The parties married in 1980, separated in 1999 and filed for divorce in 2000. The husband continued to live on the family farm, of which he was the sole registered owner. In December 2000, the parties consented to an accounting and valuation of their assets. Before a master undertook the valuation, the husband made an assignment in bankruptcy. The wife was not listed as a creditor and received no notice of the assignment. The husband was discharged from bankruptcy in November 2002. The master subsequently proceeded with the valuation and found that the wife was entitled to an equalization payment of $41,063.48. The master's report, confirmed by the Court of Queen's Bench, did not address the effect of the husband's bankruptcy and discharge on the wife's equalization claim. The Court of Appeal held that the wife's equalization claim was provable in bankruptcy and had been extinguished by the discharge of the husband's bankruptcy.
The appeal should be dismissed.
Manitoba is an equalization jurisdiction, not a division of property jurisdiction. The equalization scheme is based on a principle of equal division of the value of family assets after a process of accounting and valuation. The accounting process results in a value that is divided between the spouses, and any amount payable must be paid to the creditor spouse. A debtor spouse retains the property he or she owns, but must pay a sum of money to the creditor spouse. The assets themselves are not divided and neither spouse acquires a proprietary or beneficial interest in the other's assets. No provision of The Family Property Act of Manitoba ("FPA") vests title in one spouse to the other spouse's property. Proprietary interests are not granted until the stage of payment of the equalization claim, as a form of execution pursuant to s. 17 FPA. Accordingly, under the FPA, an equalization claim is a debt owed by one spouse to the other.
The wife's equalization claim was provable in the husband's bankruptcy. Section 121 of the Bankruptcy and Insolvency Act ("BIA") contains a broad definition of a provable claim, which includes all debts and liabilities that exist at the time of the bankruptcy or that arise out of obligations incurred before the day on which the bankrupt went into bankruptcy. In the instant case, given the nature of Manitoba's equalization scheme, the wife's claim was provable. A right to payment existed from the time of separation of the spouses, and hence existed at the time of the bankruptcy. All that remained was to determine the quantum by applying a clear formula that left little scope for judicial discretion. In such circumstances, the claim could not be considered so uncertain that s. 135 BIA could not apply. The husband was released from the equalization claim by the bankruptcy and his discharge. The wife's claim was neither a proprietary claim, nor was it exempt from the effect of a discharge as a claim for support or maintenance under s. 178(1)(b) or (c) BIA.
Under Manitoba's The Judgments Act, the family farm was exempt from execution by creditors. The appropriate remedy for a creditor like the wife would be to apply to the bankruptcy judge under s. 69.4 BIA for leave to pursue a claim against the exempt property. Since this property is beyond the reach of the ordinary creditors, lifting the stay of proceedings cannot prejudice the estate assets available for distribution. In keeping with the wording of s. 69.4(b), it would be "equitable on other grounds" to make such an order. This process would also accord with the policy objective of bankruptcy law of maximizing, under the BIA, returns to the family unit as a whole rather than focusing on the needs of the bankrupt and with Parliament's concern for the support of families.
In its current form, the BIA offers limited remedies to a spouse in the wife's position. In this regard, family law may provide them with other forms of remedies after the bankrupt has been discharged, more particularly through spousal support.
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