When a marriage breaks down, the assets of each party go into the pot of matrimonial assets to be divided between them as part of the financial settlement. But what if one party is bankrupt? In bankruptcy, most of the assets of the bankrupt person are no longer theirs. They are owned instead by the Trustee in Bankruptcy. This could have serious implications for the bankrupt’s spouse, as the pot of matrimonial assets could potentially be much smaller.
Moreover, in the case where the matrimonial home is jointly owned by the bankrupt and his or her spouse, the house cannot be transferred into the spouse’s sole name without the consent of the Trustee in Bankruptcy (this is likely to be given if the spouse buys the bankrupt’s share at a reasonable market value).
Further, as the income and savings of the bankrupt person will be controlled by the Official Assignee in Bankruptcy, any lump sum or periodic maintenance payments are unlikely to be forthcoming.
The effects of bankruptcy can be so serious that some people choose to make themselves bankrupt in order to frustrate or delay their spouse’s claims in relation to the financial settlement.
Ideally you need to try and agree on financial matters before the bankruptcy starts i.e. when bankruptcy is first mentioned. Swift action and an application prepared by your solicitor may allow appropriate orders for financial settlement to be made before a bankruptcy takes effect.
Even if the bankruptcy is already in effect, the bankrupt’s spouse may be able to apply to the Court to annul the bankruptcy if the bankrupt is not, in fact, insolvent.
In some cases, bankruptcy can work in the other spouse’s favour. Until recently, a person owed money as part of a divorce settlement could apply to make their former spouse bankrupt, but could not have that debt proved in that bankruptcy. The law allows such a debt, plus an award of costs in family proceedings, to be paid by the bankrupt as part of his bankruptcy.
Bankruptcy can still have serious implications for financial settlements on divorce, and legal advice should always be sought in circumstances where the bankruptcy of one of the parties is a real or possible risk.
At Yeo Law, our team of family lawyers can offer experienced and pragmatic guidance every step of the way to ensure that assets are preserved and maximised for the best outcome.