The Federal Circuit and Family Court has jurisdiction in any matter arising out of a property settlement under the Family Law Act 1975 (Cth) where one of the parties is a bankrupt. This means that a trustee of a bankrupt can apply to become a party to proceedings in the Federal Circuit and Family Court if they can show the Court that the creditors’ interests will be affected.

When this occurs the bankrupt party is not entitled to make any submissions to the Court about property already vested in the trustee, other than with the permission of the Court and this is only granted in exceptional circumstances.

No priority is given to the creditors of the bankrupt party over the non-bankrupt spouse and similarly, no priority is given to the non-bankrupt spouse over the creditors of the bankrupt party. In making any decision the Court must attempt to balance the interests of both parties.

Where property has been vested in the trustee for the bankrupt party, the Court has the power to order the transfer of this property to the non-bankrupt spouse. Once transferred the property is not available to creditors of the bankrupt party.