You may have seen in the news recently the story of the Youngs – that is, Scot and Michelle Young – who are going through a bitter divorce battle involving Scot Young, (a former multi-millionaire property developer) declaring he has gone bankrupt while his ex-wife Michelle struggles to prove otherwise and get the money she needs to raise her two children.
Of course, not all of us are married to millionaires but the issue of personal insolvency is all the same one which increasing numbers of us are having to deal with.
And if this happens during, or after a divorce, how does it affect the financial rights of the person who hasn’t gone bankrupt – but nevertheless relies on income from the now bankrupt source?
This article will refer to a husband who declares bankruptcy but of course it is equally applicable the other way around. Either way, often the first the unwitting spouse learns of the position is the arrival of a bailiff to take possessions. Quite probably the wife’s husband has been intercepting the mail, hiding the demands, and hoping “something will turn up.”
These events break up marriages, but issuing divorce proceedings and seeking a financial settlement will not enable the wife to simply cut herself clear of the wreckage. Her rights as a divorcing or divorced spouse take second place to the rights of the creditors, to whom the husband owes money. The husband’s estate will be vested in a trustee for bankruptcy, whose job it will be to get in the assets, sell the property, and pay out in proportion to the various creditors.
Often where one partner is sliding into bankruptcy, they try to rapidly conclude a settlement with their other half to ensure that at least the other is looked after. However, transactions designed to favour one creditor over another are deemed a “preference” and are invalid. The person who received the preference has to share with the other creditors. In exceptional cases it may be possible to show that the transaction was not a preference, but it is difficult.
If the bankruptcy does not happen for six months, however, the preference provisions fall away. Instead the trustee’s attention will focus on whether the settlement can be said to have amounted to a “transaction at under value.” i.e. selling at an artificially lower price. Surrender of a wife’s claims arising from a divorce can represent full value for a transaction. Nevertheless, the trustee certainly will contest it.
If the home is solely in the husband’s name, the wife is in a fairly desperate position. The trustee must allow her one year’s occupation, but at the end of that time can take possession of the property to sell it. The wife may be able to assert that she made a contribution to the property, and that while it was in her husband’s name, in reality he held one-half on trust for her.
If the property was in joint names, then the wife keeps her half. The home will be sold in due course, but at least half can be pulled from the wreckage.
A bankrupt can receive a level of income necessary for meeting “the reasonable domestic needs” of himself and his family. Therefore, some maintenance can be made available, even though it will be less than the prior standard of living that the family enjoyed.
If the husband deliberately understated his assets in order to appear insolvent in order to defeat his wife’s claim, the court has power to annul the bankruptcy order if it is satisfied that the order ought not have been made. That involves the wife having to establish that the husband’s assets exceeded his liabilities which can be costly and time-consuming.
Individual voluntary arrangements are a popular alternative to bankruptcy. In that case the wife should be a full participant. She will be involved in a three handed negotiation with her husband and the other creditors, but it may well be a better and more certain outcome than being subject to the rigours of bankruptcy law.
It is recommended that any individual who finds themselves in this situation seeks expert advice as soon as possible, in order to try and secure the best outcome.
Henry Brookman is founding partner of Brookman Solicitors.
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I have been married for 26 years. My husband has a pension can I claim it after my divorce? I had to go for bankcruptcy because he put all the debt in my name. Can u please help me?
Hi Carol. Thank you for your question, but as we cannot give legal advice, I’m afriad that you will have to contact your divorce lawyer over this. I hope it works out for you.
My husband never provided any stability during the marriage we line live in a that is left to my family from my deceased parents he doesn’t contribute anything financially although his Mail and otherwiord he lives off of me and I don’t out right own the home there are other siblings who are named on the home .. we share phone and a car he supposedly financed thru his credit union my name is on the account according to him ..payroll deductions I have no proof however I pay insurance renewal for auto tags and there transfer from a car I previously owned and traded in on the this auto he claim de bought for me an I have money tied up in the car but his name is the only name on the register / title insurance legal I have no documents or proof That he isn’t setting me up contemplating divorcing me and taking everything he has his name on and run we don’t own anything in writing that said mr and Mrs we have been married 36 yrs he has semi retired makes $45-50.000 a year I receive less than $1200.00 a yr . Is there any way I can protect myself encase I am left a victim of being deceived where it destroys me from going on alone?
Hello Leola. Thank you for your question. We cannot porvide legal advice, but it would make sense to protect your finances by talking to a divorce lawyer, particularly as you have been married for so long. I hope this goes as well as possible for you.