Bankrupt Spouse in a Property Settlement

What happens if your Former Spouse becomes Bankrupt 

One of the parties becoming bankrupt does affect the way a Court has to deal with property division.

Trustees in Bankruptcy are able to become a party to a property settlement dispute between couples.

When a person becomes bankrupt, the majority of their assets are then held by (vested in) the Trustee in Bankruptcy.

A bankrupt person is allowed to keep some assets however.

Examples of some assets a person who becomes bankrupt is allowed to keep includes:



  • Motor Vehicles up to a certain value;
  • Life Insurance Policies;
  • Superannuation Policies;
  • Tools of trade up to a certain value;
  • Household items.

The Court making the Trustee in bankruptcy a party to the property settlement application, enables the Court to consider the rights of creditors as well as the rights and entitlements of the other spouse.

The Court has the power to set aside any property settlement agreement or order made when one of the parties was bankrupt or about to become bankrupt.


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