In the divorce settlement Wendy Haines was awarded the former matrimonial home, worth £500,000, in Worcestershire and agreed that her former husband should pay her maintenance of only 5p per annum (referred to as a nominal spousal maintenance order).
Mr Haines was declared bankrupt in May 2005 and the trustees in bankruptcy launched a court action to obtain the former matrimonial home in order to pay his creditors.
In December 2006 the Birmingham County Court dismissed the trustee in bankruptcy’s application against Mrs Haines, allowing her to keep her home (as per the divorce settlement). The trustee in bankruptcy appealed to the High Court and was successful.
The court stated that the transfer of the former matrimonial home to Mrs Haines was a “transaction at an undervalue”, which could be set aside, effectively giving the trustees in bankruptcy priority over the divorce settlement.
Mrs Haines has now appealed to the Court of Appeal. If the High Court’s decision is allowed to stand, it would mean that for at least two, and possibly five, years after a divorce settlement was finalised, a divorcé(e) could be at risk of having their assets seized if their former spouse is declared bankrupt.
This clearly means many ex-spouses could undermine the divorce courts’ awards by declaring themselves bankrupt so as to defeat the matrimonial court’s order. In Mrs Haines’ case her legal team is arguing that, as she was given a nominal spousal order (5p per annum) rather than a substantive one, effectively in exchange for being allowed to keep the former matrimonial home, that amounts to substantial consideration such as to render ineffective the trustee in bankruptcy’s argument that the transaction of transferring the matrimonial home to her was a transaction at an undervalue.
The Court of Appeal is expected to reserve judgment and we will update you as to the result and the implications for divorce settlements as soon as the judgment is handed down.
Meredith Thompson