Bankruptcy In Divorce: Cover Your Assets


The Supreme Court of Canada recently made its decision in Schreyer v. Schreyer, a divorce case where the wife lost out on her share of the family property when the husband declared bankruptcy. The husband had previously agreed to make an equalization payment to the wife for her share of the equity in the family farm, while he kept the farm. However, before the proper amount of the equalization payment was determined by way of a valuation, or paid, the husband declared bankruptcy.  The wife was never paid for her share of the farm.  Perhaps more surprising is that the husband maintained ownership of the family farm following the bankruptcy as the property was exempt from the bankruptcy proceedings.

There is no doubt that the Court found this to be an unfortunate result, however was left with no choice but to dismiss the wife’s appeal in accordance with the Bankruptcy and Insolvency Act. Due to the unfortunate circumstance caused by the battle between family property law and bankruptcy law, the Court suggested that legislative reform of the Bankruptcy and Insolvency Act be undertaken by law makers.

This raises the question, how do you protect and cover your assets in divorce to ensure that they are not lost to a spouse’s bankruptcy?

The Matrimonial Property Act of Alberta generally provides for an equal split of matrimonial property between the spouses, with some exceptions. Bankruptcy by either party may affect both parties’ rights to retain a portion of that property upon Divorce.

A properly constructed separation agreement or property contract can go a long way towards protecting your interest in the matrimonial property both throughout and after a divorce.  Avoiding agreements that include a payment schedule for equalization payments from one spouse to the other is recommended. This may be avoided through the immediate transfer of property from one spouse to the other to equalize the assets. Alternatively the payor may obtain separate financing to make any equalization payment to receiving spouse at the time that property is transferred, in accordance with the agreement between the parties.

It is important to obtain proper legal advice when dealing with all issues related to a divorce or separation, including the division of the property. Failing to do so may result in consequences you haven’t bargained for, including giving away the farm.


Mark R. Baril is a lawyer with Stringam LLP who specializes in Family Law and other related matters.

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