Bankrupt Spouses And Divorce
When a marriage breaks down it is often at a time of financial difficulty
. One of the spouses could well be faced with bankruptcy. The question will then arise as to what will be the effect of a bankruptcy order on the financial settlement and division of the family assets
On divorce everything owed by the spouses falls into one matrimonial pot. If one of the spouses is bankrupt his or her assets do not belong to them but to the trustee in bankruptcy. This is going to have serious implications for the other party as they are likely to have no claim on these assets as against the bankrupts creditors. The matrimonial pot for division is going to be much smaller.
The main matrimonial assets is likely to be the family home which will probably be jointly owned. Particularly where there are young children it is likely that the spouse caring for them will apply for an order that the home be transferred to her in order to provide a roof over the heads of the children. Although this may well be ordered against the other party in a divorce, the court cannot make a property adjustment order against that parties trustee in bankruptcy. The trustee in bankruptcy will own the half share of the property and must deal with it for the benefit of the creditors.
A bankrupt spouse will be unable to pay a lump sum or any maintenance for the children or spouse. He will have no assets to sell to realise money or anything which the court could order to be sold or transferred. The trustees will take any income for the payment of creditors and this will not be available for settlement on the other spouse.
So what can be done? The answer can only be to act quickly if there is the possibility of your spouse being declared bankrupt. Remember that some vindictive spouses will deliberately declare themselves bankrupt to frustrate matrimonial claims. If this seems possible or is threatened make an immediate application to the court so that financial orders can be made before the bankruptcy order. It would be possible for the trustee to apply to have the matrimonial order set aside but this is unlikely unless there are very substantial debts.
There have been cases where a spouse has deliberately filed for bankruptcy even though it is possible to show that he is not insolvent. Should this be the case it may be possible to apply to the court for the bankruptcy to be set aside. It may also be possible to show that notwithstanding the bankruptcy there are still funds available for the payment of maintenance.
Any pension owned by the bankrupt is an exception and does not pass to the trustee in bankruptcy. The court may therefore be able to minimise the effect of the bankruptcy by making a pensions sharing order transferring the benefit of the pension to compensate for other items.
If a spouse is awarded a lump sum in divorce proceedings, or if there are outstanding maintenance or court costs, these are provable in a bankruptcy. You will rank equally with other creditors but unlike them your spouse will not be released from liability for these amounts even when discharged from his bankruptcy.
Bankruptcy is now a ready option at times of financial difficulty and the affect is not as onerous as at one-time. Bankruptcy will have serious implications for a divorce settlement but with help from an experienced family lawyer it need not be a bar to a fair and proper settlement.
by: Andrew John
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