/98, S.C., Hutchison J.): Mortgage debt shared equally although taken to finance wife's business, because although business failed, husband would have shared the profits if it had succeeded: relevant to equity of exoneration discretion. "The [husband] argues that the business was solely that of the [wife] and that he should not suffer any share in the losses. This being matrimonial litigation, he must take the bad with the good, or as said in the marriage vows, 'for better or for worse'. Had his businesses failed, half the losses would be hers. Had it succeeded, I have little doubt he would be claiming his one-half share." ¶8

99. Hendry v. Hendry, [1960] N.Z.L.R. 48 (S.C.)

100. Mastron v. Cotton (1925), 48 O.L.R. 251, [1926] 1 D.L.R. 767 (C.A.) at 254-55; Goertz (Trustee of) v. Goertz (1994), 26 C.B.R. (3d) 222 at 247-248 (Sask. Q.B.), ap. dis. (1995), 37 C.B.R. (3d) 1 (Sask. C.A.): "In this case, there being only two joint tenants, each is declared as having an undivided one-half interest. If Mrs. Goertz is of the view that she has contributed more than half of the costs of acquiring such lands or the cost of improving the same, or that she received less than one half of the net income and fruits of the land after payment of expenses, or that she has paid more than her share of the expenses pertaining to the land, I order that she may at anytime prior to December 1, 1994 apply to this Court for an allowance for such items and for an order directing the payment out of such allowance out of the proceeds from the sale of the lands to which the allowance pertains. I further order that should Mrs. Goertz apply for such an allowance, the trustee shall be at liberty to claim similar allowances on behalf of the bankrupt estate."

101. Swiss Bank Corporation v. Lloyds Bank, [1981] 2 All E.R. (H.L.), referred to as an "established principle of law" in annotation to Christensen (Trustee of) v. Christensen (1996), 40 C.B.R. (3d) 152 (Alta. C.A.). Followed in Gilmour, Re, Sept. 22 1997, Greer J., Toronto #31-326135, Ont. Gen. Div., reversing (1997), 72 A.C.W.S. (3d) 983 (Registrar Ferron): separation agreement and court order provided that joint matrimonial home be sold, proceeds divided equally, and from wife's share "[S]he shall direct that the husband be paid the sum of $50,000 .. in full satisfaction of his claim for an equalization of net family property". Wife bankrupt before sale. Held: equitable assignment doctrine applicable in Ontario.

102. (1874), 9 Ch. App. 609, [1874-80] All E.R. 388 (C.A.)

103. Inapplicable where trustee has not received property or the estate has not been enriched at the expense of the claimant: M.C.C. Precision Products Ltd., Re, [1972] 2 O.R. 825, 17 C.B.R. (N.S.) 28, 27 D.L.R. (3d) 4 (S.C., Houlden J.); Treacy, Re (1997), 32 O.R. (3d) 717, 46 C.B.R. (3d) 69 (C.A.); or if inconsistent with express provisions of PPSA: C.I.B.C. v. Melnitzer (Trustee of) (1993), 23 C.B.R. (3d) 161 (Ont. Bankruptcy.), affd. (1997) 50 C.B.R. (3d) 79 (Ont. C.A.). In Sabri, Re; Ex p. Brien, [1997] F.L.C. ¶92-732 (Australia Fam. Ct.), the court utilized Ex p James to find an equitable interest in the wife's favour as against the trustee, tantamount to a constructive trust - although constructive trusts have been rejected against a bankruptcy trustee in Australia on principle: Osborn, Re (1989), 91 A.L.R. 135 (Fed. Ct. of Australia - Gen. Div.). See P. Parkinson, Property Rights and Third Party Creditors - the Scope and Limitations of Equitable Doctrines, 11 Australia J.F.L. 100 (1997)