What happens when your former partner goes bankrupt prior to or during your family law proceedings? Do you lose all of your assets and join a long list of creditors in the hope of receiving a small share of the bankrupt estate?
In Australia bankruptcy has been defined by the Federal Court of Australia as “a process where people who cannot pay their debts give up their assets and control of their finances, either by agreement or Court Order, in exchange for protection from legal action by their creditors. “ When a party becomes bankrupt a “Sequestration Order” is made by the Court which appoints a Trustee to manage all of the bankrupt party’s assets, financial affairs and any litigation matters, usually for a period of three years. The Trustee then has control of all finances and assets and can sell them to pay creditors, including any assets which may ordinarily be available for division in a family law division of assets.
The Family Law Act 1975 and Bankruptcy Act 1966 were amended in 2005 to allow the two pieces of legislation to work together to protect a non-bankrupt partner in the breakdown of a relationship from having to join a list of creditors in the hope of receiving a small share of the bankrupt estate.
Once proceedings have commenced in the Family Courts against a bankrupt person, the trustee will take their place in all Family Law litigation and negotiations. Essentially, the bankrupt will no longer have a say in the negotiations and the division of property.
Counsel Family Lawyers can negotiate with the trustee in bankruptcy on your behalf and secure a property settlement despite your former partner’s bankruptcy. We can help by issuing an application with the Family Courts for a property settlement to occur, essentially asking that the Court quarantine or excise an asset or assets from the bankrupt estate. Thus, with the Court’s approval, we can obtain orders which prevent creditors from receiving your share of particular assets. There are a series of stringent tests and hurdles to overcome if this is to occur to ensure that there is a legitimate breakdown of the relationship and that all parties are complying with the requirements of both the Family Law Act and the Bankruptcy Act.
If you have any concerns about your former partner becoming bankrupt, or your former partner is bankrupt and you are in the process of separating please contact our office for advice on how best to proceed to protect your contributions to the asset pool from creditors and the bankruptcy trustee. Please contact our office on 9320 3900 or email [email protected].
The information in this blog does not constitute legal advice and cannot be relied upon by you. If you require advice specific to your situation you must contact Counsel Family Lawyers for legal advice. The contents of this blog are relevant as at 23 August 2017. We recommend you obtain specific advice relevant to you and your family situation.
Written by Sarah Damon and Caroline Counsel