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.
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.
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.
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.
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.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.