Family law and Bankruptcy: the family home
What Happens When a Partner Becomes Bankrupt?
When your partner is declared bankrupt, a Trustee is appointed by the court. The Trustee takes control of your partner’s assets. The Trustee then sells those assets for the benefit of creditors.
This process often raises concerns about the family home.
How Bankruptcy Affects the Family Home
The outcome depends on how the property is owned. Different ownership structures lead to different results.
1. Family home owned only by the bankrupt partner
If the property sits in your partner’s sole name, the Trustee takes control of it. The Trustee usually lodges a caveat and transfers the title into the estate.
The Trustee then sells the property to pay creditors.
What can you do as the non-bankrupt partner?
- You may claim an interest in the property if you contributed to it. This includes mortgage payments, rates, or renovations. This may allow you to receive part of the sale proceeds.
- You may negotiate to buy the property or the bankrupt’s equity from the Trustee.
- If you have separated, you may apply for property orders in the Family Court.
2. Family home owned jointly
If you and your partner both own the property, the Trustee only deals with the bankrupt’s share. Several outcomes may apply.
- You may refinance the property and pay out the bankruptcy debts. This can lead to annulment of the bankruptcy.
- The bankrupt may reach a compromise with creditors. If accepted, the family home may remain untouched.
- You or a third party may purchase the bankrupt’s share from the Trustee.
- You and the Trustee may agree to sell the property and divide the proceeds based on ownership shares.
- If no agreement is reached, the Trustee may apply to court for an order to sell the property. This option often increases costs and reduces returns.
3. Family home held on trust
Some properties are held on trust for another person. In these cases, the Trustee must examine the facts carefully.
If the trust arrangement is valid, the Trustee cannot usually sell the property. The asset remains outside the bankrupt estate.
Key takeaway
Bankruptcy does not always mean the family home will be sold. The outcome depends on ownership, contributions, and legal structure.
