What happens when your partner goes bankrupt?

What does it mean for you when the unthinkable happens — your partner or spouse is made bankrupt?

The basics of bankruptcy are that when a person is bankrupt, whether by their choice or forced by court order, it means they cannot pay their debts. Another person called a trustee takes control of the bankrupt person’s income and assets and uses these to pay off debts that they owed to creditors.

For you this means that if you have joint loans or have guaranteed a loan together, it can mean you taking full responsibility for these debts, not just for ‘half’.

If you own property with a bankrupt partner, the trustee will almost certainly want to sell the jointly owned property and most likely to you. If you cant afford to buy the property, the trustee will sell it and you will be paid for your ownership from the proceeds.

The silver lining is the possibility that you could have a claim to ownership over property that your partner owns solely in their name. For example, if your partner owns a home in their name and you both set out to build a life together in that home. Over the course of your relationship you make payments toward the purchase price or mortgage, or you carry out all homemaking duties and raising the kids.

In legal terms this is known as a constructive trust which recognises that it would be against good conscience to deny you having a right of ownership in the property given your contribution.

Sadly, I have seen family businesses fail leading to one partner being made bankrupt and the family home being sold. It is absolutely key that you seek legal advice as soon as possible so that you can protect any property you own or put the trustee on notice that you have a right to own property that your partner has only in their name.

OFRM business lawyers can assist you to negotiate your claim for ownership in the event of your partner’s bankruptcy. Contact Lachlan Edwards on 0427 916 442.