Bankruptcy is often a scary, confusing process for individuals and loved ones. To help demystify the bankruptcy process, we will explain the impact on a Bankrupt and Partner.
Fact 1 – Assets and Income of a Partner that is not Bankrupt
If your Client goes bankrupt and their Partner does not, the assets and income of the Non-Bankrupt Partner do not form part of the bankrupt estate, that is, the Non-Bankrupt Partner retains his/her share of the property and income.
Example 1 – House property
- The Bankrupt and his Partner jointly own a property (50/50)
- The property is worth $800,000
- The mortgage debt is $500,000
- Assuming there are no other secured debts or selling costs, each party’s share of the equity in the property is $150,000 (($800,000 – $500,000)/2)
- The Bankrupt’s half share of the property is recovered by the Bankruptcy Trustee to pay the debts and costs of the bankruptcy
- The Non-Bankrupt Partner retains his/her share of the property.
Example 2 – Income
- The Bankrupt earns $110,000 (plus superannuation) per year
- The Partner earns $80,000 (plus superannuation) per year
- They share two (2) children (with income under the relevant dependant amount allowable)
- The Bankrupt would be liable to pay (on current indexed amounts and taxation rates) $7,093.43 over the course of the three (3) year bankruptcy ($2,364.48 per year)
- The Partner would retain his/her income, that is, it would not be payable to the bankruptcy
- The incomes are not combined for bankruptcy purposes
- The Bankrupt’s income liability is calculated on having two (2) dependents, not one (1) each
There are some qualifications to the above scenarios, including:
- The Bankrupt having an interest in assets that are registered to their Partner (such as a constructive or resulting trust claim)
- The Bankrupt diverting income to their Partner
- Assets that are transferred by the Bankrupt to their Partner prior to the bankruptcy as a preference, for less than fair value or to defeat the interests of their Creditors.
Every situation is different and it’s important to engage with a professional adviser before taking any action. To find out what the available options are, contact the SV Partners team on 1800 246 801 or via [email protected]
Article written by Jason Cronan (Director) – SV Partners Sunshine Coast