Family law can be a difficult enough world to navigate in the best of times. When other areas of law enter the picture, things can become even more complicated. Oftentimes people may go through a separation or divorce and receive an order dictating how their property will be divided after the relationship ends. However, as a recent decision from the Ontario Superior Court of Justice demonstrates, it can be critical to look past the world of family law to ensure that all the necessary considerations are made.
The parties separated in May 2017. They owned a home together, and when it was sold following their breakup, the net proceeds from the sale were $185,200.58. An order was issued relating to the proceeds of the sale. It stated,
“The net sale proceeds from the sale of the parties’ jointly owned matrimonial home shall be held in an interest-bearing trust account by the parties’ real estate lawyer as security for the Applicant’s spousal support claims, in view of the Respondent’s dissipation of assets, resistance to a spousal support order and threat of or likelihood of bankruptcy, pending further Court order or the written agreement of the parties.”
The order was the result of the wife’s concern that the husband’s spending habits and the likelihood of eventual bankruptcy would eventually result in his inability to pay spousal support. The intent of the order was for the proceeds from the home to be made available to the wife should he be unwilling or unable to meet his support obligations.
The husband made an assignment in bankruptcy on June 3, 2019. By that time, $170,000 of the proceeds from the sale of the home were still in the real estate lawyer’s trust account. It was only a month later that a costs award related to the trial was issued in the wife’s favour, with the court ordering her to be paid in the amount of $25,000. The court was not aware of the husband’s bankruptcy at this time.
The husband’s bankruptcy trustee (“the trustee”) claimed that under the Bankruptcy and Insolvency Act, which states that bankruptcy takes precedence over all debts with few exceptions: secured creditors and completely executed judgments.
The court found that the wife was not a secured creditor on the date of the bankruptcy assignment, and as such, the husband’s 50% share of the proceeds from the home must be handed over to the husband’s trustee. The court stated that while the threat of bankruptcy was lingering at the time of the order, the order’s intentions were not to make the wife a secured creditor.
As a result of this, the husband’s share of the proceeds of the home could no longer be held in trust for the wife to access should he fail to meet his spousal support obligations. Instead, the funds would be turned over to his trustee and would be used to settle the husband’s debts.
In addition to being a significant asset, the matrimonial home is usually associated with deep emotional ties. At Gelman & Associates, our family law lawyers provide compassionate, forward-thinking guidance to our clients while aggressively pursuing their legal interests. Call us at (416) 736-0200 or 1-844-736-0200 or contact us online.
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