The bankruptcy of your spouse does not mean that all is lost for you and your family.

Upon a declaration of bankruptcy any clearly divisible property vests in the trustee however, the Bankruptcy Act 1966 (Cth) provides for certain exemptions including superannuation funds, tools of the trade if required for earning an income and transportation provided these assets fall under a specified monetary quantum.

With the introduction of the Bankruptcy and Family Law Legislation Amendment Act in 2005 the provisions of the Bankruptcy Act 1966 (Cth) became subject to the orders of the Family Law Act 1975 (Cth).

The Family Court has the power to require property vested in the trustee upon bankruptcy to be transferred to the non-bankrupt spouse. This does not mean however that upon application a non-bankrupt spouse will automatically be entitled to the assets claimed. The court will apply its discretion in balancing the competing interests of the outstanding creditors and the non-bankrupt spouse.

The recent decision of Morrison & Jepson & Anor [2014] FCCA 1937 reinforced the statutory requirements for the court to consider:

“the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant”.

If the court considers that a proposed order will adversely affect creditors, it may reject the entitlement of the non-bankrupt spouse to those assets included in the order.

For more information please contact ERA Legal.