Supreme Court Rules on Schreyer vs. Schreyer, Urges Government to Amend Legislation

The Supreme Court of Canada ruled against the appeal of Susan Schreyer today, and urged parliament to amend bankruptcy legistation to protect spousal divorce equalization settlements.

The Court unanimously decided that while items like child support cannot be dismissed during bankruptcy procedures, equalization payments can.

Susan Schreyer had separated from her husband Anthony Schreyer in 1999. Based on farm property owned by Anthony Schreyer, the two had agreed to an equalization payment of $41,000 to Susan for her share of the assets. Anthony then declared bankruptcy.

While farm property is immune from seizure in case of bankruptcy, equalization payments can be dismissed as debt. As a result, Anthony will not lose his farm, but will no longer have to pay equalization payments.

The ex-wife claims that she didn't realize her husband had filed for bankruptcy, and didn't use any of the available legal avenues to ensure her share was protected.

“I do not doubt that an outcome like the one in this appeal looks unfair, given that the appellant’s equalization claim was based primarily on the value of an asset — the farm property — which was exempt from bankruptcy and therefore not accessible to other creditors,” wrote Justice Louis LeBel in his court opinion. “Parliament could amend the (Bankruptcy and Insolvency Act) in respect of the effect of a bankruptcy’s discharge on equalization claims and exempt assets. But the absence of such an amendment makes the outcome of this case unavoidable.”

According to veteran divorce lawyer Philip Epstein, the bankruptcy "loophole" gets exploited in about five percent of divorce cases.

“It’s often a threat that parties make: ‘If you don’t accept my offer, I’m going to go bankrupt,’” Epstein said. “It can be a worry in divorce settlements because the bankruptcy laws and family laws are incompatible.”

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