Bankruptcy and Divorce13 Aug 2019 | Lisa Pepper
Will my spouse declaring bankruptcy affect my divorce settlement?
The case of Hayes v Hayes (2012) EWHC (Ch) (Chancery Division (23.03.12) (unreported presently) is one of the first cases to give some guidance to the discretion granted to the family court in section 281(5) of the Insolvency Act 1986. The case deals with a husband and wife in divorce and financial settlement proceedings.
When an individual goes bankrupt, his or her assets are held to be distributed amongst his/her debtors by an appointed Trustee in Bankruptcy. The people the bankrupt owes and Trustee generally agree that a set number of pence in the pound will repay the debts.
Section 279(1) of the Act provides that the bankrupt will be discharged automatically one year after the commencement of the bankruptcy and section 281 provides that, subject to certain exceptions, the bankrupt will be released from bankruptcy upon discharge.
Section 281(5) sets out one of these exceptions in providing the court with the discretion to release a discharged bankrupt from a debt arising from a family order. Until recently there was neither a definition in the legislation nor specific guidance in the case law to guide how the court’s discretion should be exercised.
With regards to Hayes v Hayes, a costs order was made against the husband which remained unpaid. The wife then brought about the bankruptcy of the husband. The husband remained bankrupt and was discharged from bankruptcy a year later. The wife made several failed attempts to seek the money due under the costs order and the husband made an application to be released from the family-related debt in reliance on the court’s discretion in section 281(5). Judge Pelling QC on appeal said that it was not appropriate to discharge the debt. It was also agreed that the court held a discretion to discharge debts under s 281(5). Judge Pelling QC considered the ‘default position’ that ‘family orders had to survive the discharge of a bankrupt and remain subject to an order of the court requiring the discharge of the debt.’ The consequences of discharging a debt would make the debt forever unenforceable and could not be considered to be a fair outcome for the wife.
It was therefore held that it was wrong to use the question of the husband’s present limited earning capacity as a springboard to discharging the debt. The judge did not rule out the possibility of ‘some future time’ when a lack of ability to repay the debt could lead to a discharge. He did not give any further indication of when that time may be or conditions to be relied on in order for the debt in family proceedings to be discharged.
Go to our divorce or financial issues on divorce pages for more information on how can assist you in your divorce. You can also look through our family law pages to see all the other services we provide. To speak with one of our divorce solicitors contact us by:
Filling in our online enquiry form; or
Calling us on 020 7485 8811
Share this article
Lisa Pepper Partner
Speak to us about Bankruptcy and Divorce
For a free initial conversation call 020 7485 8811
Email us Send us an email and we’ll get back to you
Does it matter if you’re a breadwinner...
When it comes to deciding how wealth is split, English courts do not discriminate based on your role within the...Read more
Are trusts protected from divorce?
Can trusts protect an inheritance from your spouse? A trust is a separate legal entity. Neither spouse owns its assets. ...Read more
Is a limited company protected from divorce?
Is my spouse entitled to half of my business? If you are involved in running a limited company, then it...Read more
How is a pension split in a divorce?
Pensions and Divorce In a divorce, pensions are taken into account together with all other financial assets. Once all assets...Read more
Who gets the house in a divorce?
How is a house divided in a UK divorce? For most people contemplating divorce, one of the main concerns will...Read more
How to set aside an order in financial...
My ex-spouse didn’t tell the truth about their finances when we divorced, can anything be done? Can the financial...Read more
Pension sharing on divorce
What is the new procedure for pension sharing? Pensions are one of the biggest assets of a marriage, yet many...Read more
My ex has cut me off during divorce
Can my spouse cut me off financially? Unfortunately, it is far too common that when a client says it’s...Read more
How the Court views loans from parents during divorce A frequent issue in financial divorce cases is a loan from...Read more
Mesher Orders Explained
What is a Mesher order? A Mesher Order allows the sale of the family home to be postponed in a...Read more
Private Financial Dispute Resolution (FDR) for Divorce
Private FDR helps divorcing couples reach a financial settlement Our specialist divorce lawyers are keen to ensure our divorcing clients...Read more
Negotiating financial settlements in divorce
Costly and acrimonious divorces: a lesson in what not to do If you’re determined to pursue your financial claims...Read more
Uncovering hidden assets in your divorce
Hiding Assets During a Divorce As part of your divorce, you and your ex will have to agree on how...Read more
Case Law Divorce Settlement
6 cases that shape your divorce settlement Part of what makes our divorce lawyers experts in their field is knowing what...Read more
Does Divorce Revoke A Will?
Divorce and Wills In the midst of a divorce or separation, it’s rare for couples to think about making...Read more
Beneficial Interest in Property
Andrew Watson, a London-based divorce lawyer in our family department and Resolution accredited cohabitation lawyer, summarises the law in relation...Read more
Divorce in your 60s – The Financial Implications
How common is a divorce in your 60s? The latest divorce figures from the Office of National Statistics (ONS) show...Read more
Tax and Divorce
Tax implications for divorcing couples As the end of the Stamp Duty holiday looms on 31 March 2021, that is not the...Read more
Setting aside a financial remedy order
What has been the impact of the coronavirus pandemic on financial remedy orders? Can you do it at all? Barder...Read more
The Resurrection of Calderbank Offers When a couple divorces, they are encouraged by the Courts to consider other dispute resolution...Read more
Bankruptcy and Divorce
Will my spouse declaring bankruptcy affect my divorce settlement? The case of Hayes v Hayes (2012) EWHC (Ch) (Chancery Division (23.03.12) (unreported...Read more
Self-Help in Financial Remedy Proceedings
One of the first things we explain to clients who are getting divorced is that, when it comes to financial...Read more
Effect of Delay on Financial Relief Claims: Vince...
Wyatt v Vince This unusual case demonstrates the risks of failing to bring a financial claim on divorce promptly, or,...Read more
Supreme Court Hands Down Judgement in Mills v...
The Supreme Court today handed down judgement in the case of Mills v Mills, setting aside the order made by...Read more