People get divorced for all kinds of reasons. What if the main reason for a divorce was to keep property out of the reach of creditors? A quick divorce giving property to the future ex-spouse, followed by a declaration of bankruptcy may seem incredibly suspicious, but if there is a court order granting the divorce and the division of property, what can be done about it? subject ?

Undervalued transfer

A request for financial assistance in divorce proceedings is made under Part II of the Marital Causes Act 1973 (“the MCA”). Such a claim may constitute consideration within the meaning of section 339 of the Insolvency Act 1986 (“IA”).

On the basis that a divorce necessarily involves persons who were, until the absolute judgment, married, they would be classified as partners under Article 435 IA.

The ability to challenge an order in divorce proceedings on the grounds that it constitutes an undervalued transaction under Article 339 IA therefore applies when the order is sealed less than five years before a request for enforcement. bankruptcy. It is the family court order itself that constitutes the transaction that should be considered.

Such a challenge should be based on the idea that the order was a transaction in which the bankrupt received consideration which was worth much less than the value of the consideration he provided.

Careful analysis of the value of the consideration provided by each party will be required: not only are MCA claims waived, but the value of assets should be verified, the value of liabilities taken into account, as well as more aspects. ephemeral of a divorce, such as the value for each party of a net breaking settlement.

Should there be evidence of collusion between the parties to the divorce?

Whether the abandonment of an application for financial assistance in divorce will be considered adequate consideration for the assets received will depend on the value of the assets and liabilities divided and the existence of factors. flawed which include, as the case may be Hill vs. Haines [2008] Ch 412, collusion, fraud, concealment, error or misrepresentation.

The family court of Sands (as Mr. Tarlochan Singh’s bankruptcy trustee) v Singh et al. [2016] EWHC 636 (CH) confirmed that there were circumstances in which a family court order could be set aside by a bankruptcy trustee, but upheld the position in Hill v Haines that there must be vicious factors .

The judge in Sands vs. Singh described a paradigmatic case in which an order could be set aside as involving collusion between the spouses and said the court would likely be slow to set aside an order in the absence of collusion, but also described the circumstances under which the collusion could not be necessary:

Suppose, for example, that a husband, knowing that he was about to be served with a legal demand and preferring that his property benefit his wife and children rather than his creditors, dishonestly concealed his debts and overvalues ​​his assets so that the court makes an order in favor of the wife and children that he would never have been able to approve had he known the real facts … If the husband were subsequently declared bankrupt, he may be possible for his trustee in bankruptcy to have the order quashed even though the wife had genuinely believed the husband to be as wealthy as he represented him.

Thus, although collusion was not required, some degree of fraud or concealment was necessary. This is important, as collusion could be extremely difficult to prove.

Full and frank disclosure obligation

Even when the parties to a divorce agree to share the financial aspect of their separation, there is certain information that must be provided to the family court and that, in the usual course of a divorce proceeding, the court must be taken into consideration to ensure that the sharing is fair and neither party is left without a sufficient share of the assets.

Parties have a full and frank disclosure obligation to the court to provide an accurate record of their assets and liabilities. The issue between divorcing parties usually involves undisclosed or hidden assets, meaning one party accepts less than the amount they would otherwise be entitled to. However, it is also possible, as expected in Sands vs. Singh that liabilities could be concealed from the Court (the Court thus being misled and the financial situation of the parties distorted) in order to persuade the Court to authorize the transfer of a larger part of the assets to a receiving party, and therefore to allow these assets to remain with the family in the event of the payer’s bankruptcy.

In addition, the decisions of the Court of Appeal of Robinson vs. Robinson [1982] 1 WLR 786 and the House of Lords in Livesey (formerly Jenkins) vs. Jenkins [1985] 1 AC 424 confirms that a breach of the duty of full and frank disclosure makes a consent order in divorce proceedings invalid and liable to be set aside. This will be the case where the order made was materially different from an order the Court would have made had full disclosure been made.

When the failure concerns, for example, high value liabilities owed to third parties, the question to consider would be whether a judge would have made an order in the same terms if the situation were true, or something like the actual situation. in terms of liabilities, has been disclosed.

The effect of setting aside the order

Under section 339 of the Act, an order could be requested to restore the situation as it would have been had a family court order not been made. A similar position would be reached if it were found that there had been a breach of the duty of full and frank disclosure. In both cases, the assets would be transferred to the bankrupt and vested in the trustee, thus serving to pay creditors other than a spouse.

The impact of this in circumstances where debts outweigh assets could be disastrous for a spouse, leaving little or nothing for financial maintenance or settlement.



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