SCC: Under bankruptcy law, divorcee cleared of payments

A Manitoba woman will get nothing after her ex-husband declared bankruptcy following their divorce, effectively clearing him from a debt to his former wife but allowing him to keep the couple's assets.

The Supreme Court of Canada issued the unanimous decision Thursday morning in the Schreyer versus Schreyer case, dismissing an appeal filed by the wife.

However, the court said in its judgment that Parliament needs to act to close the loophole that allowed the situation to occur.

"Despite the apparent injustice of the outcome, it is impossible to wish away the fact and problem of the respondent's bankruptcy," wrote Justice J. Lebel, delivering the court's judgment.

"The issue of the legal effect of Mr. Schreyer's bankruptcy and discharge must be resolved."

The couple, first married in 1980, then had a bitter separation in 1999 before filing for divorce in 2000.

Under the terms of their divorce, the husband continued to live on the family farm, and the couple agreed to an assessment of their assets.

After the evaluation was complete, the husband would have to make an equalization payment to effectively buy out his wife's share of the value of the assets.

However, the husband declared bankruptcy before the evaluation was complete.

When the evaluation was eventually completed, it was determined that the husband owed his wife $41,063.48 in equalization payments.

But in November, 2002, the husband was discharged from bankruptcy, and was therefore cleared of the debt he owed his ex-wife, who was considered one of his creditors.

"In its current form, the BIA (Bankruptcy and Insolvency Act) offers limited remedies to a spouse in the wife's position," the judgment stated.

"In this regard, family law may provide them with other forms of remedies after the bankrupt has been discharged, more particularly through spousal support."

The Supreme Court's judgment went on to say the case effectively represented a clash between family law and bankruptcy law, and said the two should be made to "work together rather than at cross-purposes."