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Your assets may not be safe from a bankrupt ex spouse

The issue

The High Court and Court of Appeal have confirmed that divorce financial orders and agreements may not be safe from creditors, should one of the parties consequently become bankrupt.  The ex spouses of at least 20% of the 120,000 people expected to file for bankruptcy this year, may be affected by these rulings.

Although the High Court decision is to be appealed, the warning is clear.  The arrangements made in divorce settlements may not be protected from the interests of the creditors of a bankrupt former spouse.

The consequences

 If a spouse becomes bankrupt, a court can now overturn:

  • an order made in divorce proceedings
  • an agreement made in a consent order

to ensure that creditors recover sufficient money to meet debts.

This means that former matrimonial assets can be used to settle a bankrupt ex spouse’s debt.  The rule has wide ranging implications.  Most alarming is that the courts can set aside an order transferring property from one spouse to another.  The courts can do this up to five years after the order was made, if the ex spouse was insolvent at the time, or up to two years even if the ex spouse was solvent at the time.

Also, if a financial settlement states the sale of the jointly owned matrimonial home is to be postponed until certain events occur, such as remarriage, the courts will now allow a trustee in bankruptcy to apply for the property to be sold to pay off the bankrupt ex spouse’s debt.

So what happens next?

The High Court decision is to be appealed but the general consensus among legal commentators is that the decision will stand. If you need further information or pragmatic, expert advice about this issue contact FSI’s team of family lawyers , headed up by partner: Alan Kaufman.

Read details of the High Court and Court of Appeal cases

Information in this e-alert is a guide only. We recommend that you seek professional advice before taking or refraining from any action. No liability accepted by the firm for any action taken or not taken as a result of this publication.