Beware of a Joint Line of Credit (and Untrustworthy Partners)

Family Law, Financial Services

You and your spouse/partner decide to get a joint bank loan to fund expenses you will incur in your life together.  Accordingly, you decide to obtain a joint line of credit (LOC) with your spouse/partner.

The marriage/partnership begins then to deteriorate.  In short, your partner is not the person that you thought he/she was.   In fact, when it comes to paying off debts, your partner is not willing or is unable to pay his/her fair share.   As such, before leaving the relationship, the partner goes out and withdraws a large sum of money from the joint LOC such as $157,044.47 and then leaves the relationship a few days later. Then, at a later date, the partner files for bankruptcy, presumably in hopes of wiping out all indebtedness owing by him/her, including the amount taken from the joint LOC.  As a result, the bank is now looking to you to recover the funds taken from the LOC.

Do you have any chance to maintain your claim as against the former partner for the monies taken from the joint LOC?

In British Columbia, the BC Supreme Court has recently ruled in a case similar to the circumstances described above that, even if the deadbeat partner obtains an absolute discharge in the bankruptcy proceedings, you can still maintain that claim in certain circumstances.

In the case of Re Lehman, 2016 BCSC 126, the court considered the case where the spouse left the relationship after taking funds from the joint LOC and then later claimed bankruptcy which would allow the spouse to avoid any continuing legal obligation to pay the funds back.  She had spent the money on personal expenses following the separation.  The ex-spouse/creditor who had the unfortunate relationship with the partner described above had obtained a judgment against the partner but then the partner, Ms. Lehman, filed for bankruptcy. She was seeking an absolute discharge from her bankruptcy.  The issue for the court was whether the judgment granted to the ex-spouse should survive the bankruptcy or be wiped out by the bankruptcy.

The BC Supreme Court determined that the judgment against should stay in effect and not be wiped out by the bankruptcy as Ms. Lehman owed a fiduciary duty to her ex-spouse which she violated by her conduct in dealing with the LOC funds.

If you are concerned about debts that you may be jointly liable for, we recommend that you seek legal advice before it is too late.

Brad Martyniuk
Partner, Fraud Law and Litigation
Lindsay Kenney LLP – Vancouver Law Office