Intersection between family law and bankruptcy claims- Part 1

If they had the choice, many payees would probably prefer to receive a lump sum spousal award rather than periodic payments. If payments are periodic, you take the risk that they might not be paid on time, or else not be paid at all. Since most payors don’t have an ability to pay lump sum support, in most circumstances, agreements and orders provide for periodic spousal support.

However, a recipient might also want a payment characterized as lump sum spousal support because spousal support obligations are treated preferentially under bankruptcy legislation.

In Mwanri, the husband declared bankrupcty prior to his ex bringing a motion for lump sum spousal support. The wife sought a lump sum award because the payor was going bankrupt and, unlike spousal support, her equalization claim would fall alongside all of the payor’s other unsecured creditors. Upon being discharged from bankruptcy, her equalization claim would be extinguished.

However, if the wife was successful in having spousal support ordered as a lump sum, the payor would continue to owe this spousal support even after he was discharged from bankruptcy.

Although the trial judge ordered lump sum support, the Court of Appeal found that it was inappropriate to characterize what was, essentially, an equalization payment as ‘support’ purely in order to avoid the operation of the Bankruptcy Act. The amount of the lump sum spousal award given by the trial judge was identical to the amount owing to the wife as an equalization payment. The appeal court noted that if the legislature wanted the exclude family law equalization claims from the estate of bankrupt individuals, it could do so.