Financial problems are one of the most common factors in family relationship breakdown, so divorce cases are not uncommonly carried on against a background of insolvency.
A recent case shows the sort of problems that can arise. It involved a couple who had recently divorced and who jointly owned a house. They were in the process of negotiating the financial settlement between them. At the same time, the husband’s business was in difficulty. Six days after a bankruptcy petition was presented against him, the negotiations regarding the divorce settlement were concluded, giving his ex-wife (who had remarried) a 75 per cent share of the net proceeds of sale of the former matrimonial home, which was a farm.
The ex-wife contested this, on the basis that although the petition was presented before arrangements were complete, the agreement had already been made. She had issued her petition for ‘ancillary relief’ (the legal term for a financial settlement) in the same month as the decree nisi was issued and the couple had been negotiating the position for more than two years, agreeing the basis of settlement some six months before the bankruptcy petition was served. Furthermore, she argued, the contract for sale of the property had been made the day before the bankruptcy petition was served.
Whilst the agreement made provided that the property should be sold and three quarters of the net proceeds should go to the ex-wife, there was no variation in the interests in the property prior to the sale.
Under the Insolvency Act, where a person is adjudged bankrupt, any disposition of property made by that person, commencing with the day the bankruptcy petition is made, is void.
This case raises the interesting possibility that had the negotiations been dealt with differently (by the prior transfer of the 75 per cent interest, rather than the ex-wife’s entitlement to the interest arising on the sale of the property) and an order been made to that effect, the result would have been different.
Warwick (formerly Yarwood) v Trustee in Bankruptcy of Clive Graham Yarwood  EWHC 2272 (Ch).