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"Insolvency and Divorce" by Tony Roe
10 June 2010 :: Newbury Business Today

Personal insolvencies in England and Wales are at an all-time high, according to figures published for the first quarter of 2010. The government’s Insolvency Service says personal insolvency has increased for the ninth consecutive quarter and has hit the highest level since records began.

Sadly, personal insolvency issues often crop up in , if they are not a cause of, relationship breakdown and divorce. Such issues make achieving matrimonial settlement much more complex and uncertain.
Bankruptcy has reared its head in the high profile divorce case of Michelle and Scot Young. Reports referred to the announcement in April, by the property entrepreneur husband in the High Court case, that a bankruptcy petition had been filed against him for a little less than £2m by HM Revenue and Customs. The estimated assets were reportedly alleged by the wife to have been £400m some three years ago.

The effect of a bankruptcy order against a spouse, and the appointment of his or her trustee in bankruptcy, is to vest the spouse’s assets in that trustee. The bankrupt’s interest in, for example the jointly owned former matrimonial home, falls into the lap of the trustee. The trustee is not a party to the marriage and therefore no order for financial provision can be made against the trustee. As a result, the power of the matrimonial court to make financial provision against the bankrupt spouse for the benefit of the other is limited. Periodical payments, or maintenance, can be ordered but the amount of the bankrupt’s income available would be circumscribed by an income payments order made by the bankruptcy court.

In practical terms non-bankrupt spouses may find themselves negotiating with the trustee or considering whether or not their claim for financial relief should be adjourned until the bankrupt is discharged.

So if the court makes an order for financial settlement before one spouse goes bankrupt, is that safe from attack? This has been a fertile area for litigation over the years. Under the Insolvency Act 1986, the trustee can challenge a property adjustment order in a number of ways, including arguing that it was a transaction at an undervalue, or was a preference. In the recent case of Haines v Hill, the Court of Appeal considered the appeal of a former wife where the trustee had had the property transfer set aside. The appeal court decided to uphold the matrimonial settlement as long as the property adjustment order had actually been made, decree absolute obtained, there was no dishonest collusion between the former couple and there was, what is known as “consideration”, (a concept essential to the validity of a contract, other than one made by deed).Of course, circumstances alter cases and proper specialist advice should be taken.

There were 35,682 individual insolvencies in England and Wales in the first quarter of this year, an increase of 17.9 per cent on the same period last year. The likelihood is that, sadly, a significant number will be linked with divorce issues in one way or other.

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