What happens if my ex-partner goes bankrupt during our property settlement?

In Plain English

If your ex-partner becomes bankrupt during property settlement proceedings, the bankruptcy trustee may become involved in the proceedings. The court may need to consider the interests of your ex-partner's creditors when making decisions about how property is divided. The Family Law Act 1975 allows the bankruptcy trustee to be joined as a party to the proceedings to represent the interests of the creditors. The bankrupt party may need the court's permission to make submissions about property that is part of the bankruptcy.

Detailed Explanation

If a party to a marriage becomes bankrupt either before or during property settlement proceedings under section 79 of the Family Law Act 1975, the bankruptcy trustee can apply to the court to be joined as a party to the proceedings, as per subsection 79(11). The court must join the bankruptcy trustee if it is satisfied that the interests of the bankrupt's creditors may be affected by the making of an order under section 79.

Once the bankruptcy trustee is a party, the bankrupt party to the marriage requires leave (permission) of the court to make submissions in connection with any vested bankruptcy property, as stated in subsection 79(12) of the Family Law Act 1975. The court must not grant leave unless it is satisfied that there are exceptional circumstances, according to subsection 79(13).

The Bankruptcy Act 1966 also interacts with property matters. Section 58 of the Bankruptcy Act 1966 states that when a debtor becomes bankrupt, their property vests in the Official Trustee or a registered trustee. Section 116 of the Bankruptcy Act 1966 defines what property is divisible among creditors. This includes property that belonged to the bankrupt at the commencement of the bankruptcy or was acquired before their discharge.

Furthermore, the Family Law Act 1975 includes provisions for notifying the court about bankruptcy proceedings. Section 90SQ outlines that the applicable Rules of Court may make provisions for a party to a de facto relationship that has broken down to notify the court if they become bankrupt during proceedings for an application under sections 90SE, 90SL, 90SM or 90SN.

The court may also stay (pause) proceedings if it is notified that the property of either party is covered by a proceeds of crime order or a forfeiture application, as per section 90VB of the Family Law Act 1975.