You might have thought it was all over – but your divorce settlement may not be as final as you hoped, says Peter Flint of Lanyon Bowdler Solicitors.
A recent High Court ruling has closed a loophole giving individuals protection over their share of assets ordered on divorce with the effect that divorcees may now have to give up assets in order to meet former spouses’ debts if the ex-spouse goes bankrupt within five years of the divorce being finalised.
Bankruptcy trustees will be able to pursue the solvent ex-spouse for up to five years and this ruling is also retrospective, applying to divorce orders made within the past five years.
Judge Pelling, QC, sitting as a High Court judge, made the ruling on 9 May in a case involving David and Wendy Pearl Haines, who jointly owned a property known as Strudges Farm in Worcestershire.
Mrs Haines petitioned for divorce in 2003 and her husband was ordered to transfer the house to her in a court settlement. She was not granted any lump sum because of the risk, in the presiding judge’s view, that her husband might become bankrupt in the near future.
When, in March 2005, Mr Haines petitioned to be declared bankrupt, with total liabilities estimated at £132,000, the bankruptcy trustees sought, but failed, to set aside the divorce settlement at the County Court. The High Court decision was the result of their appeal against that ruling and for Mrs Haines it means she could be forced to give back her ex-husband’s share of the house.
Hitherto, bankruptcy trustees were not able to overturn settlements decided in a fully contested hearing. However, the law permits them to reclaim any property given away or transferred at less then its full value in the five years before bankruptcy. In Court, the trustees successfully claimed that this covered the property Mr Haines had made over to his wife.
Wendy Haines has indicated that she will appeal this decision. However, this could take some time, during which the trustees could start legal action based on the current ruling.
"However, the message is don’t panic," continues Peter Flint. "This case had some unusual elements. Because of the prediction of his bankruptcy, David Haines was not allotted a full share of the assets. Even so, it is predicted that this decision will affect at least 20 per cent of the 120,000 people expected to file for bankruptcy this year and will change the face of divorce settlements where the prospect of bankruptcy is a real likelihood."