Bankruptcy issues are complex. They become even more complex when they affect the equalization process in family law cases. This complexity is apparent in Zavarella v. Zavarella, a very recent decision of the Ontario Court of Appeal.
Justice Eileen Gillese wrote the majority reasons and Justice Russell Juriansz provided a compelling dissent. This case is a good one with compelling discussions on a number of issues in property division matters by both the majority and the dissent. I would recommend it to anyone who practises family law.
While the appeal dealt with several issues, the bankruptcy question is, in my view, the most interesting aspect. The facts of this case are fairly straightforward.
Filomena Zavarella had about $60,000 in consumer debt just prior to her marriage to Rony Zavarella. The parties decided she ought to make an assignment in bankruptcy, which she did just prior to the date of marriage. Roughly nine months later, several months after the wedding, she obtained a discharge without having had paid anything on account of her debt.
Given that she had filed for bankruptcy before the date of marriage, should her pre-existing debt factor into the calculation of her net family property for the purpose of equalization? The trial judge held that, despite the assignment in bankruptcy, the debt existed on the date of marriage and should therefore factor into the calculation of net family property (which reduces the equalization payment she’ll receive). The majority of the Court of Appeal overturned this decision with a dissent on the issue by Juriansz.
I struggled with this case as there are compelling policy and statutory reasons for both positions, but ultimately, I tend to agree with the majority on this one.
While not explicitly clear in the reasons, the question put to the court really seems to be not whether the debt existed on the date of marriage, (because it did, pending Filomena’s discharge) but rather what value the court should ascribe to it. The argument goes that given the premarital assignment in bankruptcy, the liability was contingent pending a discharge in full or in part and therefore subject to discounting.
Gillese followed the rationale of the court’s earlier decision in Greenglass v. Greenglass when discussing the valuation of contingent liabilities in the equalization process. She noted that the court, in determining an equalization calculation, must assess the “reasonable likelihood” of debt repayment.
This approach contrasts with the dissenting reasons whereby Juriansz held that as of the date of marriage, the debt wasn’t a contingent liability. He found it was a liquidated debt with a fixed face value that must factor into the equalization calculation and was a fully owing debt pending any discharge. Juriansz quite rightly explained that the legislature created a formulaic structure for the calculation of equalization of net family property of spouses that removes discretion from judges hearing family law cases. I tend to agree with this rationale. However, given that there was solid evidence (notably from both the husband and the wife’s experts) that full repayment was unlikely, my view is that the court ought to treat this particular debt as a contingent liability it would have to discount for the contingency of the probability of collection.
While the discharge from bankruptcy would have eliminated the debt in its entirety after the date of marriage, the fact that the assignment was made prior to the parties’ marriage, in my view, took this debt into the realm of contingent, rather than liquidated, liabilities warranting an assessment by the court of the appropriate discounting.
Had Filomena filed for bankruptcy after the date of marriage, I think the debt would have been fairly reflected (as per the confines of the Family Law Act equalization provisions) at its full-face amount on her net family property statement because no contingency would have actually existed on the date of marriage. But even on such facts, I can see arguments to the opposite effect.
Marta Siemiarczuk is a lawyer practising family law litigation and collaborative family law at Nelligan O’Brien Payne LLP in Ottawa. She can be reached at firstname.lastname@example.org.