First BC Family Debt Division Case Decided By BC Supreme Court
Our new BC Family Law Act sets out a new test for how family debts are to be valued and divided. The first Supreme Court decision on BC family family debt has just been pronounced being K.M.J. v. J.H.D.N. It answers important questions on what happens to family debt that goes up or down after separation.
Lorne MacLean, QC helped establish the law on family debts in his Supreme Court of Canada appearance in Young v. Young and he and the rest of the MacLean Law lawyers looked forward to guidance from the Courts on the following questions:
Is it appropriate for a spouse to refuse to pay down debts in their own name or to fail to pay their share of debts after separation?
Should BC Family Debt Division credit be given to a spouse who responsibly pays down or family pays off debts before trial or settlement?
Common sense says the rules should encourage parties to behave responsibly. This week the BC Supreme Court decided responsible debtors should receive credit for paying down BC family debt.
[136] In order to resolve the division of debt in this case, it is necessary to interpret ss. 86 and 87 of the relatively new Family Law Act, which has not yet been thoroughly undertaken by this court to my knowledge. In Asselin v. Roy, 2013 BCSC 1681, Harvey J. referred to the intent of the Act in this part and said it was to provide “more certainty for litigants” and that the “broad judicial discretion formerly available under the Family Relations Act has been replaced with a more formulaic approach to both the identification and division of family property”. His analysis is not directly on point, however.
FLA Test For Responsibility To Share In BC Family Debt Division
Equal entitlement and responsibility
81 Subject to an agreement or order that provides otherwise and except as set out in this Part and Part 6 [Pension Division],
(a) spouses are both entitled to family property and responsible for family debt, regardless of their respective use or contribution, and
(b) on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common, and is equally responsible for family debt.
[155] The process outlined here will hopefully assist in ensuring that the process of valuing property and debts is clear and consistent and ultimately fair. If family property is disposed of after separation but before the hearing date, not in good faith (s. 95(2)(g) specifies good faith as a relevant consideration), that cannot deprive the other spouse of the value of their interest in the property. If it were disposed of in good faith, presumably s. 87 would be used to select the disposition date as the valuation date. Similarly, the good faith retirement of all or some of a family debt post-separation but before hearing cannot relieve the other spouse of their obligation to share in that family debt. The Act specifies that we start with the value at hearing date, but provides tools in ss. 87 and 95 to adapt to the peculiar circumstances that might arise to achieve the intent of the legislation.
[156] Some examples may be useful. I will use a line of credit as the family debt throughout, for consistency. In these examples, I will assume that the starting debt meets the definition of family debt at the date of separation.
– If the principle debt remained static post-separation but interest accumulated, then the value should be the new balance including accumulated interest at the date of hearing.
– If the amount of the debt was identical at hearing date and separation date but one party had used the line of credit during the period, such that the amount of debt had been much higher and/or much lower between those dates, the value would still be the balance at hearing plus some interest adjustment. The interest would have to be adjusted using s. 95, taking into account the balance at separation and whether the use post-separation resulted in greater interest accumulation than would have otherwise occurred, and whether those charges or other charges have increased the debt “beyond market trends”.
– If the debt was paid off entirely by one spouse post-separation but pre‑hearing leaving nothing to divide at the hearing date, s. 87 allowing the court to set a different valuation date should be used or, perhaps, s. 95 would be used to correct what may be a significant unfairness through division of other property or debts. I would use s. 87. Interest accumulated to the date the debt was retired would need to be considered. The same process would be applied if the debt had been paid down but not retired entirely.
– If the debt had been run up well above the separation date level, so that the value was significantly different at hearing, this significant unfairness could again be addressed through the application of ss. 87 or 95. The peculiar circumstances of each case may drive the selection of which section to use and the date to be selected.
[157] These examples involve variations in the debt related to payments or interest; true monetary influences. The respondent’s consumer proposal here reminds us that separate from market trends and such true monetary influences, there can be changes to debts for another reason – compromise. Whether through a statutory process such as the Bankruptcy and Insolvency Act or otherwise, creditors and debtors often negotiate reduced payment in exchange for either or both of prompt and certain payment.
Call Our Highly Respected BC Family Debt Division To Protect Yourself
The highly respected lawyers at MacLean Law would be pleased to meet with you to provide you with a strategy to resolve your family matter so you can move forward with your life. Contact us across BC at our offices in Kelowna, Surrey, Fort St John and Vancouver BC.
