Background

The parties separated in 2005 and proceeded to trial in 2010. During this trial, the husband was ordered to make a $791,495 equalization payment to the wife. This amount was in addition to payments of child support and support arrears, to be enforced through five court garnishments. The ongoing support payments and arrears were to be enforced by the Family Responsibility Office (FRO). The husband brought a Motion to Change on October 5, 2017 to end ongoing payment of child support for the parties 27-year-old daughter. The wife served a Response to the Motion to Change on September 5, 2018 agreeing on the termination of child support, but disagreeing with the date. She further asked for a fresh Order for retroactive, proportionate sharing of their daughter’s post-secondary education expenses, enforced through FRO. A final Order was made, in which the wife was owed $8,853 in remaining child support. FRO would not immediately enforce the outstanding amount. Any funds garnished would first be credited towards the $8,853, and thereafter allocated towards other debts. It was found that the wife had not been very successful in receiving money through garnishments, as she had only collected $277,609 of the $791,495 equalization payment. The wife then sought an Order that the amounts collected through garnishments be credited and apportioned to the property amounts owing to her.

Analysis

The wife, in seeking an order that the garnishments be apportioned to the property amounts owing, was concerned that the husband would file for bankruptcy potentially eliminating any equalization payment owed to her. In contrast, lump sum support payments survive a declaration of bankruptcy, and would still be payable. The wife argued that the common law principle of apportionment gave her, the creditor, the discretion as to how to apportion undifferentiated payments from a single debtor towards multiple debts held by a singular creditor.

The husband argued that all payments garnished to date by the court first be applied to the lump sum spousal support amount of $480,000, given the status of spousal support as a priority debt.

Justice McGee found that “priority” under the Creditors Relief Act refers to priority as amongst multiple creditors, not priority in allocation of debts owing by a single creditor.

[25] Therefore, it is clear that “priority” in s. 2(3) of the Creditors’ Relief Act refers to “priority as against other creditors” and does not apply to funds received from a single debtor for multiple debts owed to the same creditor when specific payments are not earmarked for specific debts. It follows that a creditor has the discretion to apportion an undifferentiated payment towards multiple debts as he or she sees fit to maximize recovery.

When monies are garnished, a debtor loses the ability to allocate payments to specified debts. Where a creditor seizes moneys from a third party, the debtor does not have the right to choose how said money be allocated.

The principle that a creditor should be able to allocate monies received to maximize recovery was further expanded in Nova Scotia Business Development Corp. v. Wandlyn Inn Ltd. (1999)

The common law principle of apportionment has also been followed in family law cases, such as in the case of Byrne v. Clarke, which was factually similar to the case at hand. The husband owed the wife debts for child support and spousal support, he made some payments and declared bankruptcy. The wife asked the court to allocate the payments first to property because the child support arrears would survive bankruptcy. The court applied the common law principle of apportionment and held the following, at para. 16:

The wife as creditor, was free in the absence of a specification by the husband, “to allocate the payment as she chooses at any time thereafter.”

Conclusion

Justice McGee was satisfied that in this matter, the monies garnished by the court can be allocated at the creditor wife’s discretion. In circumstances of garnishment of funds for the payment of arrears owed, a creditor spouse has the ability to maximize their recovery and apportion the funds as they see fit.