Divorced Manitobans can lose their share of the family home-quarter if they aren’t careful.
Provincial family property law allows a spouse with property to declare bankruptcy and yet still keep the family farmstead.
However, if they owe their divorced spouse part of that quarter, the debt will likely disappear in the bankruptcy unless the estranged spouse sees a legal notice of the bankruptcy and applies to the court to stop it.
“It seems to me a very unequal treatment that at the end of the day, Mr. Schreyer gets his farm and he gets his debts wiped out … but what position is his wife in?” said University of Manitoba associate dean Lisa Fainstein.
“The part that seems so inequitable is that he ends up with a lucrative asset, without any of these debts, and she, who thought she should share under the (provincial) Family Property Act, ends up out of luck.”
The Schreyer vs. Schreyer decision, ruled upon by the Supreme Court of Canada recently, found that Mrs. Schreyer had no right to her share of the family home quarter because that debt had been discharged in the bankruptcy.
Supreme court justice Louis LeBel said the situation does not seem fair.
“Despite the apparent injustice of the outcome, it is impossible to wish away the fact and problem of the respondent’s bankruptcy,” wrote LeBel.
Fainstein said she could have applied to the court to stop the bankruptcy if she had seen the legally required legal notice, but that is an unreasonable expectation of ordinary people,.
“We don’t see ourselves as people who need to be reading the legal announcements,” said Fainstein.
“Families are not like a normal creditor. They don’t bargain to get into this situation. They didn’t investigate a person’s credit rating.”
Fainstein and many other legal experts say the federal Bankruptcy and Insolvency Act needs to be amended to exempt family property claims from debts that can be discharged.
The situation in Manitoba is not identical across Canada.
The federal Bankruptcy and Insolvency Act applies because the province’s family property act is based on a debt concept.
However, family property laws in British Columbia are based on the notion that marriage partners have an “interest” in joint assets, which is not governed by the bankruptcy act.
Fainstein said it would be too difficult to redesign Manitoba’s family property laws to deal with this, but an amendment to the federal law would clear things up.
The problem was first noticed in 1993, and again in 2003, but action to fix the federal law was not taken.
Fainstein hopes the latest ruling will force action in Parliament.
“There was never a case that brought it to bear so starkly, that you could just see how unfair it is,” said Fainstein.
“I think this is going to re-activate a little bit of law reform.”
