Court wrong to transfer husband’s half share in matrimonial home to wife after he was made bankrupt
Bankruptcy is unfortunately an issue that crops up quite frequently in connection with financial settlements on divorce.
And just how bankruptcy can affect a divorce settlement, in particular in relation to the former matrimonial home, was demonstrated by a recent case that took place in the High Court in London.
The case concerned an appeal by a husband against a financial remedies order providing for him to transfer to the wife his half share in the former matrimonial home. The property had an agreed value of £1.5 million, so the husband’s half share was worth £750,000, as the property was mortgage-free.
The order was made on the 4th of March 2020. Its effect was to leave the wife with roughly 80 per cent of the parties’ capital. The husband appealed, claiming that this division was unfair.
But the real issue was that the husband had been made bankrupt by a bankruptcy order made on the 26th of February 2020, just six days before the financial remedies order was made. The effect of the order was to pass the husband’s assets to his Trustee in bankruptcy, who would use them to pay the husband’s debts.
The husband had in fact concealed from the wife and the court that bankruptcy proceedings had been commenced against him some five months earlier (he only revealed the existence of the bankruptcy order on the day that the financial remedies order was made). As Mr Justice Peel, hearing the appeal, said, had the husband revealed the bankruptcy proceedings earlier, it is likely that the judge would have endeavoured to hand down judgment earlier, and make an order earlier, such that the wife would have received 100% of the former matrimonial home prior to the bankruptcy order.
Mr Justice Peel also commented: “It is hard to resist the conclusion that [the husband] acted in this way deliberately to leave [the wife] and the court no opportunity to prevent the bankruptcy taking its course.”
But the bankruptcy order had been made prior to the financial remedies order. Accordingly, the order for the husband to transfer his share of the former matrimonial home to the wife was wrong, because there was no share to transfer, as by the date of the order it has passed to the husband’s Trustee in bankruptcy.
In the circumstances Mr Justice Peel discharged the order for the husband to transfer his share of the former matrimonial home to the wife. He did, however, order that the wife should receive any surplus from the husband’s half share in the property, after payment of the Trustee’s costs and all sums paid to creditors under the bankruptcy.
There are two things to be taken from this case:
Firstly, that if a spouse is made bankrupt before the final financial remedies order then the other spouse may lose their claim to the bankrupt spouse’s assets, as those assets will be passed to the Trustee in bankruptcy and used to pay the bankrupt spouse’s debts.
Secondly, that if your marriage has broken down and you have reason to believe that your spouse may be made bankrupt (or simply that they are unable to pay their debts), then you should inform your lawyer immediately.
You can read the full report of the case here.
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