Bankruptcy and the Impacts on Financial Agreements

A key issue facing couples when considering the alteration of property from a relationship breakdown is the impact that a potential bankruptcy will have on a Financial Agreement and the competing interests between the non-bankrupt party and those of a creditor or trustee.

  • The key legislative amendments to the Family Law Act 1975 are as follows
  • Section 79(11) allows for a trustee to join proceedings in a property dispute prior to making a final order.
  • Section 75(2) requires the Court to consider the effect that an order for spousal maintenance may have on the ability of a Creditor to recover their debt.

Section 79A (4) and (5) gives the power to a trustee or creditor to initiate an application to set aside or vary Court Orders made allocating a bankrupt party’s property interests to the non-bankrupt party. However, this only relates to debts which are considered uncontentious.

The key factors a court will consider when balancing the interests of the parties and the interests of a trustee or creditor in a property alteration dispute are:

  • The impact that the proposed orders will have on a creditors rights.
  • Whether a party has attempted to minimise the value of their assets.
  • The non-bankrupt’s involvement and knowledge of the bankruptcy.
  • Whether a creditor knew or ought to have known of a potential claim by the non-bankrupt party.
  • Whether the creditor-led the non-bankrupt to believe the debt would not be enforced.
  • Whether the debts were incurred post separation.

It can, therefore, be seen that a Financial Agreement created to protect a non-bankrupt party from the burdens of a potential bankruptcy will not override a trustee or creditor’s right to an interest in the bankrupt party’s property.

Furthermore, once a trustee or creditor is party to the proceedings in a property dispute in the Family Court, any Financial Agreement attempting to deprive a trustee or creditor from their vested interest will be disregarded.

Contact us to discuss any matters related to bankruptcy by emailing glenn@thextonlawyers.com.au, calling anytime on 0410 639 921 or getting in touch with us online.

Glenn Thexton

Principal

THEXTON LAWYERS

Specialist Family Lawyer

Related Tag: Binding Financial Agreements