The impact of bankruptcy on divorce proceedings
Any assets owned jointly between a divorcing couple cannot be transferred by way of a financial settlement to a party who has been made bankrupt without first obtaining the consent from the Trustee in Bankruptcy. This can either be the Official Receiver or an Insolvency Practitioner appointed to deal with the equitable distribution of the bankrupt’s assets.
The Trustees main consideration will be to realise the assets for the benefit of creditors. If there are children involved, then there are other matters to take into consideration.
The trustee also has a duty to investigate the bankrupt affairs prior to bankruptcy and will go back five years to challenge transaction which appears to be contentious. This is to ascertain if the bankrupt has transferred any assets of significant value to friend and family in advance of the bankruptcy. If there are such transaction the trustee will commence proceedings against any third party with a view to these funds being repaid into the bankruptcy estate for the benefit of creditors.
Transactions with connected parties can be challenged up to five years and those with unconnected parties a period of two years. These come under the legislation of Transactions at Undervalue , preferences and other antecedent transactions.
There have been some extreme instances where a person has decided to make themselves bankrupt unnecessarily to frustrate the other party within the divorce proceedings. However, in these circumstances, the non-bankrupt party can apply to the Court to annul the bankruptcy, if they believe that the other party petitioning for bankruptcy is not in fact insolvent.
The Court has the authority to annul the bankruptcy order as part of section 282 of the Insolvency Act 1986.
It is always sensible for divorcing parties to reach a financial settlement prior to the commencement of either party declaring themselves bankrupt.
Divorce and bankruptcy are complex and so it is always advisable to take advise and deal with the financial settlement prior to any consideration being given to bankruptcy.
Conclusion
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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