Wife not permitted to advance equalization of property claim after having declared bankruptcy

Ontario civil | Bankruptcy and Insolvency | Property of bankrupt | Family law issues

Parties entered into minutes of settlement that provided husband would assume ownership of matrimonial home as well as related debts and expenses, and pay wife $40,000 in exchange for release of her property division and spousal support claims. Following year, wife made assignment into bankruptcy and was automatically discharged from bankruptcy nine months later. Wife now claimed she was denied independent legal advice and was under duress, and settlement was unfair. Wife brought application to set aside minutes of settlement so that she could advance claims for equalization of property, spousal support and constructive trust. This was trial on issue of wife’s right to claim equalization of property after having declared bankruptcy. Wife was not permitted to advance equalization of property claim. While nothing in Family Law Act or Bankruptcy and Insolvency Act specifically prevented spouse from making claim for equalization of family property after bankruptcy, property of bankrupt vested in trustee. Right to claim equalization of property fell within broad statutory definition of property under s. 2 of Bankruptcy and Insolvency Act. Wife’s right to claim equalization vested with trustee, was not assigned back to her and did not re-vest with her upon discharge from bankruptcy. While certain property, such as some equity in matrimonial home and RRSPs, were excluded from bankruptcy, as separating spouse, wife had claim to one-half value of husband’s assets, but not proprietary interest in them. Wife had not applied to set aside assignment into bankruptcy, which was discretionary remedy applied sparingly, and was advised by trustee to seek legal advice but did not. Court lacked jurisdiction to undo bankruptcy and circumstances surrounding bankruptcy were not relevant to issue of whether equalization claim vested with trustee. Remaining issues were directed to trial management conference.

Kinsella v. Mills (2017), 2017 CarswellOnt 21152, 2017 ONSC 7093, C.D. Braid J. (Ont. S.C.J.).

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