Archive for October, 2010

Bankruptcy and Divorce

Sunday, October 3rd, 2010

The bankruptcy or threatened bankruptcy of a spouse during divorce proceedings can be worrying, but there is some protection for the non bankrupt spouse:

  • Property owned in the sole name of a non bankrupt spouse cannot be used to pay off the bankrupt spouse’s creditors;
  • Courts can order the sale of jointly owned property, such as the matrimonial home. If this happens the non bankrupt spouse will receive their share, although this may not be enough to buy another home for themselves and any children;
  • If the matrimonial home was jointly owned but has already been transferred to the non bankrupt spouse, the trustee in bankruptcy can apply to set aside any transfer made up to five years before the bankruptcy. However, a transfer will not normally be set aside if it was as a result of a divorce.

Although the non bankrupt spouse will still keep their own property and their share in any joint property, there may be nothing left for any child maintenance or spousal maintenance, as demonstrated by a recent high net worth divorce case.

In Young v Young, the couple married in 1995 and separated in 2006 with divorce proceedings starting a year later. They have two teenaged daughters. Towards the end of last year, Mr Young was ordered by the court to pay £27,500 per month in interim child and spousal maintenance. Mrs Young claimed her husband was worth over £400 million. Mr Young claimed to be in debt.

In September 2009 he was ordered to provide more details about his financial situation. He was given a suspended sentence for contempt of court and has since handed over 50 files of information to his wife’s solicitors. Due to his failure to pay interim maintenance, Mrs Young and their daughters were evicted from their rented property as she had fallen into rent arrears. They have since found another property. She has said that she has sold jewellery to help pay legal costs but owes a substantial amount in legal fees.

HMRC have since started bankruptcy proceedings against Mr Young. If he is made bankrupt, Mrs Young may end up with no spousal or child maintenance.