How Sequestration Affects Jointly Owned Property and Spouses

Sequestration can feel overwhelming, especially when you share a home, vehicles, or other assets with your spouse. Many people worry about what will happen to jointly owned property during sequestration, and whether their partner’s estate will also be affected. The outcome depends heavily on the matrimonial property regime and the rules set out in the Insolvency Act. Understanding these rules early can help you protect your rights and prepare for what lies ahead.

What Sequestration Means for Married Couples

Sequestration is a legal process that applies when a person is unable to pay their debts. Their estate is handed over to a trustee who takes control of their assets and uses them to pay creditors in a structured and lawful way. What happens to the spouse depends largely on whether the marriage is in community of property or out of community of property.

Married in Community of Property

Marriage in community of property creates a single joint estate. All assets and debts are shared equally, regardless of who acquired them. For this reason, if one spouse’s estate is sequestrated, the entire joint estate is sequestrated at the same time.

This means:

• All assets in the joint estate, including jointly owned property, can be sold by the trustee.
  
• Both spouses effectively become part of the insolvent estate.
  
• The solvent spouse also loses control over the joint estate and cannot deal with assets independently.

This type of marriage creates both shared benefits and shared risks. If one spouse incurs significant debts, both spouses are exposed because creditors can claim against the joint estate. Sequestration, therefore, affects both partners equally when married in community of property.

Married Out of Community of Property

When spouses are married out of community of property, each person has a separate estate. On the face of it, this offers strong protection to the spouse who is not insolvent. Their estate does not automatically form part of the sequestrated estate.

However, the Insolvency Act requires that the property of the solvent spouse temporarily vests in the trustee until it is proven that the property truly belongs to the solvent spouse. This is a crucial legal safeguard that prevents individuals from transferring assets between spouses to evade creditors.

During this process:

• The solvent spouse must prove ownership of their assets. Valid evidence may include purchase records, bank statements, inheritance documentation, and receipts.
  
• Once the court is satisfied that the property belongs to the solvent spouse, it can be released from the insolvent estate.
  
• Property that cannot be proven to belong solely to the solvent spouse may be treated as part of the insolvent estate and used to pay creditors.

Jointly Owned Property

Joint ownership does not protect an asset from sequestration if one spouse becomes insolvent. A jointly owned home, vehicle, or investment is at risk if the insolvent spouse’s share must be realised.

The trustee could therefore sell the jointly owned property, and then divide the proceeds between the insolvent estate and the solvent spouse according to their respective ownership shares. 

In practice, this often means the entire property is sold, because selling only one person’s share is usually not possible or financially viable. The solvent spouse may have the opportunity to purchase the insolvent spouse’s share, but this depends on the trustee, the creditors, and available funds.

What a Solvent Spouse Should Do During Sequestration

If your spouse is facing sequestration, it is important to act quickly. You should:

• Collect proof of ownership for all assets you consider to be part of your separate estate.
• Avoid transferring assets or making unusual financial transactions, as these may be scrutinised.
• Consult with an attorney who is experienced in insolvency matters.

Preparation is key. The more organised you are, the easier it becomes to protect what rightfully belongs to you.

Final Thoughts

Sequestration affects couples differently depending on how they are married and how their property is held. It can have a significant impact on jointly owned property and can temporarily affect the estate of a solvent spouse. By understanding your rights and responsibilities, you can navigate the process with greater clarity and protect your interests.
If you or your spouse is considering sequestration, speak to us at Cawood Attorneys. The right guidance from an experienced attorney can help ensure that the process is handled correctly and that your estate is protected as far as the law allows.