Bankruptcy, Divorce and the Family Home
Family Expert Adrian Rose looks at the impact of bankruptcy on divorce and the family home
Bankruptcy and Divorce
Over the course of the past few months, we have received a greater than normal number of requests for advice about bankruptcy and divorce. Especially about the family home and what might happen to it when one of the couple or the other is bankrupt or is facing bankruptcy or threatening to make themselves bankrupt. Unfortunately, it is not uncommon for bankruptcy proceedings to happen at the same time that divorce proceedings are ongoing, and this can create conflict when it comes to the division of assets.
What Impact does Bankruptcy have on Divorce?
For family lawyers and divorcing parties, the impact of bankruptcy can have a dramatic effect on divorce proceedings and can sometimes mean that the family court cannot deal with any financial applications (including in relation to property) when couples divorce.
Whereas the family court will look to make an order in respect of the assets taking into account, amongst other things, the future needs of the parties and the children, the bankruptcy court will look to divide the assets on the basis of property law, with the creditors’ needs at the forefront. This can create tension and, for family lawyers and divorcing parties, this impact needs to be carefully considered and worked through to ensure any potential damage is limited and the best outcome for all concerned achieved.
Why is the Timing of Proceedings Important?
Where divorce and bankruptcy proceedings overlap, the timing of any orders made by the Courts is often key.
If a bankruptcy petition is presented to the court or a bankruptcy order is made before the family court makes an order dealing with property such as the family home, then the family court will not be able to deal with it. Only the bankruptcy court has the power to deal with the bankrupt’s assets, as those assets will then be managed and controlled by his or her trustee in bankruptcy (trustee) who is required to deal with those to pay off the creditors as far as that is possible.
If the family court has made an order dealing with the property before a bankruptcy order is made but after the bankruptcy petition is presented, then the situation is slightly different – an application to the bankruptcy court will be required to approve the family court’s order. In general terms, such applications are unlikely to be successful.
The situation is different again, if the property order is made by the family court before the bankruptcy petition is presented, then it will bind the trustee.
Potential Challenges
Challenges to family and bankruptcy orders are possible in certain circumstances. These are commonly on the following bases:
- The making of the bankruptcy order can be challenged if the order should not have been made. The most common examples are that the bankrupt was not insolvent at all and/or the bankruptcy was engineered in an attempt to defeat the divorce proceedings.
- The family court’s property order can be challenged by the trustee if there are factors which gave rise to the order being made tainted, such as collusion or fraud.
In Conclusion
As all cases are completely different, it is difficult to give hard and fast rules when faced with a situation when one of the parties is facing bankruptcy. Early and specialist legal advice should be sought where couples are separating and bankruptcy occurs or is threatened to ensure that the most fair outcome is obtained.
To find out more about divorce proceedings pleas get in touch with me on 01332364436 or at a.rose@timms-law.com.
Adrian Rose
March 2020