Diaries
Diary 4: Real Life Examples
Anecdotes from a mediator:
In my many years working in personal bankruptcy, I unfortunately saw a lot of bad behaviour and further abuse of an income power imbalance. In one instance a husband, who ran his own business, intentionally issued T4 slips in his wife’s name without her knowledge. This allowed for large tax deductions in his business as he reported a large salary going to his wife. It was 3 years before the wife realized that this had happened, beyond the ability for her to dispute/challenge CRA for the tax assessment. She only realized what had happened when the CRA registered a writ on the tile of her house and froze her bank account for unpaid taxes which were in excess of $600,000. Adding further pain to her situation, her husband was jointly on title for the home and refused to consent to a sale of the home which would have allowed her to pay off the debt. In this case our only option was to have her make an assignment into bankruptcy and go to court to get an order permitting her to sell the house without the husband’s consent. The Trustee in Bankruptcy was able to do this at no cost to the wife as the Trustee obtains their fees from the recoveries of an estate, not directly from the bankrupt. The woman was able to move on and obtain a discharge from bankruptcy 9 months later but her credit rating suffered significantly through no fault of her own.
Another common occurrence in bankruptcy is jointly held debt and assets. If one of the spouses has co-signed a loan or provided a personal guarantee to a lender, something that happens in most cases in relation to owner managed businesses, both spouses are jointly and severally liable for the debt. The bank, or car dealership does not care if the spouses have separated or divorced. One spouse can recklessly spend and create debt knowing that his or her spouse will get saddled with the liability. If one spouse then declares bankruptcy, the lender will chase the non-bankrupt spouse for repayment of the debt or recovery of the asset.
Finally, many times one of the spouses is aware that they will be leaving the marriage before announcing it. The exiting spouse may take several months planning the exit and redistributing assets, taking money out of companies, bank accounts, setting up new accounts in other names or in other countries. In this case the trail of money has to be followed and almost exclusively would be done by an accountant, not a lawyer. The value of shares in companies or other assets may be intentionally diminished in order to limit exposure to the other spouse when dividing assets. Depending on the nature of work, one spouse may intentionally try to show their income is drastically reduced or even non-existent in order to limit the amount of support they have to pay the other spouse. One of the spouses may intentionally file for bankruptcy in order to avoid paying a spouse. When one spouse files for bankruptcy and there are assets, the Trustee must then assess the estate and distribute to the non-bankrupt spouse.
