What Happens to Spousal Support if the Payor Files Bankruptcy in Ontario

Money trouble puts pressure on both sides of a support arrangement. A payor may be buried in debt and wonder whether bankruptcy wipes out the obligation. A recipient may fear that the payments they rely on will simply stop.

This article explains what you can safely do and know in Ontario: how support is collected, how it can be changed, and why you should get advice on the bankruptcy question itself before acting.

The short answer: it depends, so get advice early

Bankruptcy and support can affect each other in ways that are not always obvious. How a particular support order or amount of arrears is treated in a bankruptcy depends on your facts and on the rules that apply. Do not assume that support is either wiped out or untouched. A family lawyer, together with a licensed insolvency professional, can tell you how it applies to you.

What you can do now is understand the family law side: what your order says, how it is collected and whether it should be changed.

How support is normally collected

When a court orders spousal support in Ontario, the order is automatically filed with the Family Responsibility Office, which collects payments from the payor and sends them to the recipient. A separation agreement is not filed automatically. It must be filed with a court, then registered, before the Office can enforce it.

The Office's tools include support deduction orders sent to employers, bank garnishment, and diversion of federal payments such as tax refunds, EI, CPP and OAS. It can also report a payor to credit bureaus after more than 60 days without payment, and register a lien or writ of seizure and sale against property.

For a recipient, enforcement by the Office costs nothing. Even so, the Office does not pay when a payor misses a payment.

If you are the payor: look at changing the order

If your finances have collapsed, the usual family law step is to ask the court to change the order. Where your order falls under the Divorce Act, a court can vary, rescind or suspend a spousal support order, retroactively or prospectively, on an application by either or both former spouses. Before it varies that kind of order, the court must be satisfied that either former spouse's circumstances have changed since the order or the last variation, and it must take that change into account.

The Family Responsibility Office cannot change support terms. Only a court can, through a motion to change. If your order was made under a different law, the rules for changing it may differ, so it is worth confirming which applies to you. Waiting while arrears build up can make your position harder, so act early.

If you are the recipient: protect your position

• Confirm that your order or agreement is registered with the Family Responsibility Office.
• Keep your own record of payments received and missed.
• Be ready to respond if the payor brings a motion to change. The other spouse has 30 days to respond, or 60 days if they live outside Canada or the United States.
• Ask a lawyer whether the bankruptcy affects your claim before agreeing to anything.

Property, lump sums and tax

Property division is separate from support. The spouse with the larger net family property pays half the difference to the other, and a court claim must be made within six years of separation or two years after the divorce is final, whichever comes first. Common-law partners are not legally required to split property acquired while living together.

If a lump sum is discussed as a way to settle support, remember that a lump sum paid to be released from future support obligations is not a support amount, so it is not deductible or taxable. A lump sum also requires the payor to have assets or resources to pay.

What to do next

• Gather your order or agreement, financial statements and a record of payments.
• Do not stop paying or ignore enforcement notices without advice.
• Speak to a family lawyer and a licensed insolvency professional before filing or responding.
• If income has dropped, discuss a motion to change right away.

Frequently asked questions