Bankruptcy and Alimony in Australia: Understanding Your Legal Protections

This article will explore the legal protections and considerations surrounding alimony, also known as spousal maintenance payments, in Australia when one party is facing bankruptcy. Understanding how bankruptcy impacts alimony payments and the legal safeguards in place is crucial for individuals involved in such situations.

At the Bankruptcy Advisory Centre, our expert team is well-versed in the intricacies of bankruptcy law regarding alimony payments, child support, and other family matters. We approach these issues sensitively and carefully to ensure the best outcome for all parties involved.

Alimony and Spousal Maintenance in Australia

Alimony, also known as spousal maintenance, refers to financial support payments from one spouse or partner to another following separation or divorce. These payments are intended to assist the recipient in maintaining reasonable living expenses and financial well-being, especially when they have a lower income or fewer assets than the paying party. These payments are separate from child support, and you can read more about child support and bankruptcy in our article entitled “Bankruptcy and Child Support.”

Bankruptcy and Alimony Payments

When one party in a divorce or separation is declared bankrupt, it can have significant implications for alimony payments. Here are key considerations:

• Priority of Payments: Alimony payments are generally considered an unsecured debt and do not have the same priority as other debts relating to family, such as child support payments in the bankruptcy process. This means that other creditors may have a higher claim priority on the bankrupt party’s assets and income than the spouse or partner seeking alimony payments.
• Trustee’s Role: A bankruptcy trustee is appointed to manage the bankrupt party’s affairs during the bankruptcy process. The trustee will assess the bankrupt’s financial situation, including alimony obligations, and determine how to distribute available funds to creditors.
• Protection of Alimony Rights: To protect the rights of the recipient of alimony payments, certain legal safeguards are in place:
• Proof of Claim: The recipient has the right to lodge a proof of claim with the trustee to assert their entitlement to alimony payments as a creditor.
• Objection to Discharge: The recipient can object to the bankrupt party’s discharge from bankruptcy if they believe that alimony arrears should not be discharged.

Obligation to Continue Payments 

The bankrupt party’s obligation to continue making alimony payments may vary depending on the circumstances and the court’s orders. In some cases, the court may issue an order requiring the bankrupt party to continue making these payments despite bankruptcy. In this case, the bankruptcy trustee will consider these court-ordered payments.

Therefore they are not discharged by the bankruptcy process and must continue to be paid.

Court Orders and Agreements: Bankruptcy and Alimony

Court orders and financial agreements made during divorce or separation proceedings may impact alimony payments during bankruptcy. It’s essential to review and understand the terms of these orders or agreements and seek legal advice if necessary.

Protecting Your Alimony Rights

If you are the recipient of alimony payments and are concerned about the impact of your spouse or partner’s bankruptcy on your entitlement, you should consider the following steps to protect your rights:

• Lodge a Proof of Claim: Ensure that you promptly lodge a proof of claim with the bankruptcy trustee overseeing your spouse or partner’s proceedings. This formal document asserts your right to receive alimony as a creditor.
• Seek Legal Advice: Consult with a family law attorney specialising in divorce and bankruptcy cases. They can guide you in navigating the complex legal landscape and protecting your alimony rights.
• Review Court Orders and Agreements: Carefully review any court orders or financial agreements related to alimony. These legal documents may contain provisions that clarify the treatment of alimony payments in bankruptcy.
• Lodge an Objection to the Discharge: If you believe that alimony arrears should not be discharged in bankruptcy, consider objecting to the bankrupt party’s discharge with the trustee and seeking legal representation for this process.

Bankruptcy can have significant implications for alimony payments, but legal protections are in place to safeguard the recipient’s rights. Understanding your entitlement, asserting your claims, and seeking legal advice to protect your alimony rights during bankruptcy proceedings is essential. Consulting with legal professionals specialising in family law and bankruptcy can provide valuable guidance and support in these complex situations.