Claiming Bankruptcy to Stop a Property Settlement – What You Need to Know

If a de facto spouse tried to frustrate, or prevent, a property settlement by claiming bankruptcy, it would likely leave you feeling disappointed and annoyed.

Witnessing someone deliberately using bankruptcy to undermine a fair distribution of assets can be disheartening and leave you with a sense of injustice.

In this article, we’ll look at one such case and how it was resolved.

Beaman and Bond: 2014

In the case of Beaman and Bond [2014] FCWA 21 (4 April 2014), the de facto husband made a personal insolvency agreement to try to avoid the results of a property settlement order.

The wife wanted the property released from the estates trustees, arguing that appointing the trustees was done to halt Family Court proceedings and claiming it was an abuse of the Bankruptcy Act.

How the legal system helps

Bankruptcy and Family Law Legislation Amendment Act 2005 and the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 were introduced to help non-bankrupt partners who were having trouble obtaining property settlement orders for the assets of their bankrupt partners.

These acts were designed to help non-bankrupt partners actively seek a fair property settlement, even when their partner is going through bankruptcy proceedings.

Western Australia law

In Western Australia, where this case was heard, there is a unique situation where bankruptcy and family law issues don't work well together compared to other Australian states.

In Western Australia, the West Australian Parliament has not delegated authority to the Commonwealth, so de facto property disputes have a slightly different process compared to other states.

Can the property be released from trustee control?

After finding that the husband was not financially stable and dismissing the wife's claim that he should not be able to appoint trustees, Crisford J proceeded to discuss section 208 of the Bankruptcy Act – the removal of trustee control by the Court.

This section provides an opportunity for the court to release control over a debtor's property under specific conditions. These conditions include an interested person applying for the order – in this case, the wife – and the court is convinced that special circumstances justify such a decision.

The husband's counsel acknowledged that the wife qualified as an interested person. However, argued that the court might not find enough “special circumstances” to justify releasing the property from the trustees.

It was explained that, while the term "special circumstances" can occasionally involve an abuse of process, it is not essential for determining special circumstances. Special circumstances simply refer to situations that are out of the ordinary.

The decision?

It was decided that several factors could be seen as being out of the ordinary and justified the release of the property from the control of the trustees.

The Judge felt that removing the husband's property from the trustees' control was unlikely to be unfair to either of the parties involved in the de facto marriage or the creditors.

So, although claiming bankruptcy may seem like a solution to a property settlement order, this can be reversed. Ultimately, in Bankruptcy situations and Family Law, the Court can decide whether property is removed from the control of trustees.

Getting the help of experienced legal professionals is essential to ensure a fair and legally sound outcome.