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This article explores the effect of recent legal developments on the division of the family home in the context of bankruptcy of a spouse or de facto partner. While the traditional approach to division has been to determine the bankrupt's beneficial interest in the home (which vests in the trustee in bankruptcy), amendments to the Family Law Act 1975 (Cth) ('FLA') in 2005 now give family law courts jurisdiction to determine this issue, where there are FLA property proceedings on foot, using a structured statutory discretion under s 79 of the FLA. The authors examine the possible approaches that are now open to courts following these amendments. They argue that decisions of courts exercising both FLA and traditional bankruptcy jurisdiction suggest confusion about the appropriate principles to apply and that this has produced uncertain and sometimes questionable case outcomes. The authors call for further legislative reform that achieves greater clarity of principle and leads to the achievement of more just and equitable outcomes.
I The Issue
In Australia, the owner-occupied home remains something of a cultural icon - the 'Great Australian Dream' - having ongoing psychological and emotional, as well as financial, significance.1 Home ownership, while increasingly difficult to achieve, 'is the most common and most desired form of housing in Australia'.2 The family home is the asset most commonly divided on spousal and de facto partner relationship breakdown,3 and more broadly, its fate is likely to be an issue of crucial importance when financial adversity strikes.
In this article, we explore the issue of how the family home is divided when a spouse (used throughout to include a de facto partner) becomes bankrupt with unsecured liabilities that are at least partly paid through sale or buy-out by the non-bankrupt spouse of the bankrupt spouse's interest in the family home.4 The Federal Court of Australia ('Federal Court') and, from 2000, the Federal Circuit (previously Magistrates) Court of Australia ('Federal Circuit Court') (collectively referred to in this article as 'generalist federal courts') have traditionally had jurisdiction in disputes involving beneficial ownership of the family home in a bankruptcy context.5 But following amendments to the Family Law Act 1975 (Cth) ('FLA') in 2005,6 it is now the Family Court of Australia ('Family Court'), the Family...