Following separation, spouses may have jointly held debts, or a spouse may incur costs that should be borne by both parties. Usually, this burden of debt repayment should be apportioned between the spouses. But what happens if one spouse’s bankruptcy leaves the other spouse responsible for a disproportionate share of the family debt? Is that an economic disadvantage that can be addressed by recovering the debt through spousal support?

Bankruptcy and Spousal Support

Bankruptcy can be a devastating financial setback, often triggered by a complex interplay of personal and economic factors. When one spouse files for bankruptcy during or after a separation, it can further complicate the already intricate landscape of property division and spousal support. As such, it is crucial to seek legal advice from an experienced family law lawyer who can explain how the applicable laws apply to your situation and ensure your interests are protected. Familiarizing yourself with the bankruptcy process can also help you understand the potential impact on your spousal support rights. Overall, it is important to understand that the trustee’s primary duty is to maximize the return for creditors, which might impact the financial circumstances of a non-bankrupt spouse.

Court Finds a Debt can Be Considered in Determining Spousal Support

In Bowes v. Bowes, the court had to consider the burden of debt repayment following a spouse’s bankruptcy. The parties had significant joint debts, however, the respondent made an application for bankruptcy. The result was that the applicant was left carrying the burden of their bank, credit card, and other debts. The applicant claimed for an adjustment of spousal support given her liability for the debts following the respondent’s bankruptcy. The court found that the applicant was economically disadvantaged, and that the debts represented an economic hardship that arose from the breakdown of the marriage. On the other hand, the respondent’s bankruptcy was an economic advantage to him, as he was discharged from the joint debt and any debt that was in his name alone.

In Katz v. Katz, the court assessed the impact of a spouse’s bankruptcy. The Court of Appeal concluded that “the burden on the wife to make additional payments to her father as a result of the husband’s bankruptcy is an economic hardship arising from the breakdown of the marriage, and as such, she is entitled to be compensated”. The bankruptcy was an economic hardship that could be compensated for by support from the other spouse.

Courts to Consider Economic Consequences Arising From the Breakdown of the Marriage

In Bowes, the trial judge originally failed to consider the economic consequences arising from the parties’ marriage breakdown. In particular, the way the respondent’s bankruptcy affected the applicant’s financial situation. Consequently, the court was of the view that the appropriate remedy was an award of additional non-compensatory periodic spousal support. Looking at prior cases, the court concluded that “adjusting spousal support to compensate for debt borne by the non-bankrupt spouse is not without precedent”.

In Bradley v. Bradley, Justice Gillese found that while bankruptcy might relieve one spouse of liability for a jointly held debt, that debt could still be taken into consideration when determining a party’s need for spousal support. A court could look at the spouse who had paid to extinguish the debt, or who was left with liability to repay the debt, and account for that when determining need. Since determining spousal support involved considering legitimate expenses, which could include debt repayment. In Bradley, spousal support was ordered to relieve the spouse of that need.

Addressing a Spouse’s Disproportionate Share of Family Debts

Additionally, in Freno-Link v. Link, there was a joint obligation to pay approximately $37,000 to banks because of debt accrued during the parties’ marriage. The debt was essentially left to one spouse which denied her an equal division of property and the benefit of support that arose from the economic disadvantage during the marriage. The judge found that there was economic hardship arising from the assumption of that debt that was related to the marriage that could justify the variation of a spousal support order within section 17 (10) of the Divorce Act.

The husband’s bankruptcy was a material change that justified an increase in spousal support. Based on these and other cases, in Bowes the court found that the Spousal Support Advisory Guidelines were flexible and could account for a spouse’s disproportionate share of the family debts. In this case additional support was necessary recognizing that the applicant shouldered those family debts. The respondent was ordered to pay non-compensatory spousal support to address the more than $32,000 owed to the applicant.

Debts Incurred by the Other Spouse Might Not be Recharacterized as Spousal Support

One spouse’s bankruptcy can have a financial impact on the non-bankrupt spouse, leaving them with the responsibility for joint family debts. Although this may be a financial hardship, it may not be a disadvantage arising from the marriage or its breakdown that can be addressed with spousal support. This may be significant for parties who incur costs and can leave them with challenges in recovering from their former spouse.

Contact the Family Lawyers at NULaw in Toronto for Advice on Spousal Support Matters

The lawyers at NULaw in Toronto focus exclusively on family law matters and regularly assist clients seeking to resolve child support and spousal support issues. We will provide you with valuable information tailored to your unique situation so that you know what to expect and can understand your rights and obligations. To discuss your spousal support matter further or to arrange a confidential consultation with one of our family lawyers, please contact online or by phone at 416-481-5604.