Divorce settlement on bankruptcy

The Court of Appeal has heard how a woman who was awarded the proceeds of her matrimonial home in a divorce settlement had half of it taken away when her husband went bankrupt.

Wendy Haines, 43, is battling with bankruptcy trustees in the case which has "far reaching implications" for orders made in divorce courts, the judges were told.

They heard that she was awarded the detached five-bedroom farmhouse near Stourport-on-Severn in Worcestershire by a judge as part of the break-up. However, her husband then declared himself bankrupt.

As a result, his trustees want half of the money raised from the sale of the house - the proceeds of which have now been frozen - to help pay his creditors.

Avtar Kanghure QC, who is representing Mrs Haines, told three appeal judges headed by Sir Andrew Morritt, the Chancellor of the High Court: "The risk of abuse by disgruntled husbands who deliberately incur substantial debt with the express purpose of defeating the matrimonial court's order is obvious."

Mrs Haines, whose divorce was two years ago, had owned a garage business with her husband in Kidderminster.

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Liz Tait, a Partner at law firm Irwin Mitchell commented: "This is a fascinating case which lawyers will be watching closely as it progresses through the Court of Appeal.

Essentially, the Family Court has no jurisdiction to order such a transfer of property when a spouse has already been made bankrupt. Here, however, the Trustees have applied to the court for an order that the transfer be set aside even though it predates the bankruptcy. They can do this if the transaction can be proven to be "at an undervalue" and made within a specified period before the day of the presentation of the bankruptcy petition.

"The bad news for Mrs. Haines is that the fact that the court ordered the transfer does not prevent it from being the object of an application by the Trustees.

"The specified period is five years unless it can be shown that Mr. Haines was not insolvent at the time of the transfer of the farmhouse in which case it is two years, so timing factors and critically what are known as the s 25 factors will all be relevant considerations here to determine what the specified period is and whether the transfer was at an undervalue. A complex area indeed and the judgement is awaited with interest."