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Separate Before Bankruptcy

October 4, 2018

It is important to separate before bankruptcy, just to make sure you get your ducks lined up properly.  Here’s the logic, if you are facing the possibility of an equalization claim from your spouse for assets that are otherwise exempt from seizure by your creditors you may find bankruptcy helps you keep them.

Let’s say for example you have a large pension plan and you and your spouse separate, your spouse may claim an interest in that plan.  The interest is not a proprietary (or ownership) interest it is an equalization claim.  A claim for equalization is a monetary claim, a debt owed to your spouse based on equalization of family property.

Now, here’s the thing, if you file for bankruptcy before you separate the claim for equalization arises after the bankruptcy, so you will still have to deal with it as if it is a new debt.  But if you separate before bankruptcy, the claim for equalization, which is a monetary claim and not a proprietary claim, may be discharged in the bankruptcy and the property to which it pertains, in this case pension funds, remains the property of the bankrupt.

This legal quirk probably has no application in a Consumer Proposal.

For more information ask your family lawyer or Licensed Insolvency Trustee 519-646-2222.