When family finances and insolvency collide

By Chris Baskerville, Partner, Jirsch Sutherland

It was a typical setup: a husband and his wife jointly owned their family home, the husband ran a business through a company structure, and there was little separation between personal and business finances. Over time, company funds were used to help pay down the mortgage. However, when the business went under, those blurred lines became a major issue. The company was placed into liquidation, the Liquidator identified that company funds had been used to pay down the family’s personal asset, and a caveat was subsequently lodged over the property. It was a devastating outcome that turned a commercial failure into a personal and emotional ordeal.

It’s a scenario we see all too often, especially with family-owned businesses or where there’s a mix of personal guarantees, informal decision-making and emotional entanglements. Navigating these situations takes not just technical expertise, but care, clarity and an understanding of the human toll involved.

Legal overlap in practice

The intersection between the Family Law Act, Bankruptcy Act and Corporations Act is becoming increasingly important – and complex. In a recent presentation, I explored three of the most common crossover points between family law and insolvency law:

1. After a binding financial agreement – Section 90K of the Family Law Act: Used to set aside a binding financial agreement (often referred to as a pre-nup) under certain circumstances, including fraud or non-disclosure.

2. Before a binding financial agreement or final orders (post-nup) – Section 79: Governs property settlement orders and is relevant before a financial agreement or final orders are made.

3. After final orders – Section 79A: Allows for setting aside final property orders, such as where there has been a miscarriage of justice due to false evidence or suppressed facts.

 Each point represents a legal flashpoint where insolvency proceedings can disrupt even carefully negotiated family agreements – often years down the track.

Four common scenarios we see:

Here are four of the most frequent – and complex – examples we deal with:

1. Bankruptcy of a spouse in a jointly owned property
If one spouse goes bankrupt, their 50 per cent interest in the jointly owned property vests in the Bankruptcy Trustee, who may then lodge a caveat or transmit title to protect and realise that interest.

2. Bankruptcy of a spouse where the non-bankrupt spouse owns 100 per cent of the property
Even if one spouse legally owns 100 per cent of the family home, the Trustee may assert a constructive or resulting trust over the ‘real property’ if the bankrupt spouse has made contributions. The Trustee then places a caveat over the property.

3. Liquidation of a company that contributed to real property
If a company has made payments towards a director’s family home – such as covering mortgage repayments – and the property is jointly owned (e.g., by a husband and wife), the Liquidator may place a caveat over it. The Liquidator can argue that the property was unjustly enriched by company funds. This step helps preserve the company’s potential interest while further investigations are carried out and recovery is considered.

4. Liquidator appointed to a company that forms part of the matrimonial asset pool
When a company owned by one spouse is placed into liquidation, and the couple jointly owns real property (such as the family home), the Liquidator may seek to intervene. This can occur where the Liquidator identifies loan accountants, instances of insolvent trading, or other transactions involving company funds and personal assets. The Liquidator may argue that the company has an interest in the property – e.g., due to contributions made towards mortgage repayments – and can place a caveat on the property to preserve that interest while potential recovery actions are explored.

Tips for accountants advising clients:

Whether you’re advising a family-run business or an individual, there are some key steps to help avoid these issues:

For Individuals:

• Separate the risk (business) from the asset (family home)
• Take time to structure both the business and any personal property acquisitions wisely
• Understand and document the flow of funds that lead to major asset purchases
• Consider the tax and liability implications at the same time

For Companies:

• Avoid direct company payments to personal or family-related assets (like the director’s mortgage)
• Choose shareholders carefully
• Maintain clear records to show where company funds are going — and why

A delicate balance

Ultimately, family businesses are about people, not just profit and loss. But when insolvency strikes, the law steps in regardless of personal intentions or past informality. That’s why early intervention, professional advice, and clear boundaries between personal and business finances are key. At Jirsch Sutherland, we’re here to guide families and their advisers through these difficult times, with a focus on protecting both financial outcomes and family relationships wherever possible.

Chris Baskerville
Partner | Registered Liquidator | Registered Bankruptcy Trustee
Jirsch Sutherland