Family law partner, Justine Flack discusses the impact of bankruptcy on divorce settlements and family financial arrangements in the wake of the coronavirus pandemic.
There is plenty of media speculation that the COVID-19 crisis will lead to an increase in divorces and relationships breaking down. There is also a high level of uncertainty about the economic impact of the lockdown and the recovery when restrictions are lifted. It is possible that we will see a rise in the number of people being declared bankrupt which can impact on divorce settlements and family financial arrangements.
If you have a financial order which was made prior to the bankruptcy order, this takes precedence. There may be issues about whether the bankrupt has the means to comply with its terms but the order stands.
The greater problems arise where there is not yet an order in place. If you have agreed terms then try and submit the paperwork as soon as you can. Don’t be tempted to change the agreement to try and put assets out of the reach of the trustee in bankruptcy; that is likely to provoke an application for the order to be set aside and costs may ensue.
Particular issues can arise with property such as the former matrimonial home when it is in joint names. Even if you have been separated for some time and you may have paid all of the outgoings, including the mortgage, if the house remains in joint names the trustee acquires an interest upon bankruptcy. This is relevant whether or not you are married to the other owner.
Where your former spouse or partner is declared bankrupt the trustee will seek to recover the interest of the bankrupt in the property in order to realise the bankrupt’s assets and make payments to the creditors. This is the case even where the property still provides a home for dependent children. A sale will be delayed for 12 months but that is the extent of it.
It is possible to negotiate with the trustee to buy out the interest but that is dependent upon a suitable capital sum being paid and if there is a mortgage on the property, that mortgage being serviced. This can present problems when financial difficulties strike as raising capital may be problematic and maintenance may be lost if the bankrupt is without an income. Failure to maintain the mortgage would of itself lead to possession proceedings.
If a property is jointly owned the bankrupt will be considered to own 50% unless proper arrangements are in place to safeguard the position. This can be relevant if one party made a greater contribution to the purchase price. In that situation you should ensure that the property is held as tenants in common in unequal shares supported by a Declaration of Trust which records the detail of each person’s interest. This can be an important measure to put in place even when there are no issues in your relationship. Whilst the Family Court doesn’t have to be bound by the declaration on divorce, it is relevant where parties are not married and there is a property dispute or when a property owner is subsequently made bankrupt.
All too often people delay in dealing with property and assets on separation. For many reasons it is usually better to resolve matters at the time of separation; a downturn in someone’s financial position, particularly if they face bankruptcy, could have a significant and detrimental impact upon the situation.
If you require more advice on issues surrounding relationships, contact our Family team. If you require assistance with bankruptcy contact our Insolvency team.
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