When a party to a marriage or de facto relationship becomes bankrupt, control of most of their assets passes to a trustee in bankruptcy, which can significantly affect family law proceedings. The Family Court has the power to deal with property settlement, maintenance and related disputes involving bankrupt parties, while balancing the interests of creditors and the non-bankrupt spouse. Because bankruptcy adds considerable complexity to family law matters, obtaining legal advice as early as possible is essential.
How does bankruptcy affect family law property settlements and spousal maintenance?
Our Family Team explains
Summary
This article explains how bankruptcy can affect family law proceedings and property settlements. It outlines the role of the trustee in bankruptcy, the Family Court’s jurisdiction in bankruptcy-related family law matters, and how the Court considers the competing interests of creditors and the non-bankrupt party.
How does bankruptcy affect family law property matters?
Bankruptcy affects parties and proceedings in family law in significant ways. Once a party to a marriage or de facto relationship which has broken down becomes bankrupt, his or her property (except some categories of assets such as most household goods, superannuation, some tools of trade and a motor vehicle up to a certain value) is immediately vested in the trustee in bankruptcy situations. Once this has occurred, the bankrupt party is no longer able to transfer any property or pursue any entitlement to property settlement. Only the trustee can do that.
How has bankruptcy law in family law changed?
In the past, bankruptcy and family law were governed by two different pieces of legislation the Bankruptcy Act 1966 and the Family Law Act 1975. However, the introduction of the Bankruptcy and Family Law Legislation Amendment Act 2005 (BFLAA) changed the landscape in respect to bankruptcy and family law. The BFLAA gave the Family Court jurisdiction to deal with matters relating to a bankrupt’s property and a bankrupt spouse in circumstances in which previously the Family Court’s role was limited once a party became bankrupt.
What bankruptcy matters can the Family Court deal with?
In Western Australia, the Family Court and Federal Circuit Court can deal with the bankruptcy of a party to a marriage or de facto relationship involved in certain family law proceedings. The Family Court and Federal Circuit Court have jurisdiction in any matter connected with, or arising out of, the bankruptcy of a party to a marriage or de facto relationship in proceedings for:
- property settlement under Section 79 or 90SM of the Family Law Act 1975, and/or
- declaration on interest in property under Section 78 or 90SL of the Family Law Act, and/or
- setting aside property orders under Section 79A or 90SN of the Family Law Act, and/or
- spouse maintenance under Section 72 of the Family Law Act,
- de facto spouse maintenance under Section 90SE, and/or
- enforcement of any of the above orders.
How does the Court balance the interests of creditors and the non-bankrupt party?
In situations of bankruptcy, when deciding what orders to make, the Court must determine the competing rights of the creditors and the non-bankrupt party (to the marriage or de facto relationship). However, it is important to note that the non-bankrupt party and creditors do not have priority over one another.
When should you seek legal advice about bankruptcy and family law?
If you are in situation where you or your partner is facing bankruptcy in a family law proceeding, it is recommended that you seek legal advice as this is a complex area of law. You can contact our Family Law team at HHG who will provide advice tailored to your specific circumstance.