How does bankruptcy affect your divorce?

Divorce and bankruptcy are both very difficult and emotionally stressful if you are going through them at the same time.

Here are some tips to help you through the processes.

Bankruptcy is the legal process of Insolvency. Most of your debts are written off in the process.

The effect of bankruptcy or insolvency proceedings can cause issues in relation to the splitting of assets and divorce mediation.

Last year in 2020 over 12500 individuals went bankrupt. More statistics can be found on the government website here. https://www.gov.uk/government/statistics/monthly-insolvency-statistics-april-2021

Divorce is the legal process of ending your marriage which results in splitting your assets. Here are the statistics.  https://www.ons.gov.uk/

It can be seen that there were over  107,000 divorces in 2019 across England and Wales. With the impact of the pandemic, the figures for 2020 are expected to be even higher and EVEN higher for 2021.

With lockdown and various Covid-19 restrictions putting a strain on both business and personal lifestyle, the circumstances around dealing with bankruptcy and divorce will become so more frequent going forward.

The process of divorce and bankruptcy

If a property, or any other assets are owned jointly by the couple seeking a divorce and one of the individuals is declared bankrupt then the property or assets can’t be transferred to the other party as part of the financial settlement in the divorce proceedings without the consent of the trustee who is appointed to deal with the debtor’s estate in bankruptcy. There is more information about bankruptcy and trustees in bankruptcy on our website. https://www.navigatebr.com/page/3/?s=trustee

The trustee is responsible for handling all the assets and income of the person who is bankrupt and will deal with realisation of all the assets and the equitable distribution of those funds to the creditors. There is a hierarchy of how the payments are made to creditors. All assets are vest

ed in the Trustee in Bankruptcy.

Problems which can occur with bankruptcy during divorce proceedings

The Trustee has a duty to investigate transaction of the bankrupt; up to two years with unconnected parties and five with connected parties.

This is so that the assets are NOT dissipated ( as in given or sold at a cheaper price to friends and or family ) prior to the bankruptcy by the person who is bankrupt. If such transactions were found, then there are various angles depending on when the transaction took place and who with which the Trustee can investigate. These are caught under Antecedent transactions. Here is more information about such transactions. https://www.navigatebr.com/?s=antecedent+

We have acted for clients where an individual has decided to file their own bankruptcy application so that they can cause havoc to the other party in the divorce.

A bankruptcy annulment can be a way to deal with this situation in these circumstances, the non-bankrupt party can apply to the Court to annul the bankruptcy if they can demonstrate to the Court that the bankruptcy order should not have been made.

For instance, that there was an abuse of the abuse of the bankruptcy process and an attempt to avoid the divorce proceedings. The Court has the authority to annul the bankruptcy order under BUT it can get very complicated. You should always take advice in this type of situation. https://www.navigatebr.com/?s=annulment

When thinking about divorce it is much simpler to amicably ( if possible ) reach an agreement in relation how the assets are going to be split and being honest with each other. So if one party is in financial difficulty then that should be divulged and dealt with rather than filing for bankruptcy unbeknown to the other party.

It is always important to take advice when considering separation, divorce, or bankruptcy.