Dunphy v. Boulard, 2023 BCSC 1231
This case lies at the intersection of family law and bankruptcy law and touches on the most valuable asset many people own: their pension credits.
To provide some background, most property is divided after divorce using the provisions of the BC Family Law Act, including most pensions. However, it is possible to divide Canada Pension Plan benefits without a court order and without a signed agreement. You simply need to provide Service Canada with details about your relationship and separation.
Our client in this case lost a trial for division of marital property before she hired our firm. After this trial, the court ordered that she pay costs – that is to say, she was to pay for her ex-spouse’s legal fees for the trial.
Around the same time, she correctly side-stepped the Family Law Act and was able to secure half of her ex-spouse’s CPP credits.
Neither party was totally happy with this outcome. Our client faced a significant debt owed to her ex-spouse from the costs order. And her ex-spouse was poised to receive smaller CPP payments upon retirement than he had originally anticipated. Some brief negotiation between their lawyers at the time resulted in a truce: our client would approve the costs order (and acknowledge the debt to her ex-spouse) and he would not appeal the CPP credit split.
Although negotiations ended for the time being, our client still had to deal with the significant debt to her ex-spouse, which she could not pay. She decided to enter into a consumer proposal using the Bankruptcy and Insolvency Act. The proposal was accepted by her creditors and much of her debt was set to be forgiven as long as she made manageable monthly payments for a period of time.
At this stage, the ex-spouse made an application in the BC Supreme Court to claw back the CPP benefits our client would receive due to her successful benefit split. He argued that by signing the costs order, our client was making a binding promise to pay the entire amount of the costs order which could not be extinguished by a consumer proposal under the BIA.
That’s when she hired Velletta Pedersen Christie. As Nicholas Picard successfully argued in front of the Honourable Justice Punnett, the ex-spouse’s argument fails for two main reasons. First, when a party to litigation signs a costs order, they are not promising to pay – they are simply acknowledging that the debt rightfully exists. Afterwards, it is treated exactly like any other debt created by a court order. Second, section 69 of the BIA provides that if there are any court proceedings resulting in a debt that’s subject to a consumer proposal, those proceedings are subject to a stay while the proposal is active. Such a stay of proceedings is issued by the administrator. Its entire purpose is to prevent applications like this one, where a creditor tries to collect from the debtor by pointing to a court order issued before the consumer proposal.
One odd point about this case is that the ex-spouse seemingly “re-opened” the family law court file after winning at trial. Is this normal? While it is often possible to bring applications after a final order has been issued, especially if the other party is refusing to pay a costs order or other monetary award, it is important to know how court procedures interact with the Bankruptcy and Insolvency Act. In this case, the administrator of the consumer proposal has a power normally only given to a judge: the power to stop an application from being brought, by issuing a stay of proceedings. Awareness of powers like this are critical to avoiding wasted time in court on pointless applications.
In this case, due to Mr. Picard’s diligent advocacy, our client was able to keep her CPP benefits and her ex-spouse’s application was dismissed.
Link: https://www.canlii.org/en/bc/bcsc/doc/2023/2023bcsc1231/2023bcsc1231.html