Do You Lose Your Property When Your Spouse Is Declared Insolvent?

Undoubtedly, insolvency have significant financial consequences for married couples, irrespective of their marital regime.

In a marriage of community of property, spouses’ assets, including movable and immovable property, and liabilities are pooled under a joint estate. As such, any debts incurred by one spouse generally accrue to them both. Accordingly, if one party is declared insolvent, the joint estate is placed under sequestration, irrespective of whether the spouses’ finances were managed separately. To avoid this, many couples choose to marry out of community of property, which allows them to maintain separate estates.

Couples married out of community of property retain their separate estates and do not share profits or losses. This is achieved through the careful drafting, attestation, and registration of an antenuptial contract in the Deeds Registry. Absent a signed suretyship agreement, individuals married under this regime are thus not responsible for each other’s debts.

This marital regime, however, does not prevent the property of a solvent spouse from being attached. Section 21 of the Insolvency Act (‘the Act’) regulates the legal position of a solvent spouse – married out of community of property – during the sequestration of an insolvent spouse’s estate. Under section 21 of the Act, the property of the solvent spouse vests in the Master of the High Court, and thereafter, in the trustee of the sequestrated estate, as though it were property of the insolvent spouse. This is to prevent collusion between spouses to protect assets from creditors.

Fortunately, the solvent spouse is not without legal recourse. They may apply to court for the temporary release of their property. If successful, the solvent spouse must – within the period specified by the court – depose to an affidavit and provide the trustee with evidence to support their claim to the property. The trustee is then required to confirm, in writing, whether they will release the property. Upon application to the trustee for the permanent release of the property, the solvent spouse must prove that they owned the property before the marriage, acquired it under a marriage settlement, or purchased it during the marriage with their own earnings. If they cannot prove this, they may need to apply directly to the court for release.