How Bankruptcy Affects Equalization and Support Claims in Ontario Family Law

Will Bankruptcy Eliminate an Equalization Claim in Ontario?

Yes. Under section 178(2) of the Bankruptcy and Insolvency Act (BIA), once an individual is discharged from bankruptcy, they are released from all provable claims, including a spouse’s equalization payment claim under Ontario’s Family Law Act (FLA).

In Ontario, equalization of net family property is a financial obligation, not a claim to actual property. Each spouse calculates their net worth accrued during the marriage, and the spouse with the higher value pays half the difference to the other. Since this obligation creates a debtor-creditor relationship, it qualifies as a debt provable in bankruptcy.

If a spouse initiates their equalization claim before the bankrupt spouse is discharged, they become an unsecured creditor in the bankruptcy. Like other unsecured creditors, they may only receive a small portion of what's owed—if anything—depending on the bankrupt estate.

However, if the equalization claim isn’t made before discharge, it will likely be erased—even if the non-bankrupt spouse wasn’t aware of the bankruptcy. At that point, options are limited. They may:

• Seek recovery under section 178(1)(f) of the BIA if the claim wasn’t disclosed to the trustee.

• Attempt to set aside the discharge under section 180(2) of the BIA on the grounds of fraud.

👉 Tip: If you suspect your spouse may be insolvent or considering bankruptcy, conduct a bankruptcy search early and monitor regularly. Timing is critical.

What Assets Are Protected from Bankruptcy?

Section 67 of the Bankruptcy and Insolvency Act lists assets that are exempt from seizure, such as:

• Property held in trust for another person

• RRSPs and RRIFs (with some exceptions)

• Regulated pension plan interests

Although equalization usually results in a monetary award, section 9(1) of the Family Law Act gives courts the power to create other legal arrangements. For example:

• A constructive or resulting trust may be imposed, giving the other spouse a beneficial interest in a specific asset.

• The court may place a charge on property as security for the equalization amount.

However, these remedies must be pursued before the bankruptcy discharge. Once a spouse files a notice of intention to make a proposal, an automatic stay of proceedings under section 69.3 of the BIA will apply. The entitled spouse must then obtain leave from the bankruptcy court to proceed with any claim against exempt assets.

Can Bankruptcy Erase Spousal or Child Support in Ontario?

No. Bankruptcy does not discharge support obligations. Unlike property division, child and spousal support claims survive bankruptcy under Canadian law.

Under the Family Law Act, both married and common-law spouses may be eligible for support. According to section 178(1) of the BIA, a discharge from bankruptcy does not release:

• Spousal support

• Child support

• Cost Orders related to support (if specified as enforceable support obligations)

Additionally:

• Section 69.41 of the BIA states that support claims are not automatically stayed.

• Section 136(1) gives support arrears priority over general unsecured debts.

These protections ensure that support recipients can still collect what's owed, even if the payor has gone bankrupt.

How to Enforce Support Payments During or After Bankruptcy

Support recipients can file their support order or agreement with the Family Responsibility Office (FRO). The FRO has powerful enforcement tools, including:

• Garnishing wages or bank accounts

• Suspending driver's licenses or passports

• Imprisoning non-compliant payors for up to 180 days

The FRO can also enforce support-related cost orders, provided they are designated as enforceable under the Family Responsibility and Support Arrears Enforcement Act.

If the payor spouse wants to reduce or eliminate support obligations, they must bring a motion under:

• Section 17 of the Divorce Act, or

• Section 37 of the Family Law Act

This applies whether or not the payor is bankrupt.

Courts cannot reclassify an equalization payment as a lump-sum support payment solely to bypass the BIA. However, in some cases, courts have awarded lump-sum support to balance financial unfairness caused by a bankruptcy—but only if the support claim is justified on its own legal merits.

Conclusion: Get Timely Legal Advice on Bankruptcy and Family Law in Ontario

Bankruptcy can significantly affect your rights in a separation or divorce, particularly when it comes to equalization payments and support enforcement. If you're dealing with a spouse who is insolvent or may declare bankruptcy, it’s vital to act quickly and seek legal advice from an Ontario family lawyer.

At Van Delft Law, we understand the complex intersection of bankruptcy and family law. Contact us today to protect your financial rights during separation, divorce, or support disputes.