Kinsella v. Mills, 2017 ONSC 7093

CITATION: Kinsella v. Mills, 2017 ONSC 7093

COURT FILE NO.: 2922/14

DATE: 2017-12-08

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

APRIL SUNSHINE KINSELLA

Self-Represented

Applicant

• and -

TROY KENTFORD MILLS

Self-Represented

Respondent

HEARD: September 20, 2017

The Honourable Justice C.D. Braid

REASONS ON THE TRIAL OF AN ISSUE

I. OVERVIEW

1Does the bankruptcy of a spouse bar that spouse from making a claim for equalization of net family property? That is the key question raised on this trial of an issue.

2April Kinsella and Troy Mills were married. When they separated, the wife commenced a court application. The parties signed Minutes of Settlement and a Consent, which brought an end to that litigation. Less than a year later, the wife declared bankruptcy.

3The wife has now brought an application to set aside the Minutes of Settlement. In the event that she is successful in setting aside the Minutes, she will advance a claim for equalization of net family property.

4For the reasons set out below, I find that the wife’s equalization claim is not valid post-bankruptcy.

II. FACTS

5April Kinsella and Troy Mills started living together in 1999 and were married on May 18, 2002. Although the parties disagree about the exact date of separation, they agree that they were married for approximately 7 years.

6In June of 2010, the wife commenced an Application seeking spousal support, equalization of net family property and constructive trust claims. The wife moved out of the matrimonial home on October 4, 2010.

7On November 10, 2010, the parties signed Minutes of Settlement and a Consent. The Minutes of Settlement stated that the husband would take sole ownership of the matrimonial home and assume all debt and costs related to the home. The Consent stated that the husband would pay the wife a lump sum payment of $40,000 in exchange for the withdrawal of the wife’s claims for spousal support and equalization. The husband paid her $10,000 within a few months of the agreement and was to pay $500 per month thereafter.

8A Notice of Withdrawal was filed with the court, which brought an end to the litigation.

9On May 5, 2011, the wife made an assignment in bankruptcy. She was automatically discharged from her bankruptcy after nine months.

10The parties were divorced on October 18, 2011.

11In the summer of 2014, the wife obtained a restraining order against the husband. She contacted the police when the husband sent her an e-transfer of the $500 monthly payment, pursuant to the 2010 Consent. The payments have been suspended since that time.

12In December of 2014, the wife brought an Application to set aside the Minutes of Settlement. The Application does not seek to set aside the Consent and makes no reference to the terms of the Consent.

13The wife states that she was not allowed to seek independent legal advice or speak to her counsel prior to signing the Minutes of Settlement. She says that she was under duress and did not know what the document meant. In the event that she is successful in setting aside the Minutes of Settlement, she will seek an unequal division of net family property. The wife also claims spousal support and makes constructive trust claims.

14The husband seeks a dismissal of the wife’s Application to set aside the Minutes of Settlement.

15On June 23, 2017, the parties appeared before Justice Mazza. The court directed that there be scheduled a trial of an issue on whether the wife’s equalization claim is valid post-bankruptcy. Both parties testified before me at the trial on September 20, 2017.

16In her evidence, the wife stated the following:

• She believes that the settlement was unfair. But for the unfair settlement, she would not have been forced to declare bankruptcy.
• She told the Trustee in Bankruptcy that she believed the Minutes of Settlement were unfair. The Trustee suggested that she talk to a lawyer.
• The wife spoke to her previous lawyer, who had represented her on the initial family law application. That lawyer declined to get involved because of the “messy issues”.
• She did not apply for legal aid and did not try to call another lawyer. Other than speaking to her former lawyer, she did not pursue legal advice.
• She has not applied to set aside or annul her bankruptcy.
• She suffered an injury in September of 2011, which was after she had declared bankruptcy.

17In his evidence, the husband stated the following:

• He was left with large amounts of debt following the marriage breakdown. He lost two properties due to foreclosure and almost lost the matrimonial home.
• He has paid the mortgage payments and all other costs of the matrimonial home since separation.
• Because of her bankruptcy, the wife was released from debt.
• He was required to pay the wife $40,000 pursuant to the Consent. He has paid her approximately $30,000. He was making monthly payments of $500 until the restraining order was made in the summer of 2014. He is willing to resume paying $500 per month or to make a lump sum payment for the remainder.

18The parties are still joint owners of the former matrimonial home at 45 Masaccio Drive, McGregor, ON, as joint tenants on title. The settlement stated that title to the property would be transferred to the husband alone, but that has not occurred.

III. ANALYSIS

A. Is the Wife’s Equalization Claim Valid Post-Bankruptcy?

19There is nothing in the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”) or the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) that specifically prevents a spouse from making a claim for equalization of net family property after she has declared bankruptcy. However, the interaction of the two statutes requires further examination.

20Property of a bankrupt person vests in the trustee. Once the assignment in bankruptcy is filed, a bankrupt can no longer dispose of or otherwise deal with their property: see BIA, s. 71.

21A right to claim an equalization payment falls within the broad statutory definition of “property” in s. 2 of the BIA which defines “property” as: “any type of property…and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements, and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property.”

22The right to claim an equalization of net family property arises when the triggering event of a marriage breakdown occurs. The right to enforce an equalization claim is not exempt from the reach of the trustee, even though it is described as being “personal” between the spouses under s. 7(2) of the FLA: see Blowes v. Blowes (1993), 1993 CanLII 8521 (ON CA), 16 O.R. (3d) 318 (C.A.); Liddell v. Liddell, 2011 ONSC 586.

23A discharged bankrupt has no capacity to assert an equalization claim because all of her property has already vested in the trustee on her assignment to bankruptcy: see Green v. Green, 2015 ONCA 541.

24The bankrupt spouse has no capacity to pursue an equalization claim that has vested in the trustee. Unless the trustee joins in the proceeding, or has executed an assignment of these rights, the bankrupt has no cause of action. An abandonment of the cause of action is not sufficient, nor is the trustee’s consent to continue the claim. The bankrupt’s discharge or the discharge of the trustee, does not re-vest in the bankrupt any rights which have previously accrued to the trustee: see Robert A. Klotz, Bankruptcy, Insolvency and Family Law, 2nd ed. (Toronto: Carswell, 2001), at 6-36.

25In this case, the wife argues that she is still entitled to equalization because the matrimonial home and the husband’s RRSPs were exempt from bankruptcy. She also submits that the husband’s business properties were in his name alone, and therefore were not swept into her bankruptcy. She claims that she is entitled to “equalization to assets”.

26It is true that certain property of a bankrupt is excluded from bankruptcy, including a principal residence with less than $10,000 equity, and RRSPs (except for contributions during the last year): see BIA, s. 67; Execution Act, R.S.O. 1990, c. E.24, s. 2.

27However, the wife’s submissions fail to take into account the fact that separating spouses are not entitled to a proprietary or beneficial interest in the other's assets. Instead, separating spouses are entitled to receive one-half the value of the property accumulated during the marriage. If the spouses did not own assets of equal value, one spouse must make an equalization payment and a monetary debt is owed: see Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605.

28When one spouse declares bankruptcy, the claim for that monetary debt vests in the trustee. Whether or not any assets are exempt from the bankruptcy is irrelevant.

29The wife also submits that she would not have had to declare bankruptcy if the Minutes of Settlement had been different. She argues that, but for the unfairness of the settlement, she would not have entered into the bankruptcy.

30The wife has not applied to set aside the assignment in bankruptcy. Even if she did, this is a discretionary remedy to be used sparingly. The court may annul a bankruptcy where, in the opinion of the court, a bankruptcy order ought not to have been made or an assignment ought not to have been filed: see Re Bateman (1998), 1998 CanLII 12457 (NS SC), 10 C.B.R. (4th) 197 (N.S.S.C.); BIA, s. 181.

31In the case before the court, the wife told the trustee that the settlement was unfair. The trustee recommended that she obtain legal advice. She did not do so.

32The wife says that she was under financial pressure when she declared bankruptcy. I suspect that all bankrupt persons face financial pressures. It is not surprising that separation and divorce can cause people to suffer financial pressure.

33This court does not have jurisdiction to undo the bankruptcy. There is no evidence to establish duress (other than financial pressures) and no evidence of incapacity at the time the bankruptcy was entered into. The wife is clearly an articulate and intelligent litigant. She was told to obtain legal advice but failed to do so.

34The wife argues that she would not have declared bankruptcy but for the unfair settlement. However, the circumstances surrounding the wife’s bankruptcy are irrelevant to the issue of whether the equalization claim vested in the trustee.

IV. CONCLUSION

35The wife’s assignment in bankruptcy vested in the trustee her right to enforce her equalization claim. In the absence of an assignment by the trustee to the wife of her right to claim an equalization payment, the wife cannot pursue an equalization claim against the husband.

36For all of these reasons, the wife’s claim for equalization of net family property is dismissed.

V. FURTHER DIRECTIONS

37The Costs of this trial of an issue shall be reserved to the judge hearing the full trial.

38The parties are directed to do the following:

i. Contact the trial co-ordinator to arrange a further trial management conference before Justice Brown. One hour will be required for the conference.

ii. Prepare updated trial management conference briefs, to be served and filed at least 7 days before the trial management conference.

iii. The trial management conference briefs of the parties shall contain the following:

a) Their positions on the remaining issues to be set for trial, including the following claims: request to set aside the Minutes of Settlement; spousal support; constructive trust claims; and any other claims.

b) Their positions regarding the outstanding motion to strike the husband’s pleadings.

c) The Application currently seeks to set aside the Minutes of Settlement only. The wife shall clarify whether she seeks to set aside the Consent together with the Minutes of Settlement, since the two documents were signed together. The parties must also state their positions regarding whether the pleadings should be amended so that they properly reflect the fact that the Consent was signed as part of the settlement of the prior court action.

d) The husband shall include a copy of the current valuation of the matrimonial home, as set out in my endorsement of September 20, 2017.

39I am directing that the Hamilton Family Trial Co-ordinator provide a copy of these reasons to Justice Brown in advance of the trial management conference.

Braid, J.