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Rusinek & Associates v. Arachchilage & Baliah, 2020 ONSC 1090

Can a trustee commence an equalization claim under the Family Law Act?

Roshan and Baliah were married on March 15, 2003. During the marriage they purchased a home in Toronto where they resided (the “Matrimonial Home”). The Matrimonial Home was placed in Baliah’s name. 

Roshan and Baliah separated in February 2015. Roshan left the Matrimonial Home in October 2015 and has never returned. There is no dispute that the parties have not reconciled and that the separation is a permanent one. Neither party commenced an application for an equalization of net family property.

On November 30, 2015 Roshan made an assignment into bankruptcy. He remains an undischarged bankrupt. His declared unsecured liabilities total $282,700. At issue in this application was whether a trustee in bankruptcy can commence an equalization claim under the Family Law Act. (the “Family Law Act“).

In an affidavit, Baliah testified that there was never any intention that Roshan have an interest in the matrimonial home as he never contributed towards it. Baliah expressed concern that if the trustee was successful in asserting an equalization claim, she and her children aged 12 and 15 will be forced to leave the home.

There was no dispute that the matrimonial home is included in the definition of property in both the Bankruptcy and Insolvency Act  (the “BIA“) and the FLA. Section 71 of the BIA ensures that property owned by a bankrupt on the date of the bankruptcy vests in the trustee such that the trustee may realize on the assets for distribution to creditors. Section 72 of the BIA provides that trustees may avail themselves of the rights and remedies of other laws or statutes relating to property and civil rights in addition to the rights and remedies in the BIA. 

Under the FLA, where spouses are separated with no reasonable prospect of reconciliation, s. 5(1) entitles the spouse with the lesser of the spouses’ two net family properties to one-half the difference between them. In this case, if the trustee were permitted to make a claim for equalization, Roshan’s share of the matrimonial home assets would form part of his estate as a bankrupt.

There was no dispute that an equalization claim is a right of action and that such a claim, once made, vests in the trustee in bankruptcy. The trustee argued that it had the ability to commence a claim for equalization of net family property where neither spouse has made such a claim. As there is no law directly on point, the trustee argued that sections 67(1)(d) and 72(1) of the BIA provide such authority, as they empower the trustee to avail itself of rights and remedies available under other statutes and to exercise powers over property that might have been exercised by the bankrupt.

There is no doubt that the trustee can enforce a previously commenced equalization claim but the decision to make the claim may not assigned to the trustee. That decision remains personal as between the spouses.

Similar to the right to elect under s. 5(2) of the FLA, an equalization claim is one that is inchoate until exercised. Once exercised, it takes on a new form as “property” and is subject to the provisions of the BIA. Until that point, the right is not assignable and remains only as an amorphous possibility. Therefore, the right to an equalization of net family property does not become property within the meaning of the BIA unless and until the right to commence such a claim is exercised by a spouse.

The Court dismissed the trustee’s application, with costs payable to the respondents.

CounselSharon Sam of Ross Barristers for the Applicant and Richard Howell of Clark Farb Fiksel LLP for the Respondents

JudgeC. Gilmore, J.

Fullcase: http://canlii.ca/t/j59n6