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Divorce, court orders and bankruptcy

27 June 2008

A heady mix indeed, and the recent case of Haines v Hill involved all three. The decision was an important one and divorce lawyers were hugely relieved at the outcome.

In summary, Mr & Mrs Haines had been married for 12 years when they divorced. In the settlement, the court awarded Mrs Haines the house. But when Mr Haines declared himself bankrupt, his Trustee in Bankruptcy tried to overturn the transaction.

Where a transaction (typically transfer of a property) is made for ‘no consideration’ (ie either no money changes hands or the transfer is at undervalue) and the transferor later becomes bankrupt, his Trustee can go back up to five years and overturn such a transaction. He would claim that this was a’ transfer at under value’, which is contrary to the Insolvency Act 1986.

In this particular case the court had to consider whether a property, transferred to a wife as a consequence of divorce and an order made by the court, was open to attack by the Trustee.

The Trustee argued that there was ‘no consideration’. The original judge disagreed. The High Court overturned the ruling then Mrs Haines appealed and won. In other words, the court order itself amounted to ‘sufficient consideration’. It could only be set aside if the parties were colluding or there was some other factor such as fraud.

This notable decision has reinstated the law as it previously was. In effect the court has said there must be a fair balancing exercise. Creditors must be protected against any property adjustment orders that may have been made with the intention of putting assets out of their reach. Equally, orders made justly and to protect one of the parties to the marriage, must also be safeguarded.

They backed away from a straightforward choice in favour of creditors and said that each case must now be looked at on its own merits. With uncertain economic times ahead, the decision may become increasingly significant.

Jonathan Eager is a specialist in matrimonial and family law. A qualified legal executive, he has worked in Gloucestershire since the mid-1990s.

Contact jonathan.eager@willans.co.uk

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