Does bankruptcy affect divorce settlements

It could have a serious effect on financial settlements where the matrimonial home is transferred into the name of one spouse and the other spouse is later made bankrupt.

In the case of Hill v Haines, Mr and Mrs Haines had originally purchased their matrimonial home in joint names but following their divorce the Matrimonial Court ordered that it should be transferred into the sole name of Mrs Haines. Mr Haines was made bankrupt shortly afterwards. 

His trustee in bankruptcy, Mr Hill, sought an order overturning this so that Mr Haines’ creditors could benefit from his former interest in the house.

In the County Court, the trustee argued that Mrs Haines had not given sufficient value for the husband’s share in the property.

Mrs Haines argued that she had given up various claims against him and that the matter had already been dealt with by the Matrimonial Court. This court rejected the trustee’s argument and the property remained in Mrs Haines sole name.

The trustee appealed to the High Court where it was decided that the trustee was entitled to a half share in the family home because it considered that the transfer was not for proper value.

This decision was widely reported due to its potential impact on divorce proceedings. A decision by the Matrimonial Courts could be set aside if a former spouse was made bankrupt up to five years from the date of the transfer. This left the benefiting spouse in fear of losing the home for up to five years afterwards.

Mrs Haines appealed to the Court of Appeal. The court recently upheld the appeal, finding that Mrs Haines had given sufficient value because in the overall round of the divorce settlement, everything had been taken into account, and that on making the transfer the judge had considered the overall value of the parties’ contributions.

It should be noted that this only applies to formal orders made in divorce proceedings but not to informal settlements which have not been before a judge for approval. Informal arrangements could still be open to challenge by the trustee so it is advisable to seek professional legal advice.

* Paul Monaghan is a specialist in corporate recovery law with Blackett Hart & Pratt. He can be contacted on 0191-221 0898.