Sep 12, 2016

Unpaid Equalization Could Come Out of Bankrupt Spouse’s Pension

Syrette v. Syrette, 2011 ONSC 6108 (CanLII)

We’ve talked recently in Can the Post-Bankruptcy Distinction Between Support and Equalization Payments be Circumvented? about an interesting distinction in Canadian law: a claim for unpaid equalization payment is “swept into” a paying spouse’s bankruptcy, whereas claims for unpaid child or spousal support can survive it.

In a case called Syrette v. Syrette, the wife took a position that is worth noting: in the face of her former husband’s newly-declared bankruptcy, she asked the court to allow her to pursue her unpaid equalization claim against his pension assets.

This is because pension assets can be subject to special provisions under the Ontario Pension Benefits Act, which keep them exempt from seizure by way of execution, which includes seizure by a bankruptcy trustee. So while the husband’s other assets were now in the trustee’s hands for distribution to his creditors (and were thus no longer available to satisfy the wife’s established equalization claim in the usual way), his pension assets remained untouched. This meant the wife could take steps to have those funds used in satisfaction of her equalization payment entitlement.

As a procedural aside, this required the bankruptcy court’s permission: Normally, the moment the husband declared bankruptcy, an automatic stay (i.e. suspension of legal proceedings) is triggered, which applies to all creditors – including the wife. However, in the circumstances the court was willing to grant the wife permission to proceed nonetheless:

Unfortunately for [the wife], not only are her equalization proceedings against [the husband] stayed as a result of his bankruptcy, any such equalization claim will be extinguished after the discharge … unless she obtains leave to proceed from the bankruptcy court …

The courts now routinely grant an order for leave to proceed in circumstances where a spouse wishes to proceed with an equalization remedy against the pension, presumably because the granting of such a stay does not prejudice the bankrupt estate in any way, and because it is consistent with desire of the courts to divide pension assets between spouses in circumstances where there are no other significant assets to be divided. The normal order is worded so as to permit the claimant to commence or continue proceedings in the matrimonial court for equalization against the pension, notwithstanding the bankruptcy or subsequent discharge.

The wife was therefore allowed to proceed to enforce her equalization claim against the bankrupt husband’s pension.

For the full text of the decision, see:

Syrette v. Syrette, 2011 CarswellOnt 10640, 2011 ONSC 6108

Varied on other grounds:

Syrette v. Syrette, 2012 ONCA 693

[This post by Russell Alexander first appeared on on September 1, 2016]