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, calling anytime on 0410 639 921 or getting in touch with us online.

Glenn Thexton



Specialist Family Lawyer

Related Tag: Binding Financial Agreements