As a further question, I understand that in bankruptcy in Alberta you are permitted to keep certain assets. Given that in separation my spouse and I will be maintaining 2 separate households, if the Separation Agreement is signed prior to declaration of bankruptcy do we both get the exemptions (ie: $5000 car; $40,000 home, etc.) for a total of $10,000 and $80,000 between the two of us … VERSUS … declaring bankruptcy prior to or in conjunction with the preparation of a Separation Agreement where we would only have those exemptions applied for the two of us. ie: Only $5,000 in vehicles and $40,000 in a home between the two of us?
As well, I have been told that declaring bankruptcy prior to having a Separation Agreement in place is similar to dying intestate (where the province determines division and distribution of the deceased\’s assets according to set guidelines – regardless of whether this might have been the deceased\’s wishes). I have been given the impression that we would no longer have the opportunity to decide who amongst the spouses gets what assets, the Public Trustee now has that power(ie: who gets house vs RRSP assets vs non-registered assets, vs personal assets, etc). Is that correct?
Thank you.
Answer: A husband and wife are entitled to seperate exemptions i.e. a $5,000 car each, and furniture and personal effects X 2 or $8,000 for each category. The exemption in a residence is however different and limited to $40,000 divided amongst the owners of that residence i.e. 4 owners $10,000 each.
The exemption in a residence is determined by who owns it at the date of bankruptcy and wether you reside in it. A couple can be seperated and living apart without having an agreement in place. It all relates to ownership and wether you live in it at the date of bankruptcy. If you each own a home and you live apart in those homes, you each get an exemption for $40,000 in equity. That of course presumes that you are truly living apart and that you didn’t take or borrow money from your creditors to put the down payment on the homes when you knew you or ought to have know you were insolvent.
Your entitlement to an exemption is determined at the date of bankruptcy. Once bankrupt you are free to divide up your exempt property as you see fit. Many of our clients are in the process of getting seperated when they come to file bankruptcy with us and they finalize it after they file.
The Bankruptcy Trustee does not deal with your exempt property other than to give it back to you. With most, if not all, of your unsecured debts dischargeable in a bankruptcy the division of your exempt property gets much easier. If you cash in RRSP’s or change the status of your accounts prior to filing bankruptcy you may negate or compromise an exemption.
There are probably going to be some negatives either way, but the lack of specifics makes it difficult to speak to every scenario. We would be happy to sit down with you on a no obligation basis and discuss the details of your specific situation with you.