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Property Settlement & a Bankrupt Spouse

When you become bankrupt, all assets owned by you vest in the Trustee in Bankruptcy, for the benefit of your creditors. There are exceptions including property that you hold on trust for another person; some household property, tools of trade, life assurance policies, some  superannuation entitlements and rights to recover compensation for injury and any compensation recovered.

The Trustee must sell all of the vested property and distribute the proceeds amongst the creditors or sell sufficient property to pay the creditors and return any remaining money or property to the bankrupt.   It can get messy when there is a final breakdown of a marriage or de facto relationship and a non-bankrupt spouse claims an interest over the bankrupt’s vested property, or the Trustee claims the non-bankrupt spouse is holding property on trust for the bankrupt.   

Since 2005 Bankruptcy and Family Law have interacted with each other in order to resolve complex disputes involving bankrupt spouses.  If court proceedings are on foot, then the Trustee can apply to join proceedings, and will stand in the place of the bankrupt.  The bankrupt will then become unable to make any submissions to the Court about property vested in the Trustee, except with permission of the Court. 

The Courts are empowered to make orders for the adjustment of the bankrupt’s property vested in the trustee. When doing so, the Courts need to attempt to balance the interests of creditors against those of the family and neither the Trustee, nor the non-bankrupt spouse has a priority over the other.

If you have a need for advice in such complex matters, our specialist team of Family Lawyers is ready to assist.

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