Can a Bankrupt Get a Divorce? How are Assets Divided & More

Divorce is a rather complicated process on its own, sometimes made more complicated by the bankruptcy of one spouse.

In summary, if a person owes at least $15,000, either him or his creditors (such as the bank he owes money to) can apply to the court to have him declared bankrupt via a bankruptcy order.

Once a person is declared bankrupt, his valuable assets will be put into a bankruptcy estate. Such assets may include jewellery, vehicles, furniture, amongst other things. This estate is managed by the Official Assignee (OA), who is an officer assigned by the court to distribute the bankrupt’s assets amongst creditors.

However, not all assets can be vested in the OA. Some assets, such as CPF money, your HDB flat (if at least 1 owner is a Singapore Citizen), and your annual bonus are protected under the Insolvency, Restructuring and Dissolution Act.

Can a Bankrupt Undergo Divorce Proceedings? 

Yes, a bankrupt can both commence divorce proceedings and have divorce proceedings commenced against him.

Is the permission of the OA necessary for the commencement of divorce proceedings?

No, a bankrupt does NOT need the OA’s permission to initiate divorce proceedings, or to defend himself against divorce proceedings brought by his spouse.

However, the bankrupt’s lawyer must notify the OA of the divorce proceedings no later than 3 days before the start of proceedings. If you do not have a lawyer, your spouse’s lawyer will have to notify the OA about the divorce proceedings.

Division of Matrimonial Assets When One Spouse is a Bankrupt 

1. Calculation of total value of matrimonial assets

First, the court will calculate the total value of the parties’ matrimonial assets.

Matrimonial assets are assets acquired, used or substantially improved by one or both parties over the course of a marriage. They exclude assets received as gifts or inheritance. Common examples of matrimonial assets would be the family car, shares, and jewellery.

When one spouse is bankrupt, some of their matrimonial assets will have vested in the OA (as mentioned above). However, such vested assets will still be included in the court’s calculations for the total value of the matrimonial assets.

2. Deciding the base ratio for the division of the parties’ matrimonial assets

The court will then decide on a base ratio for the division of the parties’ matrimonial assets.

This is done by analysing factors such as the duration of the marriage and each spouse’s financial and non-financial contributions towards the acquisition or improvement of the matrimonial assets (including the vested assets).

For example, in longer marriages, the court may decide to split the parties’ matrimonial assets 50:50.

In general, the court will not take bankruptcy into account when deriving the base ratio.

3. Division of the parties’ matrimonial assets

After deciding on the ratio of the division of the matrimonial assets, the court will check whether the bankrupt spouse has sufficient non-vested assets to satisfy the share awarded to the non-bankrupt spouse.

This is because the court cannot divide the bankrupt spouse’s vested assets in order to satisfy the non-bankrupt spouse’s share of the matrimonial assets. Under the law, the court only has the power to divide assets that belong to the parties to a marriage. Since the OA is not a party to the marriage, assets vested under him cannot be divided by the court.

For example, assume that a divorcing couple’s entire matrimonial asset pool is valued at $400,000, consisting of their $200,000 family HDB flat, the bankrupt husband’s CPF monies of $100,000 and his personal bank account funds of $100,000.

While the bankrupt husband’s personal bank account funds have vested in the OA, the parties’ HDB flat has not because the parties are Singapore Citizens. The bankrupt husband’s CPF monies also do not vest in the OA.

If the court has ordered a 50:50 split of their matrimonial assets, the wife would be entitled to $200,000. The court can then order for the family HDB flat to be transferred to the wife to satisfy her 50% share while the husband retain his $100,000 CPF monies.

Since the parties’ non-vested assets (the HDB flat) are sufficient to satisfy the wife’s share, the court would end its division process here. This is although the husband is not able to get the full amount of his share of the assets.

However, if the non-vested assets are insufficient to satisfy the non-bankrupt spouse’s share of assets, the non-bankrupt spouse might get much less than what he/she would have received if the vested assets had been included in the pool of dividable assets.

For example, using the same situation above, if the bankrupt husband’s personal bank account funds consisted of $200,000, then the total value of the matrimonial asset pool would be $500,000. Under a 50:50 split of the matrimonial assets, the wife would then be entitled to $250,000. However, transferring only the parties’ $200,000 family HDB flat to the wife would not be sufficient to fulfil her share of the matrimonial assets.

In this situation, the non-bankrupt spouse may desire for vested assets to be included in the pool of divisible matrimonial assets so that he/she can get a larger amount of money.

When the non-bankrupt spouse wants more assets to be divided to fulfil his/her share of the matrimonial assets 

In order to re-vest certain assets in the bankrupt spouse such that these assets can be part of the pool of matrimonial assets, the only thing the non-bankrupt spouse can do is to secure an annulment of the bankruptcy order.

An annulment means that the bankrupt’s name would be immediately removed from the bankruptcy register, and that he would be treated as though he had never been declared bankrupt.

An annulment can be secured in 2 ways, by either:

1. Showing that the bankruptcy order should not have been made in the first place (e.g. by proving that the bankrupt spouse was not insolvent at the time of filing for bankruptcy); or
2. Paying off the bankrupt spouse’s debts.

If the non-bankrupt spouse is unable or unwilling to do either of these things, he/she will have to defer the proceedings for the division of assets until the bankruptcy order is annulled, either upon the application of the bankrupt spouse, or by or upon the application of the OA. Only then can the assets that were vested in the OA be re-vested in the bankrupt spouse and then be divided among the spouses.

There are certain exceptional cases where the court may order for the proceeds of the non-vested assets to be used to annul the bankrupt spouse’s bankruptcy.

In the case of AVM v AWH, the bankrupt husband was deemed to be entitled to 40% of the matrimonial assets and his wife, 60%. In order to make up the wife’s full 60% share, the husband had to transfer certain of his assets to her. This was initially not possible as those assets had vested in the OA.

However when one of the couple’s houses was sold, it was found that the husband’s 40% share of the proceeds came up to around $119,000, which was very close to the value of the husband’s $123,000 debt.

In light of this, the court held that the husband’s $119,000 share of the proceeds should be used to pay off his debt and annul his bankruptcy. This was so that his wife could be entitled to his vested assets, and would thus be able to claim her full 60% share.

However, do note that this was an exceptional case, and that it is not ordinary for a judge to make orders that affect the rights of a bankrupt person’s creditors.

Will a Bankrupt Still be Ordered to Pay Maintenance?

Yes, a bankrupt must still pay maintenance to his/her former spouse or children as mandated by the court. If you are bankrupt, your lawyer will have to seek your OA’s approval for the amount of maintenance payable per month before the court issues an order.

After the court issues the order, the maintenance payable will be added to the amount your OA deducts from your salary every month to distribute to your creditors.

Can a Bankrupt be Granted Sole/Joint Custody and Care and Control of the Child?

Yes, a bankrupt can be granted custody and care and control of a child.

“Custody” refers to the long-term decision-making in a child’s life and can be granted to both parents (i.e. joint custody) or only one parent (i.e. sole custody).  On the other hand, “care and control” refers to the day-to-day decision-making in a child’s life and is granted to only one parent.

When making orders on custody and care and control, the court’s primary and overriding consideration will always be the welfare of the child. In general, joint custody is the norm since it would be in the child’s best interests to have the direct involvement of both parents in his/her life.

Sole custody orders are only warranted where it would not be in the child’s best interests for one parent to be involved in long-term decision-making for the child. This could be where the parent is abusive for example.

As a result, bankruptcy on its own will not preclude you from getting custody and care and control over your child. Even if you are bankrupt, you may still be awarded custody and care and control if the court decides that this will be in your child’s best interests.

In the case of AVM v AWH mentioned above, the court decided to grant sole custody of the parties’ children to the wife. This was not because the husband was a bankrupt, but because of his previous convictions for drug use and how he led a promiscuous lifestyle. These factors suggested that he had poor ability to make long-term decisions for his own welfare and by extension, for his children’s welfare as well.

Transfer of HDB Flat Belonging to Bankrupts after a Divorce

Before a bankrupt can transfer their ownership of an HDB flat to their former spouse after the divorce, they will need to get the OA’s consent for the change in flat ownership.

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In summary, while bankrupts may undergo divorce proceedings, their status as a bankrupt may have implications on how the parties’ assets are divided.

Bankrupts may also still be required to pay maintenance for their former spouse and children. However, they are not automatically ruled out from getting custody and care and control of their children.

Finally, they will need to get the OA’s consent before they can transfer their ownership of an HDB flat to their former spouse after the divorce.

If you are bankrupt, or are the spouse of a bankrupt, and are going through a divorce, you may want to discuss your options with a divorce lawyer.

A divorce lawyer will be able to advise you on important aspects of divorce such as the division of assets, maintenance and custody, specifically in the context of one spouse’s bankruptcy.