Bankruptcy Advice in Family Law Matters

A key issue facing couples going through the end of their relationship is the financial repercussion of the separation. When considering the alteration of property from a relationship breakdown, what’s the impact that a potential bankruptcy will have on the Financial Agreement and the competing interests between the non-bankrupt party and those of a creditor or trustee.

Since amendments have recently been undertaken to the Family Law Act 1975 and the Bankruptcy Act 1966, both the Family Court of Australia and the Family Court of Western Australia have jurisdiction regarding bankruptcy matters involving married couples.

The key legislative amendments are as follows:

  • Section 79(11) allows for a trustee to join proceedings in a property dispute prior to making a final order.
  • Section 75(2) requires the Court to consider the effect that an order for spousal maintenance may have on the ability of a Creditor to recover their debt.
  • Section 79A (4) and (5) gives the power to a trustee or creditor to initiate an application to set aside or vary Court Orders made allocating a bankrupt party’s property interests to the non-bankrupt party. However, this only relates to debts which are considered uncontentious.

These amendments which apply to married couples have also been made to apply to de facto couples, except for de facto couples in Western Australia.

Factors that a court will consider when balancing the interests of the parties and the interests of a trustee or creditor in a property alteration dispute are as follows:

  • The impact that the proposed orders will have on a creditors rights.
  • Whether a party has attempted to minimise the value of their assets.
  • The non-bankrupt’s involvement and knowledge of the bankruptcy and whether they received any potential benefit from the bankruptcy.
  • When and how the debt was incurred.
  • The circumstances surrounding the property settlement proceedings.
  • Whether a creditor knew or ought to have known of a potential claim by the non-bankrupt party.
  • How the creditor attempted to recover their debt.
  • Whether the creditor led the non-bankrupt to believe the debt would not be enforced.
  • Whether the non-bankrupt led the creditor to believe their rights would not be enforced under the family Law Act.
  • If either party failed to make full disclosure.
  • The financial circumstances of the non-bankrupt party and children after the time in which the debt was incurred.
  • Whether the debts were incurred post-separation.

It can therefore be seen that a Financial Agreement created to protect a non-bankrupt party from the burdens of a potential bankruptcy will not override a trustee or creditor’s right to an interested in the bankrupt party’s property. Furthermore, once a trustee or creditor is party to the proceedings in a property dispute in the Family Court, any Financial Agreement attempting to deprive a trustee or creditor from their vested interest will be disregarded.

If you cannot fully answer the above questions, you should consider getting legal counsel. In matters like these, contact Thexton Lawyers for advice before you make any decisions that could jeopardise your interests.

Call us 03 967 07330 to make an appointment.

Please note that the content of this article is meant to provide general information, and does not constitute legal advice provided by Thexton Lawyers.