Understanding Bankruptcy’s Influence on Divorce Proceedings in Alberta
Financial instability often triggers major life changes such as divorce. Consequently, this separation can exacerbate financial woes as families transition from one household to two. In high-conflict divorce cases, litigation expenses can further strain finances. Given this intertwined relationship between financial difficulties and familial disputes, it’s crucial to understand how bankruptcy impacts family law matters, particularly divorces. This article will explore how one partner’s bankruptcy influences the division of property and spousal or child support in the context of Alberta’s family law.
Interplay of Bankruptcy and Divorce
Financial struggles and family conflicts often go hand in hand. So, it’s natural to question how bankruptcy affects family law matters if one or both spouses decide to file for bankruptcy. The impact can be substantial on a separation or divorce, regardless of whether bankruptcy occurs before or after the separation. In the following sections, we’ll examine how one partner’s bankruptcy influences the equalization of family property and the provision of spousal and child support.
Equalization Vs. Division of Property Jurisdictions: An Essential Distinction
The laws governing how family properties are distributed post-separation significantly influence how one partner’s bankruptcy affects the other partner’s property claim rights. The Schreyer v. Schreyer Supreme Court decision of 2011 clarifies that each province in Canada follows one of two asset-sharing models following a divorce:
- The equalization model.
- The division of property model.
The specific model followed by a province significantly influences how one partner’s post-separation bankruptcy impacts the other partner’s property claim.
The Equalization Model
Under this model, both parties inventory and value their joint assets as of the separation date, and the difference in value between the spouses is equalized. Courts typically aim to divide the value equally between the spouses, although they retain the discretion to distribute it unequally if circumstances warrant it. In this model, the assets’ value is divided, not the assets themselves. Thus, neither spouse acquires a “proprietary or beneficial interest in the other’s assets”.
The Division of Property Model
Contrary to the equalization model, the division of property model does generate a proprietary or beneficial interest in particular assets, not just their value. When a spouse has rights concerning specific assets instead of rights to the shared assets’ value, it significantly affects the timing of their claim.
Bankruptcy’s Impact on Property Claims
The jurisdiction’s model makes a significant difference to a spouse’s property claim in bankruptcy, particularly whether the claim is deemed “provable in bankruptcy”. Under the equalization model, a spousal claim related to the value of shared property is considered “provable in bankruptcy”, making the claimant spouse an unsecured creditor of the bankrupt individual. This significantly impacts the claimant spouse’s timing, as illustrated in Schreyer v. Schreyer.
In contrast, in the division of property model, the spousal interest lies in the assets themselves rather than their value, meaning the claim is not “provable in bankruptcy”. In this case, the spouse isn’t treated as an unsecured creditor and can make a claim against any remaining assets once the debtor is discharged from bankruptcy.
Alberta’s Asset-Sharing Model
Under Alberta’s Family Property Act, the relevant clause states:
7(1) The Court may, in accordance with this section, make a distribution between the spouses or adult
interdependent partners **of all the property** owned by both spouses or adult interdependent partners
and by each of them.
As a “division of property” province, Alberta allows the spouse’s rights to lie with the property itself, and therefore these rights are not “provable in bankruptcy”. Consequently, a spousal property claim is stayed during the bankruptcy period. Once the person is discharged from bankruptcy, the claimant spouse can pursue their interest in any remaining assets.
Impact on Spousal and Child Support
It’s important to note that bankruptcy doesn’t discharge orders or agreements related to spousal or child support obligations. Therefore, bankruptcy won’t provide significant relief if a person’s debt is primarily due to support arrears or obligations. The Family Responsibility Office can still enforce support payments even if the spouse in arrears files for bankruptcy.
Conclusion
Whether a divorce is low-conflict or highly contentious, it’s essential to understand the financial implications. In Alberta, the financial aftermath of a divorce, particularly when bankruptcy is involved, can be complex. Therefore, it’s crucial to consult with experienced and compassionate divorce lawyers who can guide you through the process and advocate for your rights.
