Much has been written in the past about the new relationship between trustees in bankruptcy and parties in Family Law proceedings. Less has been written about how that relationship currently works when it is a de facto relationship that is breaking up, not a marriage. Our Brisbane office recently had to get involved is such a dispute.
The bankrupt entered into a de facto relationship that ended about 6 months before the bankruptcy. A child was born in the relationship which added a child support component, but the trustees did not have to get involved in that area at all.
The bankrupt had significant assets in his name at the time of bankruptcy, and the de facto had none. Shortly after the bankruptcy, all of the assets were realized by a secured creditor so only money was held. By the time of the bankruptcy, an application had been made to the Supreme Court under Part 19 of the Property Law Act 1974 for property adjustment orders. The terms of the application proved problematic to the de facto.
Upon bankruptcy, all of the bankrupt’s property vests in the trustee (section 58 of the Bankruptcy Act). Due to this vesting of the only assets, the Supreme Court could not make the type of property adjustment orders sought in the application. Another direction had to be taken.
Section 119 of the Bankruptcy Act excludes property held in trust from the definition of divisible property available to trustees. The de facto could seek a determination from the Court that the bankrupt held the property on trust for him and her in some shares. Any share attributed to the de facto would be safe from the trustee’s hands and, as the assets had been realized shortly after the bankruptcy, the value of the disputed property was quantified.
The question then arose as to how much of the outstanding unsecured debt was incurred during the relationship and gave a benefit to the de facto and child, and how much was incurred after the relationship ended and only benefited the bankrupt. If the outstanding debts had benefited the de facto, it would be equitable that some of her share of the property be used to satisfy them.
That question was simply answered as all of the outstanding unsecured debts were incurred after the breakdown of the relationship and none benefited the de facto or the child. All secured debts related to property owned before or during the relationship and had been satisfied.
Settlement was able to be reduced to a negotiation on what percentage of the property would be attributed to the de facto. Our legal team was able to calculate a percentage range and the matter was settled within that range. Considering that expected legal fees to take the matter to court were in the vicinity of 15% of the property pool, it was an acceptable result for all concerned.