Why Christmas is not always a merry time | 20 December 10

Christmas is traditionally a time of family togetherness, but the festive season can bring with it problems and stresses that can put those relationships under serious strain. Sarah Crilly, Associate in the Family law team at Ward Hadaway, looks at what can happen when the cost of Christmas gets too much. 

IT IS a sad fact of life that many divorce lawyers find their busiest times occur just after the festive season finishes.

Many couples with children who may be having difficulties in their relationship stay together for the Christmas period but find the pressure of having to be in one space for an extended period of time with their partner or spouse and perhaps the in-laws too much to bear.

Increasingly couples break up around this time because of financial pressure and worries.

For example, a spouse may be spending more than they can afford which is harming the family finances one partner may be incurring debt without the other knowing about it.

This type of problem can lead to serious difficulties for couples, especially where one spouse is forced into bankruptcy.

So what happens if a spouse becomes bankrupt? What will become of the family home?

All property belonging to or vested in the bankrupt at the date of the bankruptcy order will automatically vest in the trustee, who is someone appointed to administer the bankrupt’s estate.

If there is a family home, then this will not escape the bankruptcy but will form part of the bankrupt’s estate. This means that if there is equity in that property, the trustee can look to realise that equity by forcing a sale of the property. The trustee has three years in which to realise the interest or else it will automatically re-vest in the bankrupt.

Often family homes are in joint names so that if one party is made the subject of a bankruptcy order their 50% beneficial entitlement will vest in the trustee.

At least this provides some security for the non-bankrupt’s spouse as the Trustee must limit their claim to 50% of the equity.

It also means that the non-bankrupt spouse can negotiate with the trustee to buy out their interest and sometimes this can be done without having to pay out the full amount of the other’s half share.

For example, this can be done where a spouse has given security for the other’s secured liabilities such as half share of the mortgage payments or where a spouse has given security for the other’s debts.

What is the position if divorce proceedings are pending and financial claims are to be dealt with by the family courts at the time a bankruptcy order is made?

Under these circumstances, the court does not have power to make any orders regarding property so there will be no point in pursuing matrimonial claims.

What if an order has already been made settling the family assets and then a spouse goes bankrupt?

In this case, the trustee can apply to set aside a property transfer if they can show that it was not done for full money’s worth e.g. a property worth £150,000 being transferred to a spouse in exchange for a capital and income clean-break. If this occurred within five years of the bankruptcy petition being presented, the trustee can apply to set it aside.

If the family finance order was made within six months of a bankruptcy petition being presented this could be treated as a preference and be liable to be set aside.

In addition, if a transaction took place further back in time than five years and the trustee believes it was done with the specific intention of defrauding creditors then this can be set aside.

What if a spouse has a maintenance order against a bankrupt spouse? This can be problematic if the trustee obtains an order diverting part of the bankrupt’s income for the benefit of creditors as this will take precedence over the maintenance.

What is clear is that if you believe your spouse is or is likely to become bankrupt you must obtain urgent advice from both family and insolvency lawyers so that you can be protected as far as possible.

* Find out more about our Family Law services.