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30 January 2007

Ex-wife successfully protects divorce settlement in a landmark test case in the Courts following the bankruptcy of her husband

A Worcestershire housewife is thought to be the first to successfully test the 1986 Insolvency Act by successfully protecting the divorce settlement awarded to her by the matrimonial court after the breakdown of her marriage prior to her former husband declaring himself bankrupt.

Rob Taylor a solicitor in the Insolvency department of leading Worcestershire law firm Harrison Clark LLP and Mr Angus Burden, of St Philips Chambers, Birmingham have successfully represented Mrs Wendy Haines in a claim made against her by her ex-husband's trustees in bankruptcy.

Mrs Haines divorced her husband in early 2005. Prior the decree absolute being pronounced in February 2005, Mrs Haines and her ex-husband had endured acrimonious divorce proceedings culminating in a two day trial. The purpose of the trial, amongst other things, was to decide how the jointly owned matrimonial property should be divided. After a heavily contested hearing, District Judge Mackenzie awarded Mrs Haines a 100% interest in the former matrimonial home.

Therefore, at this stage, after many months of legal proceedings, Mrs Haines thought that matters had finally reached a conclusion and that she and her daughter Kirsty could begin rebuilding their lives.

However, just a few weeks after the pronouncement of the decree absolute, Mrs Haines' former husband petitioned for his own bankruptcy.

As a consequence of his bankruptcy, Mr Haines' entire estate then became vested in his trustees in bankruptcy, who were responsible for realising any assets so that his creditors might be paid at least part of what they were owed.

It should be noted that as well as having the power to realise any assets clearly owned by a bankrupt at the time of his bankruptcy, a trustee in bankruptcy also has the responsibility and power to seek to challenge any transactions which took place shortly prior to an individual entering that bankruptcy where it is felt they were designed to dispose of assets and put them beyond the reach of creditors.

Mr Taylor explained: "A trustee is able to challenge and, if successful, reverse any transactions which are deemed to be 'at an undervalue', that is to say, where a bankrupt, shortly prior to entering bankruptcy, disposes of an asset for either no value or less than its true value."

He continued:- "The rationale is as follows:- If, in contemplation of bankruptcy, an individual was able to transfer his or her interest in say, the house, to his or her spouse for no value, everyone could do this so as to put assets beyond the creditors reach".

Indeed, it has long been established that even an order of the matrimonial court can constitute a transaction at an undervalue.

Interestingly, since the inception of the Insolvency Act in 1986, which is the current statute granting the trustee such powers, there has never been reported case law on the issue as to whether an order made by the matrimonial court after contested proceedings (as opposed to husband and wife reaching an agreement as to who retains what interest in the house and the court merely approving this agreement) could constitute a transaction at an undervalue.

This is what was tested before District Judge Cooke on 14th December 2006. Mr Haines' trustees sought to claim a 50% interest in the former matrimonial home by claiming that the order of District Judge Mackenzie (which awarded Mrs Haines a 100% interest in the property) constituted a transaction at an undervalue.

Ultimately, the question to be answered was did Mrs Haines give any consideration (i.e. value) in return for the 100% interest in the matrimonial home?

District Judge Cooke found in favour of Mrs Haines on the grounds that the value of her claim for a property adjustment order was equal to the value of the assets originally transferred (i.e. the extra 50% interest in the house) by the order of District Judge Mackenzie.

However, the story does not end here as leave has been granted to Mr Haines' trustees in bankruptcy to appeal the decision. They must file the relevant papers to do so by 31st January 2007. It is expected that the trustees will take the decision to appeal, but Mrs Haines will remain resolute in continuing to defend her position.

The implications of the conclusion to this case could be far reaching both in terms of Family Law and Insolvency Law so watch this space!

Photo Caption
Rob Taylor, Solicitor in the Insolvency Department of Harrison Clark LLP
(Photo available from angela.baker@marketing-iq.co.uk)


Notes to editors: For further information on this press story please speak to Rob Taylor at Harrison Clark on 01905 612001 or e-mail: rtaylor@harrison-clark.co.uk

Harrison Clark’s four-strong specialist Insolvency Team offers advice to individuals and companies on Insolvency matters.

Alternatively you can speak to Angela Baker at Marketing IQ Ltd. on Tel: 01905 359475 or e-mail angela.baker@marketing-iq.co.uk



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