On 8 August the Governor of the Bank of England, Sir Mervyn
King, warned that "the recovery and rebalancing of our economy
will be a long, slow process".
There are differing views as to the extent to which financial
problems lead to marital breakdown and divorce.
In the summer of 2009 Grant Thornton published its annual
matrimonial survey in which they asked the question:-
"Will the effect of the economic hardship on relationships
lead to a rise in divorces, or, will the plummeting value of
property and pensions mean that fewer couples look to split whilst
their assets are shrinking?"
The reply was that 48% or respondents to the survey felt that the
number of couples filing for divorce would fall and 23% of lawyers
believed that the number of divorces would stay at the same
level. Grant Thornton's matrimonial survey for 2011 asked
a question about the three most common reasons for a marriage
breakdown leading to one or both parties seeking a
divorce. The response was that 1% of breakdowns were
attributable to business problems and 5% to financial/money
worries.
In contrast, in December 2011, the dating website for divorcees
DivorceDate.com listed the "Top 10 Reasons for UK
Divorces". Heading that list (with a score of 19%) was
"Financial issues, arguments over money".
Whichever survey is believed, pronounced financial difficulties can
undoubtedly add an unwelcome dimension when couples decide to
separate. This is especially so when one of the parties (often the
husband) may be on the cusp of bankruptcy. In that situation
there may well be a conflict between the interests of the wife and
the husband's creditors and acting quickly and effectively may
be of enormous benefit to the wife. This often applies most starkly
in respect of the family home. That may be owned by one of the
parties in their sole name but, more commonly, it will be owned
jointly either as joint tenants or as tenants in common.
When a person becomes bankrupt, the whole of his estate vests in
his trustee in bankruptcy. That person is then under an
obligation to realise the bankrupt's assets for the benefit of
the creditors. The assets will include any property in which
the bankrupt has a legal or beneficial interest and this will often
include the matrimonial home. If that property is held by the
bankrupt and his spouse as joint tenants, the bankruptcy will
automatically sever the joint tenancy. The result of this is
that the trustee and the other spouse will hold the property as
tenants in common in equal shares. Once the trustee in
bankruptcy has become a joint owner, he will be able to apply for a
sale of the property and any application for sale will be governed
by the Insolvency Act 1986. The provisions of that mean that
an application for sale is unlikely to be made within the first
year of the bankruptcy order but once more than a year has elapsed
and an application is made it will be extremely difficult to oppose
a sale.
Accordingly, it can often be vital to commence divorce proceedings
and related financial claims quickly and progress them
expeditiously. The intention is to seek to have the
matrimonial court make financial orders on divorce before the other
spouse is made bankrupt and his trustee in bankruptcy steps into
the fray. Once a trustee is appointed he is likely to apply to have
any matrimonial proceedings stayed and so moving quickly can be
crucial.
In general, when dealing with financial claims on divorce, the
court must take account of the proper liabilities of both parties
but it does not have to put the interests of creditors before those
of the parties to the marriage and the children. That is very
different to how things are viewed through the lens of the
bankruptcy court.
The factors that the bankruptcy court takes into account do permit
for some degree of discretion as the judge needs to consider the
needs of the non-bankrupt spouse and any children but when the
application is made more than one year after the bankruptcy order
the court shall assume, unless the circumstances of the case are
exceptional, that the interests of the bankrupt's creditors
trump all other considerations. Showing 'exceptional
circumstances' is not impossible but can be very
hard. Sometimes even demonstrating severe ill health will only
be enough to secure a stay of the axe falling.
Obtaining a financial order, for example that the husband transfer
to the wife his interest in the family home, may not be enough as
there are circumstances where the trustee in bankruptcy can seek to
have that transfer set aside but in that situation the wife may
well be in a much stronger position than if she simply waits and
finds that a trustee in bankruptcy is appointed and takes steps to
sell the family home.
Whether or not the trustee in bankruptcy will be successful in
having the transfer set aside will depend upon an examination of
the circumstances that exist. If it is obvious that the
transfer was entered into simply to defeat the claims of the
creditors then the transaction will doubtless be set aside as being
at an undervalue. If, on the other hand, it is clear that the
order was made after a careful examination of the relevant factors
that the matrimonial court has got to take into account, it might
be more difficult for the trustee in bankruptcy to establish that
the transaction was at an undervalue.
Irrespective of any application within divorce proceedings, it is
important to establish the extent of the parties' respective
interests in the property. It is, after all, only the interest of
the bankrupt which vests in his trustee in bankruptcy. It is
therefore necessary to look to see whether or not there is anything
that can enable the non-bankrupt spouse to argue for a greater
share in the property.
Where the legal estate is owned by the bankrupt solely the
presumption will be that the other spouse does not have a
beneficial interest in the property. That presumption is,
however, rebuttable and it may be possible to successfully argue
that the property is held on trust for both parties. The burden
will, nonetheless, be on the person asserting the interest to
satisfy the court that there was a common intention that she would
have an interest in the property.
Where the property is owned jointly again the presumption will be
that the interests are equal but, again, it may be possible to
persuade the court that there was, in fact, a common intention that
the property would be held in unequal shares.
In every case therefore it will be necessary to look carefully into
the discussions that took place when the property was acquired, to
examine how the purchase was financed and how the spouses paid the
outgoings and other expenses. It may also be fruitful to examine
how any improvements to the property were paid for and how mortgage
repayments and other household expenses were dealt with.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.