Jesson v Jesson, 2021 ABQB 93

Court of Queen’s Bench of Alberta Citation: Jesson v Jesson, 2021 ABQB 93 Date: 20210208 Docket: 4803 182660 Registry: Edmonton Between: Derrick James Jesson Plaintiff - and - Jessica Nicole Jesson Defendant _______________________________________________________ Reasons for Decision of the Honourable Madam Justice D.A. Yungwirth _______________________________________________________ Introduction [ 1 ] Ms. Jesson applies to the Court to lift a stay in place pursuant to

section 69.3 of the Bankruptcy and Insolvency Act , RSC, 1985, c. B-3 ( BIA ) and pursuant to rule 4.34(1) of the Alberta Rules of Court , Alta Reg 124/2010 (the Rules ) as a result of the bankruptcy of Mr. Jesson. She wishes to pursue her child support and spousal support claims against Mr. Jesson. She also wishes to proceed with the matrimonial property action so that her interests in property acquired during the marriage, can be determined. The bankruptcy Trustee, Bromwich & Smith Inc., is opposed to the lifting of the stay.

History [ 2 ] Mr. Jesson and Ms. Jesson began cohabiting in 1994 and were married on August 2, 1997. They ceased living together in July 2014. The parties have two children together. [ 3 ] On February 7, 2018, Mr. Jesson filed a Statement of Claim for Divorce and Division of Matrimonial Property. In response, Ms. Jesson filed a Statement of Defence and Counterclaim on February 27, 2018. [ 4 ] Ms. Jesson filed an application for retroactive child support and ongoing child and spousal support on October 10, 2018. That application was not heard until January 17, 2019. On that day, Michalyshyn J made an Interim Without Prejudice Pre-Disclosure Order requiring Mr. Jesson to pay $1,458 in

section 3 child support for two children based on a guideline income of $100,000. The applications for retroactive and ongoing spousal support and an advance of property were adjourned to special chambers. [ 5 ] However, the day before the application, on January 16, 2019, Mr. Jesson filed an assignment in bankruptcy. The bankruptcy documents are dated January 16, 2019. The Office of the Superintendent of Bankruptcy indicates the date and time of bankruptcy to be January 17, 2019, 06:58, and the date of Trustee appointment to also be January 17, 2019. [ 6 ] The Statement of Affairs of Mr.

Jesson in the bankruptcy indicates total assets of $1,777,748, secured creditor debts of $960,635, and preferred creditors debts of $10,728. [ 7 ] The bankruptcy documents indicate exempt assets (as defined in s. 67 of the BIA ) that include a BMO LIRA of $117,039, a BMO RRSP of $14,007, and a Co-operators RRSP of $8,604. Mr. Jesson is also entitled to exemptions under the Civil Enforcement Act , RSA 2000,

Chapter C-15 . [ 8 ] Mr. Jesson is alleged to have filed a false Statement of Affairs in that he did not disclose or misstated the value of his corporate assets, including a receivable related to the sale of shares, for $4,000,000. He is currently in arrears of $24,972.40 (as of November 2, 2020) in his child support obligation. [ 9 ] Mr. Jesson takes the position that he does not have to disclose, nor does he have to attend for questioning because the Trustee “stands in his place” for the matrimonial property proceedings. Ms.

Jesson says that her requests for disclosure from the Trustee have been refused. [ 10 ] I note that Ms. Jesson filed her Disclosure Statement on January 15, 2019. I also note that in August of 2019, Mr. Jesson accessed the Child Support Resolution Program to attempt to change the child support order and, in that process, he filed his tax returns for 2015, 2016 and 2017 along with three months of pay stubs. [ 11 ] According to Ms. Jesson, Mr. Jesson has been living in what Ms. Jesson describes as “an opulent home” in Victoria, BC. [ 12 ] Ms.

Jesson is attempting to make claims in the bankruptcy but she has no proof of ownership of Mr. Jesson’s corporate interests or in other matrimonial property in the name of Mr. Jesson. In response to a request for disclosure made by Ms. Jesson’s lawyer to the Trustee, the Trustee advised that the only information that could be provided was the signed bankruptcy document. It was suggested that Ms. Jesson could ask Mr. Jesson for copies of his RRSP and LIRA statements because those assets are exempt in the bankruptcy. [ 13 ] As a result of an Order – Sale to the Plaintiff granted by Master S.L.

Schulz on April 1, 2019, in relation to real property owned by the parties, Ms. Jesson has a judgment against her for $53,337.03 plus solicitor and own client costs. The application for the deficiency judgment against Mr. Jesson in the same action was adjourned sine die. Analysis [ 14 ] The intersection of family law and bankruptcy is an area where much reform is needed. The above

summary highlights the difficulties that arise when a bankruptcy stalls the divorce and matrimonial property proceedings and interferes with the disclosure process that would allow property and support issues to be determined. [ 15 ] In Alberta, which is a “division of property” jurisdiction (as that term is explained in Schreyer v Schreyer , 2011 SCC 35 ), a divorce and family property claim is not “provable” in the bankruptcy and does not fall under s. 121 of the BIA : Re Marino , 2019 ABQB 903 .

Support would be caught by ss. 121(4) of the BIA only if it was payable pursuant to an order or agreement made before the date of the bankruptcy. [ 16 ] The property interests of a spouse/partner pursuant to the Alberta’s family property legislation are quite different than the claims of creditors under the BIA . When the interests of a spouse/partner are viewed through the commercial lens, this disregards the complexities of the spousal/partner relationship and the legislation specifically designed to assess and divide property interests acquired during cohabitation.

It also ignores the fact that there will often be assets accumulated during the relationship, for which there is no proof of ownership by the non-bankrupt spouse/partner, notwithstanding that a spouse/partner has an interest in property pursuant to the provisions of the provincial family property legislation.

In the result, an injustice may result for the non-bankrupt spouse/partner if their interests are not considered before the bankrupt’s estate is determined in the bankruptcy process. [ 17 ] In my view, the appropriate way to deal with unresolved matrimonial and family property claims while still respecting the scheme of the BIA , is under s. 81 of the BIA , which provides as follows: 81

(1) Where a person claims any property, or interest therein, in the possession of a bankrupt at the time of the bankruptcy, he shall file

with the trustee a proof of claim verified by affidavit giving the grounds on which the claim is based and sufficient particulars to enablethe property to be identified.

(2) The trustee with whom a proof of claim is filed under subsection (1) shall within 15 days after the filing of the claim or within 15days after the first meeting of creditors, whichever is the later, either admit the claim and deliver possession of the property to theclaimant or send notice in the prescribed manner to the claimant that the claim is disputed, with the trustee’s reasons for disputing it, and,unless the claimant appeals the trustee’ decision to the court within 15 days after the sending of the notice of dispute, the claimant isdeemed to have abandoned or relinquished all his or her right to or interest in the property to the trustee who may then sell or dispose ofthe property free of any right, title or interest of the claimant.

(3) The onus of establishing a claim to or in property under this

section is on the claimant.

(4) The trustee may send notice in the prescribed manner to any person to prove his or her claim to or in property under this section, and,unless that person files with the trustee a proof of claim, in the prescribed form, within 15 days after the sending of the notice, the trusteemay then, with the leave of the court, sell or dispose of the property free of any right, title or interest of that person.

(5) No proceedings shall be instituted to establish a claim to, or to recover any right or interest in, any property in the possession of abankrupt at the time of the bankruptcy, except as provided in this section.

(6) Nothing in this

section shall be construed as extending the rights of any person other than the trustee. [18] Therefore, Ms. Jesson’s matrimonial property claim should be addressed through s. 81 of the BIA, as Ms. Jesson is claimingan interest in property. It is unclear in this case, if Ms. Jesson has proceeded under s. 81 of the BIA (which has its own claim document).If she has not, she should do so as soon as possible. [19] If the determination of Ms. Jesson’s property interests is addressed through s. 81 of the BIA, then ss. 81(2) provides themechanism through which her claims are to be addressed. If Ms.

Jesson’s matrimonial property claim is disputed by the Trustee, thenMs. Jesson can appeal that decision to the Court within 15 days. The matrimonial property claims can then be addressed by the Courtwith the involvement of the Trustee so that they can be finalized. [20] In my view, the Trustee must address the matrimonial property claims before the Trustee can properly determine thebankrupt’s estate. It is not appropriate to delay a consideration of Ms. Jesson’s property claims (or Mr. Jesson’s claims pursuant to hiscounterclaim) until after the bankruptcy is concluded and Mr. Jesson is discharged.

Stay Provisions [21] As the stay provisions in s. 69.3 of the BIA apply only to claims provable in bankruptcy, they do not apply to the claims ofMs. Jesson in her combined divorce and matrimonial property proceeding. [22] Ms. Jesson’s child support claims are also not “provable” in the bankruptcy because the existing support order was not madebefore the date of the bankruptcy. [23] A support claim may be prosecuted in personam against the bankrupt without leave of the bankruptcy court while the debtorspouse is an undischarged bankrupt and afterward.

Saberi v Saberi, (Ont CA), referenced by the ABQB in Cousin vCousin, 2020 ABQB 636. [24] Any ongoing child support payable pursuant to an order obtained after the date of the bankruptcy should be factored into Mr.Jesson’s monthly expenses when the Trustee is calculating the bankrupt’s monthly surplus. However, the enforcement of arrears of childsupport against the assets of the bankrupt that have vested in the Trustee, is prohibited by ss. 69.41(2) of the BIA.

Enforcement of sucharrears is limited to the BIA exempt assets of the bankrupt and the portion of the bankrupt’s income in excess of any payments to theestate. [25] Ms. Jesson concedes that rule 4.34 of the Rules operates to stay her action as a result of the vesting of Mr. Jesson’s propertyinterests in the Trustee in bankruptcy.

That rule provides: 4.34(1) If at any time in an action prior to judgment the interest or liability of a party is transferred or transmitted to another person byassignment, bankruptcy, death or other means, the action is stayed until an order to continue the action by or against the other person hasbeen obtained.

(2) If a transfer or transmission of the interest or liability of a party takes place while an application or proceeding in an action ispending, an interested person may, on filing an affidavit verifying the transfer or transmission of the interest or liability and withoutnotice to any other party, request the Court to order that the action continue.

(3) An order to continue the action must be served on each of the other parties as soon as it is received by the party requesting the order.

(4) If an order to continue an action is not made within a reasonable time after the date on which the action is stayed, the defendant orrespondent may apply to the Court to have the action dismissed for delay under rule 4.31. [26] Pursuant to rule 12.35 of the Rules, rule 4.34 does not operate to stay a proceeding under the Divorce Act, RSC 1985, c-3. So,rule 4.34 can apply only to the matrimonial property proceeding in this case. [27] Rule 4.34 itself sets out the procedure to be followed by someone in the position of Ms. Jesson, to obtain an order that heraction continue. It can be done without notice to any other party. The Trustee in bankruptcy essentially "inherits" the divorce and

matrimonial property actions as they stand. [ 28 ] There does not appear to be any “test” to apply when considering if an application made pursuant to rule 4.34(2) should be granted. Though there may be cases where it would not be appropriate to order that the action continue, this is not one of them. A spouse should not be able to use the bankruptcy system to stall their obligation to disclose and to prevent a fulsome consideration and determination of matrimonial property entitlements, either under the former Matrimonial Property Act , RSA 2000,

Chapter M-8 ( MPA ), or the Family Property Act , RSA 2000,

Chapter F-4.7 ( FPA ). [ 29 ] Families and children suffer when their family property and divorce issues remain unresolved. If there is no determination of Ms. Jesson’s property interests (which would consider any MPA or FPA exemption claims by either party), there is a risk that those interests might be unfairly divided among Mr. Jesson’s creditors in the bankruptcy. [ 30 ] Ms. Jesson is entitled to proceed with her divorce and matrimonial property action so that she can verify Mr. Jesson’s income, assets and liabilities for the purpose of determining and enforcing her support and property claims.

The Trustee has the right to and should be involved (pursuant to s. 81 of the BIA ) so that the division of matrimonial property can be finalized and the Trustee can determine the property available for the creditors of Mr. Jesson (e.g. a matrimonial property exemption that does not have to be shared with Ms. Jesson). Even without the Trustee’s involvement, Ms. Jesson is entitled to enforce her child support arrears against Mr. Jesson’s BIA exempt assets.

As the welfare of the children is involved, that alone is sufficient reason to order that the actions continue. [ 31 ] I hereby order that the divorce and matrimonial property actions will continue. [ 32 ] The first thing that shall occur is that Mr. Jesson will provide the disclosure listed in paragraph 13 of Ms. Jesson’s Affidavit sworn November 2, 2020, within 30 days. [ 33 ] Using the process outlined in s. 81 of the BIA , Ms. Jesson may proceed with her divorce and matrimonial property actions. The Trustee will have to decide how to best proceed in this regard.

The Trustee may opt to be part of the discovery, negotiation, and resolution process, or may opt to deny Ms. Jesson’s claim, in which case, assuming that Ms. Jesson appeals that decision as required by ss. 81(2) of the BIA , the matter will come before the Court for determination. Either way, Ms. Jesson is at liberty to proceed with her action, including, but not limited to, the following steps: (

a) complete questioning in the divorce and matrimonial property proceeding; (

b) determine exempt assets against which to enforce child support and retroactive and ongoing spousal support arrears and claims while Mr. Jesson is an undischarged bankrupt; (

c) pursue enforcement against exempt assets, of ongoing child support, child support arrears under the existing order, and if necessary retroactive and ongoing spousal support claims that may be pursued while Mr. Jesson is an undischarged bankrupt; (

d) bring any interim applications that may be required to obtain interim relief and to advance the actions to conclusion; (

e) schedule and complete the trial of these actions; (

f) achieve any property settlement that may be reached between Ms. Jesson and Mr. Jesson’s bankruptcy Trustee. [ 34 ] Failing agreement, costs of this application may be spoken to within 45 days. Heard on the 13 th day of November, 2020. Dated at the City of Edmonton, Alberta this 08 th day of February, 2021. D.A. Yungwirth J.C.Q.B.A. Appearances: Lauren E. Garvie

for Bromwich & Smith Inc, Licensed Insolvency Trustee, for the Plaintiff Sean Schaefer for the Defendant