[update 8/11/07 – now also see Family Lore post which notifies us of a further bankruptcy authority]
3 recent cases touch upon the implications of bankruptcy of a former spouse upon orders made in ancillary relief proceedings.
In Hill & Bangham v Haines  EWHC 1012 (Ch) HHJ Pelling (sitting as a HCJ) held that a property transfer order made in ancillary proceedings was potentially susceptible to an attack by the trustee in bankruptcy of the transferor as a transfer at an undervalue. This was so whether the order was made by consent or after a contested hearing. S339 Insolvency Act 1986 means that a trustee can apply to set aside a transaction whereby one spouse transfers his interest in matrimonial property to the other spouse in the absence of adequate consideration. The dismissal of the Wife’s other claims could not amount to the necessary consideration since an application for ancillary relief was not a cause of action and could not be resolved by binding contract (see Xydhias  2 All ER 386).
The provisions of s339 provide that a transaction whereby the value of the consideration given ‘in money or money’s worth, is significantly less than the value, in money or money’s worth’ of the property transferred that is a transaction at an undervalue and vulnerable to being set aside, notwithstanding the fact that such transaction is authorized by the court pursuant to the Matrimonial Causes Act 1973.The ratio expressly excludes cases where each party has been ordered to transfer assets to the other of substantially equivalent values, however the logic of the decision tends to suggest that regardless of the value of assets transferred pursuant to an order under the MCA such a transfer cannot amount to the necessary consideration.
Following immediately came Segal v Pasram & Pasram  Ch D (R Knowles QC) (7 Jun 07) where the court relied on Hill and Stack v Dowden  EWCA Civ 857,  1 FLR 254 to dispose of the attempt to circumvent the Trustee’s entitlement by way of a deed whereby the Wife purported to give up all her claims for ancillary relief along with £1,000 to the Husband in consideration for the husband’s share of the matrimonial property being transferred to her. In accordance with Hill and Xydhias, this was not consideration pursuant to a legally binding contract, even though it was executed by deed.
In Avis v Turner & Anor  EWCA Civ 748 the Court of Appeal held that a trustee in bankruptcy could apply for an order for sale in a case where jointly owned property was retained for the use of the wife. The property was held on a trust for sale, sale being postponed until the usual trigger events. The Court held that since the court would have had jurisdiction to entertain an application from the Husband pursuant to s14 ToLATA 1996 notwithstanding the absence of a trigger event, the trustee inherited the right to make a similar application along with the Husbands estate. However whereas any application made by the husband for an order for sale might have been very likely to have been refused, the trustee in bankruptcy is assisted by s335A Insolvency Act 1986 which provides that the interests of the bankrupt’s creditors outweigh all other considerations unless the circumstances of the case are exceptional. This places the spouse remaining in the matrimonial home in a vulnerable position as it will be very difficult to show exceptional circumstances.
The Wife in this case was unable to rely on s283A of the Insolvency Act which was enacted by the Entreprise Act 2002 and which provides that at the end of the period of three years beginning with the date of bankruptcy, any interest of the bankrupt in a dwelling house which, at the date of bankruptcy was the sole or principal residence of the bankrupt’s spouse ceases to be comprised in the bankrupt’s estate. That provision is subject to transitional provisions and will assist spouses in cases where the bankruptcy post dates 1 April 2004. However, there are likely to still be live cases where an estate vested in the trustee prior to that date, and increasingly where the trustee makes an application for sale within the three year period.
If five years elapses prior to the presentation of a successful divorce petition the wife will be safe from applications to set aside for transfer at an undervalue. Similarly, if a wife is not met with an application from a trustee for an order for sale within three years after her ex spouses’ bankruptcy she will be safe from an application of that sort. But undoubtedly both cases have serious potential implications for the spouse remaining in the matrimonial home, and demonstrate that there are risks for that spouse (usually the wife) whether the home is transferred outright to her, or held in joint names pending triggers, and whether the order is made by consent or not.
Nothing in this article is intended to constitute legal advice.