Nothing is more disheartening than filing for bankruptcy. Upon confirmation, the bankrupt’s property vests in the trustee. If claiming bankruptcy within a marriage, the non-bankrupt spouse can protect the legal and equitable interests of the bankrupt trustee through family law.

How to Begin a Property Proceeding

Should a trustee become bankrupt, they can seek an order of the portion of the property pool, to which the Court will determine what the existing property interests are. For the Court to alter any interest in the property, they must find that it is just and equitable.

Exempt from reach of a trustee is superannuation, household goods, tools of trade (worth up to $3,400), and motor vehicles (worth up to $6,850). Suppose a trustee has overseen a transfer of the property to their spouse six months before filing. In that case, they can choose to void preferences to other people over the interest of other creditors.

What to Do If You’re the Non-Bankrupt Spouse 

Some non-bankrupt spouses will benefit from the actions of the bankrupt spouse, especially in defeating creditors. However, they may find it challenging to keep assets away from the trustee, as it is up to family law to determine whether they’re better off discontinuing the proceedings. If so, the non-bankrupt spouse might be better off relying on their entitlement without having to consult the Family Law Act 1975.

The G Lemnos and Lemnos Incident

The case of G Lemnos and Lemnos is a leading example of the intersections between bankruptcy and family law. In 2009, the trustee involved in the G Lemnos and Lemnos incident appealed against property orders. These orders demanded that the former matrimonial home, vested in the trustee, be sold on the market, with net proceedings divided equally between the trustee and their spouse. Because the liabilities of both spouses exceeded the assets, there was no probable cause for the trustee to receive full payment of the debt.

The non-bankrupt spouse contributed directly to the maintenance of the marital home through income and contributions. On appeal, a ruling was decided that the interests of unsecured creditors didn’t prevail over the interests of the non-bankrupt spouse.

The non-bankrupt spouse argued that the trustee wasted assets by behaving recklessly and negligently concerning tax returns and acted wholly within his knowledge. Over 12 years, the trustee claimed outgoings on their primary residence, aiming to increase the property pool. However, the non-bankrupt spouse benefitted from the misconduct, as the Court found that it wasn’t just for them to escape all responsibility for failing to pay the direct tax.


As the sentiment goes, within a faltering marriage at the hands of bankruptcy, the bankrupt spouse will “take the good with the bad.” However, rallying for your rights shouldn’t have to be improbable with the help of a qualified family solicitor.
At Springfield Legals, our experience in family law disputes can help both parties come to an amicable resolution regarding separation and bankruptcy. Through a binding financial agreement (BFA) both parties can settle economic disputes justly and receive the appropriate court representation, should it come to a hearing.