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Financial Times Wealth Questions: what happens if a spouse files for bankruptcy during divorce?

Date: June 12th, 2010 - Written by: Brookman Solicitors

Divorce Solicitor, Henry Brookman addresses the impact of recession-induced bankruptcy during divorce. Printed in the Financial Times.

After the wife of a successful businessman learns her husband intends to file for bankruptcy during their divorce, she asks the FT what her options are. Henry Brookman provides the advice.

Will you be entitled to a financial settlement?

Firstly, even a rapidly concluded financial settlement may not protect you if your husband subsequently files for bankruptcy. If your husband is declared bankrupt, a trustee will take over your his financial affairs. If your house is in joint names, then you will be entitled to half of its value once sold. If your home is only in your husband’s name, you may be able to argue to the trustee that your contributions to the house were sufficient to show that half had been held by your husband in trust for you. Failing this, the best you can hope for is twelve months’ occupation of the house before the trustee can sell it to pay your husband’s creditors.

Concerned that the bankruptcy is not genuine?

If you have concerns that the bankruptcy is being engineered to conceal funds your husband has elsewhere, you will face the often expensive and difficult task of proving this is the case. The Trustee will make enquiries to establish what assets your husband has, but payment of the business’ creditors will take priority. If your husband can pay his creditors in full, this would suggest there is a surplus of funds for your claim.

Does the timing of the settlement and bankruptcy affect the outcome?

The more time between the settlement and the bankruptcy, the better. If the bankruptcy takes place within six months of your settlement it will be clawed back. If the bankruptcy takes place over six months after the settlement date (and assuming you are divorced by this time) the trustee will then focus on whether you took assets for an artificially low price – known as a ‘transaction at under value’.

For more information, read the recent Brookman article regarding bankruptcy during divorce, or contact Brookman Solicitors directly for more advice.

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