How bankruptcy can affect spouses

If someone owes money or taxes but declares bankruptcy, creditors and tax authorities can pursue that insolvent person’s spouse. So before declaring bankruptcy, people need to consider the consequences, says Sean Zeitz, litigator for Lipman, Zener Waxman LLP.

Read: What happens to inheritances in a bankruptcy

Zeitz took part in a seminar on the intersection of bankruptcy and family law last week, as part of an Ontario Bar Association conference. During that session, he said people must be aware of the definitions under bankruptcy law. For example, married people remain financially connected until divorce, even if they’re separated when one partner declares bankruptcy, while common-law spouses in Ontario are considered separated as soon as they stop living together.

Read:

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For more on family law, see our live tweets below. And, follow @advisorca for more news and event coverage.

Live tweets from Ontario Bar Association Institute

We’re tweeting from the @OBAlawyers conference. First up: Sean Zeitz on where bankruptcy and family law meet.

Family lawyers have to consider the effect of a bankruptcy or consumer proposal on a family law claim, says Zeitz. For instance, he says a creditor could pursue family members if the initial debtor declares bankruptcy.

If a judge doesn’t think your client’s consumer proposal is comprehensive enough, it could be rejected, warns Zeitz. (Read: What to do if your client can’t declare bankruptcy)

FYI: Under bankruptcy law, married people remain related until they’re divorced — even if separated. But, common-law partners cease to be related as soon as they stop living together, for Ontario bankruptcy purposes.

Under some conditions, @CanRevAgency can assess outstanding taxes to an insolvent person’s spouse, says Zeitz.

In such cases, @CanRevAgency would do a S. 160 assessment. Imagine a couple where the husband earns a high income and owes tax, but where the wife doesn’t earn much. However, the family house is in her name. If undergoing a S. 160 assessment, the wife must prove the house wasn’t bought with her husband’s money or an inheritance in his name, for instance. If she can’t, she could be liable for taxes owed.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.