Most couples who purchase their home in joint names are registered as joint tenants. This is the most common form of joint ownership between married and de-facto couples.
If someone owns real property as a joint tenant with another person the law says that while that joint tenancy remains, the owners must be unanimous in any dealings with it. For example, one joint tenant cannot sell or mortgage their share of the property. Furthermore, if one joint tenant dies then the survivor becomes the sole owner of the property regardless of any provision in the will of the deceased joint tenant.
When a person is made bankrupt their property becomes the property of their trustee in bankruptcy (s58 Bankruptcy Act). There are some exceptions to this rule which include superannuation entitlements, property held as trustee for others, and certain tools of trade, motor vehicle and household property.
If one of them becomes a bankrupt that person’s assets are available to their trustee in bankruptcy to be sold to pay their creditors. Though the Bankruptcy Act is silent as regards to jointly owned real estate, the courts have held for many years that upon the bankruptcy of a joint tenant, their interest in real estate is converted to “tenancy in common” and their share of that real estate becomes the property of their trustee in bankruptcy.
This is deemed to be “an involuntary alienation” whereby the owner’s legal rights are severed. This was decided in Paten v Cribb (1862). The trustee in bankruptcy then will take action to sell the bankrupt’s interest in the property, usually by giving the other co-owner the opportunity to buy the bankrupt’s interest in the property.
If this is likely to produce an unfair outcome, it may be possible to bring proceedings under the Family Law Act. That gives the non-bankrupt spouse rights to seek to recover property from the trustee in bankruptcy. Our family law firm has involved in such situations on several occasions and, as in most legal matters, it is necessary to obtain expert advice if that situation arises.
Denis Farrar is a Family Lawyer at Farrar Gesini Dunn, Canberra Office.