How the Insolvency Act works in divorce13 Aug 2019 | Lisa Pepper
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 remedy 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 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 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
Insights from our London Divorce LawyersVIEW ALL
My ex has cut me off during divorce
Unfortunately, it is far too common that when a client says it’s over, their spouse with the “purse strings”...Read more
How the Court views loans from parents during...
A frequent issue in financial divorce cases is a loan from a spouse’s parent, often to pay legal fees,...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
Divorcing couples reaching financial settlement through Private FDR
The Runaway Advantages of the Private FDR Our specialist lawyers are keen to ensure our divorcing clients achieve cost-effective outcomes...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
I helped build my spouse’s career
What is the impact on our divorce settlement? It’s been almost two years since The Da Vinci Code author...Read more
6 cases that shape your divorce settlement
Part of what makes our divorce lawyers experts in their field is knowing what way a judge is likely to...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 implications for divorcing couples
As the end of the Stamp Duty holiday looms on 31 March 2021, that is not the only deadline that separating and...Read more
When can you claim PPR Relief on more...
Family lawyers are familiar with ‘Mesher Orders‘ where the court orders that as part of the financial settlement on divorce,...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
Divorcees could appeal financial settlements if they lose...
Billions of pounds have been wiped off shares as uncertainty builds amid the coronavirus crisis, but what does this mean...Read more
Financial Cases on Divorce – The Resurrection of Calderbank...
When a couple divorce, they are encouraged by the Courts to consider other dispute resolution options such as mediation: before...Read more
Help! I’m divorcing but want to protect...
The number of self-employed workers in the UK is on the rise, with almost five million of us choosing to...Read more
How the Insolvency Act works in divorce
The case of Hayes v Hayes (2012) EWHC (Ch) (Chancery Division (23.03.12) (unreported presently) is one of the first cases to give...Read more
Managing Finances When Divorcing
Divorce Day Believe it or not, January is considered divorce season among solicitors and lawyers. There is even a phenomenon...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