“In the Supreme Court of Canada case of Schreyer, the husband made an assignment into bankruptcy without giving notice to the wife, who had an equalization claim under Manitoba family law legislation. He was also discharged without notice to her, thereby releasing him from her claim. However, the husband owned a farm, which was exempt from execution by creditors under s. 13 of Manitoba’s The Judgments Act, C.C.S.M. c. J10, and could not be disposed of by the trustee in bankruptcy for distribution to creditors.
Speaking for the court, at para. 32, LeBel J. stated:
In such circumstances, the appropriate remedy for a creditor like the appellant would be to apply to the bankruptcy judge under s. 69.4 BIA for leave to pursue a claim against the exempt property. Since this property is beyond the reach of the ordinary creditors, lifting the stay of proceedings cannot prejudice the estate assets available for distribution. In keeping with the wording of s. 69.4(b) BIA, this is why it would be “equitable on other grounds” to make such an order. This procedure would also accord with the policy objective of bankruptcy law of maximizing, under the BIA, returns to the family unit as a whole rather than focussing on the needs of the bankrupt: see, on this point, Hildebrand v. Hildebrand (1999), 13 C.B.R. (4th) 226 (Man. Master), at para. 16; and, generally, on Parliament’s concern for the support of families, Marzetti v. Marzetti, 1994 CanLII 50 (SCC), [1994] 2 S.C.R. 765 (S.C.C.), at pp. 800-01.
The appellant submits that LeBel J.’s statement of the law applies only to an equalization payment, and not to a custody costs award. The argument hinges on what she submits is a necessary link between a lift-stay order and a spouse’s ability, before bankruptcy, to obtain an order granting a proprietary interest in the other spouse’s property under s. 9(1) of Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”) when applying for an order for an equalization payment. Such a proprietary order is not available to enforce a costs award.
Sections 9(1)(b) and (d) of the FLA provide:
9 (1) In an application under section 7, the court may order,
…
(b) that security, including a charge on property, be given for the performance of an obligation imposed by the order;
…
(d) that, if appropriate to satisfy an obligation imposed by the order,
(i) property be transferred to or in trust for or vested in a spouse, whether absolutely, for life or for a term of years, or
(ii) any property be partitioned or sold.
Section 5 of the FLA establishes entitlement to an equalization payment between spouses. Section 7 provides the mechanism to apply to court to determine any matter respecting the entitlement under s. 5.
In Schreyer, LeBel J., at para. 25, explained that the only way Ms. Schreyer’s equalization claim would not have been extinguished by Mr. Schreyer’s discharge from bankruptcy was by obtaining an order lifting the stay “so that she could seek a proprietary remedy under s. 17 [of The Family Property Act of Manitoba].” That section is to the same effect as s. 9(1) of the Ontario FLA. The appellant submits that the lift-stay remedy is therefore only applicable where the creditor spouse is then able to obtain a proprietary interest in exempt assets in pursuit of an equalization claim.
I do not accept this submission…”