Bankruptcy can have a substantial effect on matrimonial settlements and can break them.
Debt is a major cause of divorce and if bankruptcy follows and it is a genuine bankruptcy then the Trustee of whoever has gone bankrupt takes over their position and the powers of the Court to do with the finances and the family are very much affected by that.
Some people, however, bankrupt themselves in circumstances where they are probably not actually insolvent as a way of trying to prevent the matrimonial Court dealing with the assets. This kind of tactical procedure needs to be nipped in the bud. If, therefore, a spouse finds that their other half is going bankrupt in circumstances that are suspicious you need to act quickly, get involved in the bankruptcy and, if it has already happened, apply quickly to annul it. One reason for applying quickly is because bankruptcy costs can be substantial and the longer a Trustee is acting the more those costs could eat into matrimonial assets. One problem that spouses have is that they are not normally notified of an application for bankruptcy and may indeed not find out about it therefore for weeks, months or even longer after the bankruptcy has taken place but there is no real mileage in waiting once this information has come into your possession. Delay in dealing with a bankruptcy, once you know about it, can be dangerous.
Another scenario that occurs is that if somebody is made bankrupt after a matrimonial order has been made. Generally speaking, if a house or similar type of property is ordered to be transferred then, even if that transfer has not taken place, if the transferring spouse goes bankrupt that should not affect the position. It is not always the case with other assets and everyone needs to be careful if, during the course of matrimonial discussions, there appears to be a real possibility of bankruptcy ; negotiations need to factor that in as far as possible
Even more difficult are situations where, for example, the matrimonial home has been ordered to be retained by one spouse until the children grow up or until that spouse re-marries or co-habits. That means that the other spouse has to move out and wait for their share until one of these “trigger events” occurs. This kind of arrangement is not binding on a Trustee in Bankruptcy. Therefore while you might feel safe living in the house for many years because you have control over these trigger events if your ex-spouse goes bankrupt between the making of that order and when (s)he would get the property anyway, the Trustee can still move in and sell the property. It has even been said that sometimes it is better to accept an outright transfer of a smaller amount than have one of these delaying orders if there is a whiff of bankruptcy in the air.
This is a complex area that needs expert advice and hopefully the above will give a few pointers.
Faye Remnant is part of our Family Law team based in Loughborough; our Solicitors in Loughborough are experts in their fields and dedicated to quality client care. If you would like to find out more about our solicitors in Loughborough please contact us.Talk to our legal team
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