31 October 2012
Family Law Paralegal Jennifer Nash discusses the question: is Bankruptcy a licence to avoid Divorce obligations?
An ex-husband is taking his case back to court in an attempt to argue that his bankruptcy prevents his ex-wife claiming her entitlement to payments under a Financial Settlement in Divorce Proceedings. It is reported in The Telegraph that Alexander and Mandy McRoberts separated back in 2003 and subsequently agreed a financial settlement. Part of this settlement provided for a payment of more than £500,000 by Mr McRoberts to his former wife in instalments. However, in 2006 Mr McRoberts, a formerly successful boss of a company with a multi-million pound turnover, was declared bankrupt. Mrs McRoberts became a creditor in the bankruptcy for the balance of her lump sum, to the tune of £349,000 (having already received £211,000). Mr McRoberts’ bankruptcy was discharged in 2007, and he apparently re-established himself as CEO of an international baggage handling firm.
Mrs McRoberts continues to pursue her former husband for the balance of what he owes her under the Divorce settlement. For his part, Mr McRoberts argues that the entitlement was extinguished by the bankruptcy.A decision has been reserved to a future date. The outcome will have a huge impact on future financial settlements. Understandably, Mrs McRoberts and her legal team are concerned that a decision in favour of her former husband will create a neat loophole through which unscrupulous spouses can flout financial obligations arising through Divorce. After negotiating for many months and spending potentially thousands of pounds in legal fees to reach an agreement, what is to stop a person from declaring themselves bankrupt to extinguish the debt owed to their former spouse? The Judge hearing the case, Mr Justice Hildyard, has made it clear he understands the gravity of his decision. He is reported as saying, “I don’t want to do anything that suggests that so long as you go into bankruptcy that is the gateway to avoiding the family court's orders." Whilst his Lordship mulls over the parties' submissions, practitioners in the throes of negotiating financial settlements should bear this case in mind. We await the Judge’s decision with great interest.
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