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When Matrimonial meets Insolvency

Article

When Matrimonial meets Insolvency

28 Oct 2022

3 minute read

Mrs A was referred to us by a matrimonial solicitor. The lady had been divorced several years earlier, at which time she and her then husband had agreed the matrimonial house was to be sold once the youngest child turned 18, and the equity split 60% to her and 40% to him.

When Matrimonial meets Insolvency - news article image

Mrs A was referred to us by a matrimonial solicitor. The lady had been divorced several years earlier, at which time she and her then husband had agreed the matrimonial house was to be sold once the youngest child turned 18, and the equity split 60% to her and 40% to him. 

It was a relatively amicable divorce and after a few years, the ex-husband re-married. At that time, a formal amendment to the divorce agreement was made, whereby Mr A’s share of the equity in the house would be held on trust by Mrs A for the benefit of their children. The amendment was formally drawn up between them, and duly signed by both parties. 

Unfortunately, though, neither party realised that where the interest in a property changed in such circumstances, it was necessary for such a trust to be registered at land registry. 

When we were approached, Mr A had recently been made bankrupt. As one would expect, the Official Receiver ‘OR’, acting as Trustee, was establishing the interest of Mr A in the matrimonial home. 

According to Land Registry, Mr A’s estate had an interest in the former matrimonial home. The OR had then written to Mrs A advising that they would be seeking to realise this interest. 

Mrs A contacted her former matrimonial lawyer in a panic, who then referred her to my colleague Hayley Simmons

We contacted the OR to inform them that we were instructed and were reviewing the position. The OR agreed to allow some time for us to establish to facts and substantiate our client’s position insofar that she held her ex-husband’s share of the property on trust for the benefit of their children. 

We reviewed all the paperwork and considered the relevant case law and the Insolvency Act. Based on the evidence, we put forward a case to the OR to refute any claim that the bankruptcy estate had an interest in the property on two fundamental points. 

Firstly, that it was clear that both parties had willingly entered into the amendment to the divorce agreement and that if a court was asked to consider the matter it would be unlikely to set aside the agreement just because of an innocent mistake of the parties in not ensuring it was registered. 

Secondly that the amendment was signed over five years prior to the date of Mr A’s bankruptcy and therefore it could not be considered as a transaction at an undervalue as it was outside the relevant time period set out in the Insolvency legislation. 

In our view the OR would have had to take the risk of making an application to court for the amendment to be set aside completely or making a claim that the amendment constituted a transaction defrauding creditors, which does not have a time limit but, requires the applicant to prove that both parties had committed a fraud which we believe would have been extremely difficult to prove. 

Fortunately, the OR accepted our client’s position and confirmed they would not be pursing the matter any further. 

We had a very relieved client.

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