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Divorce might not be the last you see of your spendthrift spouse

Divorce is one of the most painful situations we find ourselves in during our lives.  One of the few good things to come out of a separation is the chance to rebuild your life and start afresh with a clean slate.

A new judgment from the High Court, however, may mean that at least in financial terms the break may not be as clean as you'd like, as Marion Tucker, specialist in family law and a partner at Barr Ellison, explains

"In a recent divorce case, judges ruled that divorcees could have their assets taken away from them to meet their former spouses’ debts. In other words they are no longer protected from their ex’s creditors even after they split up. This is a landmark decision with potentially serious consequences for many divorcees.

“The case centred on a couple who jointly owned a property in Worcestershire.  When they divorced in 2003, the husband was ordered to transfer the house to the wife. She requested a lump sum and although she didn’t receive one the court did agree that she retain the option of asking again should her spouse become bankrupt.

“In 2005, this duly happened.

“After much legal wrangling, the High Court has decided that the wife in the case could be forced to give back her husband's share of the house in order to pay off his debts.

“The result of the ruling is clear.  In future, if either party goes bankrupt, their spouse will now potentially be liable to pay creditors any assets gained from the spouse at the time of the divorce.  Trustees in Bankruptcy will be able to pursue the solvent spouse for up to five years and the ruling also applies retrospectively to any divorces that have taken place in the last five years.

"In the past orders of the Matrimonial Court relating to assets largely protected those assets. Couples who had readjusted their assets without a court order were always vulnerable, now it seems that even those settlements made with the court’s approval are not immune.

"The potential impact on couples divorcing recently divorced, or thinking of going their separate ways is profound. Husbands and wives currently in the throes of a contested case may well have to rethink their strategy should they believe that their soon to be ex partner is in financial difficulty.

"Perhaps of more concern is the retrospective nature of this ruling.  It is entirely possible that people trying to rebuild their lives after the trauma of a separation could suddenly be faced with a massive financial burden directly linked to someone who they would much rather have nothing more to do with."

"This year, 120,000 people are expected to file for bankruptcy in the UK and estimates are that this decision is likely to affect at least 20% of them, around 25,000. And that's without including the numbers of ex spouses and children likely to be involved as well.  It's also probable that administrators and trustees in bankruptcy will start to look back over their files and see if there's any way of reclaiming some money or other assets from the divorce settlement.

“I also fear that some divorcing partners could use the threat of bankruptcy as a weapon in order to obtain more favourable settlements. Now that the stigma of bankruptcy has been reduced because people can become discharged bankrupts after only 12 months, it's a much more effective tool than it used to be.”

 

TOP TIPS

• A new ruling from the High Court could have a profound effect on divorces
• Potentially, divorcees could be liable for their ex partner’s debts if they received money or other assets in a settlement
• This could still apply even if the settlement has been agreed in court
• This ruling affects those currently going through divorce proceedings
• The new rule also applies retrospectively to those divorces that have taken place in the last five years
• Divorcing couples may need to rethink their strategy
• Ex partners could suddenly be landed with a massive financial burden years after they separated
• Some divorcing partners could use the threat of bankruptcy as a weapon
• The new ruling could affect up to 25,000 people
• Administrators and Trustees in Bankruptcy are expected to start searching their files for possible ways of reclaiming some money for creditors

CASE STUDY

The recent court ruling caused Diane to have a sharp intake of breath.  She divorced her husband three years ago and, after a prolonged legal battle, managed to secure the future for herself and her children through a lump sum settlement and ownership of the house that she and her ex used to live in. Now she’s worried that she might have to pay some of the money back in order to discharge her ex husband’s debts.

"When we got divorced, my husband was already in financial difficulties.  Fortunately, the courts decided to give me and the kids a roof over our heads and some money to live on, but it was no great surprise to discover that a year after we’d divorced, my husband went bankrupt.

"At the time I was sorry for him but never dreamt that a decision which had been agreed and endorsed by the court could potentially be overturned.  I know that my ex went bankrupt for a substantial sum of money and if it transpired that his creditors came knocking at my door to pay off his debts, we could either be left homeless or at best in serious financial difficulty.

"I'm not quite sure what I can do to protect myself against this possibility and just hope that they don't decide to take action.

 

For further information contact Marion Tucker.

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.