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Housewife protects divorce settlement

A Worcestershire housewife has successfully protected her right to her matrimonial home despite her former husband declaring himself bankrupt.

The case, thought to be the first to successfully test the 1986 Insolvency Act, saw Wendy Haines successfully protect the divorce settlement awarded to her by the matrimonial court after the breakdown of her marriage prior to her former husband declaring himself bankrupt.

Rob Taylor, a solicitor at Worcestershire law firm Harrison Clark and Angus Burden, represented the housewife in a claim made against her by her ex-husband’s trustees in bankruptcy.

Mrs Haines divorced her husband in early 2005, and prior the decree absolute being pronounced in February 2005 she was awarded 100% interest in the former matrimonial home by district judge Mackenzie.

However, just a few weeks after the pronouncement of the decree absolute,
Mrs Haines’ former husband petitioned for his own bankruptcy.

As a consequence of his bankruptcy, Mr Haines’ entire estate then became
vested in his trustees in bankruptcy, who were responsible for realising any
assets so that his creditors might be paid at least part of what they were
owed.

As well as having the power to realise any assets clearly owned by a bankrupt at the time of his bankruptcy, a trustee in bankruptcy also has the power to challenge any transactions that took place shortly prior to an individual entering bankruptcy where it is felt they were designed to dispose of assets and put them beyond the reach of creditors.

Taylor says: “A trustee is able to challenge and, if successful, reverse any transactions which are deemed to be ‘at an undervalue’, that is to say, where a bankrupt, shortly prior to entering bankruptcy, disposes of an asset for either no value or less than its true value.”

“The rationale is as follows – if, in contemplation of bankruptcy, an individual was able to transfer his or her interest in say, the house, to his or her spouse for no value, everyone could do this so as to put assets beyond the creditors reach”.

Since the inception of the Insolvency Act in 1986, which is the current statute granting the trustee such powers, there has never been reported case law on the issue as to whether an order made by the matrimonial court after contested proceedings could constitute a transaction at an undervalue.

This is what was tested before district judge Cooke on December 14 2006.

Mr Haines’ trustees sought to claim a 50% interest in the former matrimonial
home by claiming that the order of district judge Mackenzie constituted a transaction at an undervalue.

However, district judge Cooke found in favour of Mrs Haines on the grounds that the value of her claim for a property adjustment order was equal to the value of the assets originally transferred (the extra 50% interest in the house)
by the order of district judge Mackenzie.

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