About Divorce and Bankruptcy

Most divorcing couples in UK may face serious financial implications because of bankruptcy or insolvency. In several recent cases, it has been seen how these financial issues affected the marital relationships adversely leading to separation of couples. In many cases, the matrimonial home of the couples has been sold by the trustee following a bankruptcy order on one of the partners. Such incidences have brought many cases to the family courts with couples seeking divorce on the grounds of their partners’ bankruptcy.

Financial ill-effects which one can face

After insolvency, the bankrupt person loses authority on his or her almost all the assets. They are instead controlled by the Trustee or the Official Receiver. This can have serious implications on the person’s relationship with his or her spouse.

If both the partners jointly own the matrimonial home, the ownership cannot be transferred in the name of the non-bankrupt partner unless the Trustee in Bankruptcy gives his or her consent. And this can be possible only if the spouse buys the share by paying a reasonable price asked by the Trustee in Bankruptcy.

In insolvency, the person’s savings and a larger part of the income has been controlled by the Trustee or the Official Receiver. In such conditions, the person would not be able to pay maintenance to his divorced spouse. Instead of paying a lump sum amount to his spouse, his larger part of income will be used to pay off the debts of the creditors.

In many cases, the effects of this financial crisis have also to be borne by the non-bankrupt spouse. The implications are so serious several times that the spouse too chooses to go bankrupt in order to not get affected by his or her partner’s bankruptcy and share or bear the responsibilities of the financial settlement. Their partner’s financial crisis frustrate them so much that bankruptcy appear a safe choice for them to remain away from their partner’s financial obligations.

Act quickly – apply to the Courts

For the couples facing such issue, the best thing is to resolve as much financial issues between them as much is possible prior to the declaration of the bankruptcy order. Since this can threaten a relationship, couples who are on the brinks of this financial crisis need to apply before the family court seeking appropriate orders implementing financial settlement between the couples, well before the orders are passed on one of the partners.

Even when the insolvency has already been implemented, the spouse of the insolvent person can make an application to the court seeking annulment of the insolvency of his or her partner, if the bankrupt is still not declared insolvent.

Claim against pension rights

The Trustee or the Official Receiver has no control on a bankrupt person’s pensions. Thus, a financial settlement between both the partners may minimize the severity of this issue when the pension amount is shared appropriately by both the partners. The family court enjoys rights to make some order in splitting the pension between both the partners and the court order is unlikely to influence the order of the family court in this regard.

There are several cases, in which bankruptcy may work in favour of a person’s spouse. Until some time ago, the person who owed money to his or her spouse as a divorce settlement could make application to make his or her former spouse bankrupt. But in 2005, the law was amended and the person is now being held responsible for the debts and the costs for the proceedings in the family court. The effected person has to pay for all these costs and his discharge from this financial crisis doesn’t release him from these debts. The person still owes those debts despite his bankruptcy period has ended.

With time, the bankruptcy law in UK has become less severe and the affected person is now being seen on more friendly terms, as financial difficulties can cripple anyone’s life and separation or divorce is one of those serious side-effects that people often have to face. But still the serious implications of insolvency on marriages cannot be ruled out and the financial settlement between both the partners can become a source of conflict. In such circumstances, a professional legal advice can be helpful in resolving the issues between both the partners, in case one of the partners has the risk of being declared bankrupt.

So, when you have debts and you are also heading for a divorce with your spouse, it will be more sensible to file for the bankruptcy before initiating the divorce process.

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