As we previously reported on this site, in financial proceedings between Mr and Mrs Haines, Mrs Haines was awarded the family home and, shortly after settlement, Mr Haines was declared bankrupt.
His trustee in bankruptcy launched a court action to obtain the former matrimonial home from Mrs Haines in order to pay his creditors. Birmingham County Court dismissed the trustee in bankruptcy’s application but, on appeal to the High Court, the trustee in bankruptcy was successful. Mrs Haines then appealed to the Court of Appeal.
The Court of Appeal has decided that Mrs Haines can keep the matrimonial home, which was originally transferred to her as part of the settlement. The trustee in bankruptcy’s case was based on the argument that Mrs Haines had not given “consideration” for the transfer of the property to her, and therefore it was a transaction at an under value and should be set aside. The Court of Appeal decided that it was wrong for the High Court to have said that there was no consideration. As parties to a divorce have a right to apply under the Matrimonial Causes Act 1973 for financial relief (standard practice in divorce cases), the compromise of this right can amount to consideration. Further, it is not open to a trustee in bankruptcy to argue that, because the transfer of the family home ordered by the court did not give rise to a payment of money, that does not mean that the transfer is made for no consideration.
It is worth noting, however, that if there has been collusion between the parties to prejudice the bankrupt’s creditors (or some other factor such as mistake or misrepresentation), the ancillary relief order transferring the property could potentially be set aside.
The Court of Appeal concluded that it was not Parliament’s intention, and it would be contrary to the Matrimonial Causes Act 1973, if every order made in ancillary relief proceedings on divorce was automatically subject to being set aside at the behest of a trustee in bankruptcy of a party who had become bankrupt after the order has been made.
The judgment gives some comfort to spouses who are likely to be protected, in the absence of fraud or misleading of creditors, from having their divorce settlements set aside should one spouse later become bankrupt.
Meredith Thompson