Three Important concepts to consider when dealing with Bankruptcy and Separation in British Columbia:
As a family lawyer, we often advise our clients on the implications that bankruptcy can have on a separation or divorce. The intersection between family law and bankruptcy can be fairly complex.
Below are three important concepts that are useful to remember when dealing with Bankruptcy and Separation in British Columbia.
1. The Bankrupt’s Property vests in the trustee
Pursuant to section 71 of the Bankruptcy and Insolvency Act, RSC 1985,c.B-3 (the “BIA”), once a bankruptcy order has been made or an assignment has been filed with an official receiver, the bankrupt’s property now vests with the trustee.
This means that a trustee has the legal right to control and collect the bankrupt’s property. In order to protect the property interest that a non-bankrupt spouse may have from automatically vesting with the trustee, it is important to effectively employ the relevant provisions of the Family Law Act (the “FLA”).2. Date of Separation
Under the FLA, the date of separation is the triggering event that crystallizes a spouse’s right to an undivided half interest in family property. This date is particularly important in the context of Bankruptcy and Separation in British Columbia, as it preserve a non-bankrupt’s property from vesting in the trustee following a subsequent bankruptcy.
If however, the date of separation occurs after a bankruptcy, then section 71 of the BIA takes precedence and the trustee will vest in all of the bankrupt spouse’s property. This is the case even if the non-bankrupt spouse has a right to a half interest in the bankrupt’s property under the FLA.
Thus, in order to trigger the date of separation as set out in section 3 (4) of the FLA, the non-bankrupt spouse should communicate in writing to the bankrupt spouse the intention to separate permanently. This communication must occur prior to the assignment in bankruptcy being filed.
3. Apply for a Restraining Order
If a non-bankrupt spouse has reason to believe that an insolvent spouse may file for bankruptcy in the course of a separation or divorce, the non-bankrupt spouse may apply for a restraining order under section 91 (2) of the FLA . The restraining order should prevent a spouse from “disposing of, transferring, converting or exchanging into another form property”, and in particular from filing an assignment in bankruptcy.
Author: Angie Riaño