Bankruptcy And Your Divorce
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Getting divorced is one of life’s most stressful events. It’s never easy to go through a painful divorce separation, but if the person you are getting divorced from is bankrupt, or if you become bankrupt during the divorce process, things can be a thousand times worse.

Bankruptcy isn’t the end of the world, although it does make the divorce process a bit more complicated. If you have an experienced and specialist solicitor acting for you, they can guide you through both the bankruptcy and the divorce.

Bankruptcy and How It Works

It is important to understand the basic facts about bankruptcy and how it all works. Bankruptcy happens when a court in England issues a bankruptcy order against someone who owes money (the debtor). This happens when either the debtor applies to the court, or when the people who are owed the money (the creditors) apply to make the debtor bankrupt. Bankruptcy can only be happen when the amount owed is over £750. Once the bankruptcy is granted, the debtor’s name goes on a register of bankrupts known as the Individual Insolvency Register. There are also restrictions and rules placed on how the debtor uses his or her money, and assets are used to pay off the debts.

This all complicates matters if the person involved in the bankruptcy is currently going through a divorce, or is about to start divorce proceedings, especially if the debtor’s assets have to be shared with their spouse. Each country of the UK has slightly different processes and rules when it comes to bankruptcy, and in England and Wales people stay on the bankruptcy for 12 months before being discharged.

Effects on Divorce

The main effect a bankruptcy will have on a divorce is the financial settlement which you will be granted. In most divorces, the assets are divided between the two partners who are separating. If bankruptcy is involved, the assets such as equity in the family home will not belong to the debtor but to the Trustee in Bankruptcy.

If bankruptcy is a factor in your divorce, prepare yourself for the fact that the “pot” of assets to be split may be smaller than you had expected. If there is property involved, the debtor can’t just sign their half of the house over to their spouse without the permission of the Trustee in Bankruptcy, which isn’t always easy to get. The spouse will have to buy out the debtor’s share of the property at a reasonable price. If children are involved and maintenance money is due to be paid by the debtor, it is important to be aware that given that the Trustee will take most of their earnings and savings, there is often very little left over for lump sum or ongoing maintenance payments.

What Can I Do About Divorce and Bankruptcy?

The first thing to remember if a bankruptcy rears its head during your divorce is that you don’t have to go through it alone. Take the weight off your shoulders by turning to an experienced divorce solicitor who specialises in divorce, and they can handle everything for you. If the bankruptcy hasn’t actually gone through yet but is threatened by a spouse or their creditors, apply to the Family Court as soon as you can. Organising your financial settlement before the bankruptcy becomes final will save a lot of hassle in the long run.

There are also occasions where debtors apply to be made bankrupt in order to slow the divorce case down or make things more complicated for their ex-spouse. In some cases, if the debtor isn’t actually insolvent, the spouse can apply to the court and ask that the bankruptcy be annulled.

If you are seeking a specialist divorce solicitor, go to the Bonallack and Bishop website.


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