The bankrupt spouse and the jointly owned matrimonial home

One of the arguments for arranging for property to be held in trust, instead of giving or leaving it to the intended beneficiary outright, is that the property can be protected from being claimed by the beneficiary’s creditors. In bankruptcy, the bankrupt’s property vests in the trustee in bankruptcy, who is then supposed to dispose of it so that the proceeds can be applied towards the payment of the debts. The possible hardship that this can cause is where the bankrupt is one of two joint owners of the matrimonial home has been illustrated in a number of decisions by the courts. Essentially, what happens is that the trustee in bankruptcy will seek to have the entire property sold. The solvent spouse or former spouse living in the property will be unlikely to be able to buy a replacement property to live in with only half the sale proceeds.