Under the Family Law Act married couples may enter into binding financial agreements during the course of their marriage. However there are circumstances in which a court may set aside these agreements. One of these circumstances is where a party to the agreement entered into it for the purpose of defrauding or defeating a creditor of the party. But what if one of the parties becomes bankrupt? A recent decision of the Federal Circuit Court explored this scenario.
In Bloomfield & Grainger & Anor a wife, before becoming bankrupt, entered into a financial arrangement which transferred her interest in a property to her husband. A judgment creditor of the wife sought to have this financial agreement set aside.
Judge Cassidy determined that a creditor of a bankrupt person had standing to set aside a financial agreement made between a husband and wife, rejecting the husband’s application to have the case summarily dismissed. In finding that the applicant was a creditor for the purposes of s90K(1)(aa) of the Family Law Act and therefore had standing to set aside the financial agreement, the Judge accepted the submissions that a creditor does not cease to be a creditor when the debtor becomes bankrupt.
However it is important to note that the husband was successful in arguing that the only basis upon which a creditor can set a side financial agreement is where the purpose of the financial agreement included defrauding or defeating creditors of the wife. The creditor could not rely on the failure of the wife to obtain independent advice to have the financial agreement set aside.
What does this mean for the property in question? The husband submitted that setting aside the agreement would return the parties to a status quo where the wife’s trustee in bankruptcy would take the property encumbered with a mortgage. Therefore the utility of proceeding was not obvious in terms of a remedy for the creditor. However the creditor argued that s90K(3) is of a broader nature and sought an order that the husband transfer the property to the wife’s bankrupt estate free from mortgage or pay the market value of the property at the date of transfer.
Our Cairns Divorce Lawyers or Townsville Divorce Lawyers can assist with all areas of family law. For a confidential discussion with one of our experienced divorce lawyers, please contact us today.
Reference: Advantages Of Bankruptcy Lawyers