Navigating the Intersection of Bankruptcy and Family Law: What You Need to Know
In family law, bankruptcy can have significant implications, especially when it comes to enforcing financial obligations such as child support, spousal support, costs awards, and the division of marital property. While bankruptcy provides a fresh start for debtors, it doesn’t always erase the responsibilities owed to ex-spouses or children. This series of blogs explores the complex relationship between bankruptcy and family law in Ontario, breaking down how various bankruptcy provisions impact family law claims and enforcement. From child support arrears to costs orders, equalization of net family property, and property division, we’ll explore key legal principles.
Can You Claim Equalization After Bankruptcy in Ontario? A Family Law Perspective
When a marriage ends in Ontario, spouses often turn to the equalization of net family property to divide wealth accumulated during the relationship. But what happens when one spouse declares bankruptcy? Can you still claim equalization under the Family Law Act (FLA) if you’ve filed for bankruptcy?
This blog explores the intersection of family law and bankruptcy law in Ontario, and explains why failing to understand this legal overlap could cost you your equalization claim.
What Is Equalization of Net Family Property?
Under Ontario’s Family Law Act, each spouse is entitled to half the difference in the value of property acquired during the marriage with a few exclusions. This is called equalization of net family property and is calculated based on assets and debts at the date of separation and marriage.
It’s important to understand that equalization is a monetary right, not a right to specific assets. Even if you don’t own part of your spouse’s house, you may be entitled to a payment that reflects your share of the accumulated wealth.
What Happens If You File for Bankruptcy?
If a spouse files for bankruptcy under the Bankruptcy and Insolvency Act (BIA), all of their “property” vests in the bankruptcy trustee. The BIA defines property very broadly—including legal claims like equalization.
📌 Key Point: If your marriage has already broken down at the time of bankruptcy, your equalization claim becomes the trustee’s property—not yours.
This means you cannot pursue equalization unless the trustee assigns that right back to you in writing.
Common Misconceptions About Exempt Property
Some property is exempt from bankruptcy—like a home with equity or most RRSPs. However, these exemptions do not restore your right to claim equalization.
Why? Because equalization is not about a specific property—it’s about a debt owed from one spouse to the other. That claim is a form of “property” under the BIA and vests in the trustee, whether or not individual assets are exempt.
Can You Undo the Bankruptcy?
It is extremely difficult to undo or annul a bankruptcy. The courts require evidence that the bankruptcy should not have been filed in the first place—mere financial pressure or an “unfair” settlement is not enough.
Practical Advice for Spouses Considering Bankruptcy
If you’re separated or recently divorced and facing financial strain, it’s vital to speak to a family lawyer in Ontario before filing for bankruptcy. Without legal advice, you risk permanently losing your right to a valuable equalization payment.
Key Takeaways
- Your right to claim equalization vests in the trustee upon bankruptcy.
- You cannot enforce an equalization claim unless the trustee assigns that right back to you.
- Exempt assets under bankruptcy law do not affect the equalization analysis.
- Financial pressure does not undo a bankruptcy filing.
- Get legal advice before making financial decisions post-separation.
Speak to an Ontario Family Lawyer Before Declaring Bankruptcy
At IQBAL LAW, we advise clients on the financial consequences of separation, divorce, and bankruptcy. We can help you understand your rights, protect your interests, and avoid costly legal missteps.
📞 Book a consultation today (289) 652-0529 and take the first step toward securing your financial future.
DISCLAIMER:
The information provided in this blog is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is established through this writing. You should consult with a qualified attorney for advice tailored to your specific situation. The lawyer and their firm disclaim any liability arising from reliance on this blog or any other content on this website.