When a marriage breaks down, spouses often go to extremes to avoid paying the other side. This is especially true when it comes time to dividing the wealth that the family accumulated during the marriage. This process is commonly referred to as equalization or the equalization payment. What it basically entails is the division of property between spouses. Typically, the most expensive piece of property the family owns is the matrimonial home. In Ontario, the matrimonial home is divided equally during a divorce. This process can be complicated if a spouses declares bankruptcy. A declaration of bankruptcy has the potential to wipe out an equalization payment.

In Warner v Warner[1], a husband tried to use bankruptcy to reduce his equalization payment. Mr. Warner had approximately $23,000 owing to two creditors at the time he declared bankruptcy. In bankruptcy, Mr. Warners assets, chiefly the matrimonial home, would need to be sold off. Additionally, there are trustee fees, counsels fees and a 5% levy imposed on all payments from bankruptcy. This would erode the family’s assets in order to reduce the amount that Mr. Warner would owe his wife in equalization. The court is often suspicious of people who declare bankruptcy after separation. Justice Valle looked at Mr. Warners financial situation and found that he was not insolvent. He had a stake in the matrimonial home valued at approximately $122,000 with RRSP’s and a pension. His assets outweighed his relatively small debts. Therefore, the court declared his bankruptcy an abuse of process designed to block or delay the family law process. The court annulled his bankruptcy and vested Mr. Warners assets in his wife until the family law proceedings were complete.

Declaring bankruptcy in the midst of a divorce has serious implications upon the equalization process. The court has the ability to annul a bankruptcy in extreme circumstances. The court has wide discretion under the Bankruptcy and Insolvency Act[2] when considering an annulment application. It will use this discretion when there is evidence of fraud or abuse of process.

It is important to note that while a valid declaration of bankruptcy can wipe out an equalization payment it will not have an effect on support obligations. Spousal support and child support are calculated completely independently of property equalization calculations. Spousal and child support claims will survive a spouse declaring bankruptcy.

The division of property when a marriage breaks down is a difficult subject that can be affected by a number of different factors. This blog posts is designed to canvas some of the issue involve. For a more complete answer, contact a trained professional. The lawyers at Dale Streiman Law LLP are experts on these matters. They have years of experience handling complex divorce settlements.

Compensatory spousal support refers to the remedy for a party in a longer-term marriage who sacrificed opportunities, such as career advancement or furthering education, in order to care for the family.

Objectives of compensatory support pursuant to Section 15.2(6) of the Divorce Act:
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• Recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown;
• Apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;
• Relieve any economic hardship of spouses arising from the breakdown of the marriage; and
• In so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

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These principles are premised on Moge v. Moge (which says that these four objectives need to be examined together) and Bracklow v. Bracklow, which are cornerstone family law cases on the issue of compensatory spousal support.

Under the Family Law Act, the term compensatory support is not used, but Ontario courts have used this term as an approach to the objectives of support order as set out in Section 33(9)(1):

Considerations for the amount and duration of support for a spouse relative to need:
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• The dependant’s and respondent’s current assets and means;
• The assets and means that the dependant and respondent are likely to have in the future;
• The dependant’s capacity to contribute to his or her own support;
• The respondent’s capacity to provide support;
• The dependent’s and respondent’s age and physical and mental health;
• The dependant’s needs, in determining which the court shall have regard to the accustomed standard of living while the parties resided together;
• The measures available for the dependant to become able to provide for his or her own support and the length of time and cost involved to enable the dependant to take those measures;
• Any legal obligation of the respondent or dependant to provide support for another person;
• The desirability of the dependant or respondent remaining at home to care for a child;
• A contribution by any dependant to the realization of the respondent’s career potential

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The debate, often times, when it comes to spousal support is whether the support is need based or entitlement based and the basis for spousal support strongly affects the quantum and duration for which support is awarded.Compensatory support is intended to compensate a spouse upon the breakdown of a marriage for contributions made to the marriage, such as sacrifices made for a spouse’s career and loss of economic opportunity sustained as a consequence of raising children (Roseneck v. Gowling [2002] O.J. (OCA) 4939)

In circumstances where compensatory support is awarded, support tends to be higher; support will tend to go on for a longer period of time; support can be based on the payor’s post-separation income; Quantum will depend more on marital standard of living Where compensatory support is awarded based on need, support will often be lower; support will often terminate sooner; support payor may be able to shelter post-separation increases in income; self-sufficiency, or an adjustment to a lower standard of living will guide the court; quantum will be determined more objectively.

Compensatory support will likely result if one party significantly contributed to the career or education of the other, particularly in the form of child care, but also in the form of direct or indirect financial contribution to the education or career of the other; the contributing party suffered some demonstrable reduction in earning capacity as a result of the contribution; and/or the parties financial interests have merged over time in a relatively long-term marriage

From a practice standpoint, make sure Court states the basis for the entitlement of support