Property Division and Bankruptcy

The recent Supreme Court of Canada decision of Schreyer v. Schreyer has confirmed that when it comes to the division of a former Husband and Wife’s property, the relationship between the spouses is only a “debtor-creditor relationship”.

In Shreyer during the matrimonial litigation, the Husband made an assignment in bankruptcy.  The Husband owed the Wife an equalization payment.  The Husband did not list the Wife as a potential equalization payment as a debt and did not even list the Wife as a creditor. The Wife did not find out that the Husband was bankrupt until after the discharged.  The Wife sued to try to secure the equalization owing to her.

The Supreme Court of Canada held that the relationship between the spouses does not confer a proprietary or beneficial interest.  The Court found that the equalization payment is a debt, and not a propretary interest, and as such it is to be treated like any other unsecured claim under the Bankruptcy and Insolvency Act.  As a result, the Husband was relieved from his obligation to pay the equalization payment owing to his Wife upon his discharge.

Therefore, it is very important to recognize that the spouse of a bankrupt is not afforded any special treatment and any equalization payment owing will be treated like any other debt owing by the bankrupt.  Furthermore, if you owe an equalization payment, it may be possible to deal with this debt in the same manner that you would with any other debt.

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