Archive for ‘Creditors’

February 23, 2012

Can a Joint Tenant’s Right of Survivorship be Trumped by the Bankruptcy of an Estate?

Recently, a bank challenged the right of a spouse to take title to property held by her and her husband as joint tenants where the estate of the husband was later declared bankrupt.  Of course, as joint tenants, the property devolved to the wife through her right of survivorship.  The bank tried to employ s.  96 of the Bankruptcy and Insolvency Act (Canada) to challenge the spouse’s interest.  Section 96 permits a Court to declare void a transfer undervalue made between non-arm’s length parties within one year prior to bankruptcy.  This is a change from the old Act where the challenging party was required to show an intention to prefer parties over other creditors.  The element of intention has now been removed.

The bank took the position that the interest a joint tenant takes through survivorship is a “transfer” and is therefore caught by s. 96.  The Court disagreed, holding that on death a deceased does not dispose or part with property held in joint tenancy.  Rather his or her interest is extinguished, leaving nothing to transfer.  The Court also noted that assets that vest in a survivor in joint tenancy do not form part of the deceased’s estate.

The Court also reviewed the issue of whether the interest taken by the surviving spouse was “undervalue”.  The Court held that it was not, given the nature of a joint tenancy and in particular a joint tenancy between spouses.  The Court found that the law presumes that each spouse contributed as much as the other to the acquisition of the property whether by way of money or money’s worth.  In addition, each acquired an inchoate right to sole survivorship at the time the property was acquired, which right crystallized at the moment of the other joint tenant’s death.

The bank also contended that the wife held the property as constructive trustee for the bank, claiming unjust enrichment in the spouse.  The Court found that the elements of unjust enrichment had not been met as there was (1) no enrichment (2) no corresponding deprivation and (3) no absence of any juristic reason for the enrichment.  The Court held that no right in the property was acquired as of the date of death but was acquired at the time the property was purchased.  There was mutual consideration between the spouses as each spouse acquired the chance of acquiring the whole if he or she survived but risked that he or she might predecease the other spouse and to lose all rights in the property.  As a result, as there was consideration, there was no “enrichment”.  As well, there was no deprivation as the property never devolved to the estate of the deceased spouse because it was automatically vested in the surviving spouse.  Finally, the Court held that the operation of a joint tenancy at law in and of itself is a juristic reason for any perceived enrichment.

The timing here is important as death and the devolution of the property to the spouse occurred before bankruptcy.  Had the deceased been bankrupt prior to death, the bankruptcy would have severed the joint tenancy and there would have been a different result.

Re Cameron

March 29, 2011

Priority Issues Among Creditors of Deceased

Priorities among creditors of a deceased are often an issue to be dealt with where an estate’s debts exceed its assets.  In a recent Ontario Superior Court of Justice case, Re Greeley Estate, the court was required to determine whether a lawyer’s fees and disbursements in connection with personal injury litigation services provided to the deceased should have priority over unpaid child support.  The issue was complicated by the fact that the assets available in the estate were the result of a settlement negotiated on behalf of the deceased (before he passed) by the lawyer.  The court determined that child support had priority in this situation.  While the court found that, as a general matter, the lawyer would have a first charge over funds obtained through his or her efforts, the court noted that there was discretion to order otherwise.  The court did so, giving priority to the child support claim based on three findings of fact.  Firstly, the court found that the lawyer had notice of the outstanding child support order prior to proceeding to mediation (where a settlement was reached) and did not move for a charging order at that time.  Secondly, the outstanding child support order predated the existence of the settlement of the litigation by more than eight years.  Thirdly, and I suggest most importantly, the court found that the intention of the Legislature was to give priority to child support orders over other debts as evidenced by the Creditors Relief Act and the Family Responsibility and Support Arrears Enforcement Act

While in this situation it may be difficult to suggest that the result should have been otherwise, the reasoning does raise some concern.  Firstly, given that the deceased was still alive at the time that the settlement was reached, I would suggest it is unlikely that any lawyer would be seeking a charging order at the time the settlement was reached.  The result could require lawyers to make assessments of their clients’ financial wherewithal and seek charging orders as a matter of course.  This is highly unlikely, in particular in personal injury matters where cases are generally taken on a contingency or deferred fee basis and lawyers are paid out of settlement proceeds.  In many of these instances, the plaintiff is unable to pay legal fees up front.  The use of charging orders in all of these instances would be impractical.  Although the case does not indicate the nature of the settlement, perhaps the outcome might also have been different if the settlement had specifically allowed for payment of fees and disbursements to the lawyer.  I suggest though that this case is an unusual situation where the court found the greater need to be that of the children deprived of child support and found a way of dealing with that need – difficult to argue with that result.