Case information

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Family law - Division of assets by equalization - Bankruptcy - Equalization determined on date of separation - Bankruptcy declared and discharge issued after separation - Equalization found payable on separation found to be debt subject to bankruptcy - Farm property exempt from bankruptcy - Whether the Court of Appeal erred in holding that the Appellant’s equalization entitlement was extinguished by the Respondent’s discharge from bankruptcy.

The Appellant wife and respondent husband married in 1980 and separated on December 4, 1999. Pursuant to Manitoba law, equalization occurs as of the date of separation. The Appellant wife petitioned for divorce and sought an equal division of the marital property. Both husband and wife consented to an order referring an accounting and valuation of their assets to the Master. On December 20, 2001, and before the valuation was undertaken, the husband made an assignment into bankruptcy. The farm property on which the couple had lived was exempt. He made no disclosure of the wife’s pending equalization claim. She was not aware of his bankruptcy. The husband received a discharge from bankruptcy on November 29, 2002. In October 2004, a further consent order for reference to the Master added all issues arising from the husband’s bankruptcy, subject to review by the court. The Master’s report, issued in October 2007, found that the Appellant wife had a homestead interest in the farm property and found that the husband owed the wife an equalization of $41,063.48. In coming to this evaluation, he deducted the husband’s debts as of the separation date in determining his net worth notwithstanding that they had been extinguished by the subsequent bankruptcy. The Court of Appeal considered the effect of the bankruptcy and varied the Queen’s Bench order confirming the Master’s report to the effect that no equalization payment was owing.