Bankruptcy can have far reaching and often adverse implications for divorcing couples as shown by several recent cases heard by the Court of Appeal. In one, Avis v Turner & Another 2007, the appeal questioned the powers of the Court when a trustee in bankruptcy (Charles Turner) had applied for an order to sell the former matrimonial home in which the bankrupt (Mr Avis) had an interest.
As part of the financial aspect of the divorce proceedings in 1985, the ownership of Mr and Mrs Avis’s property was varied so that Mrs Avis would own two thirds of the property and Mr Avis, one third – which he would only receive in the event of Mrs Avis remarrying, cohabitating, selling or dying.
Mr. Avis subsequently became bankrupt and his one third share vested in the Trustee under Section 306 of the Insolvency Act 1986. In 2005 the Trustee made an application to sell the property so that the one third share could be realised. Mrs Avis was still living in the property and, with Mr Avis, opposed the application.
The presumption that the interests of the bankrupt’s creditors outweigh all other considerations is subject to the important wording "unless the circumstances of the case are exceptional". Prior to a further hearing where Mrs Avis could file evidence pertaining to the exceptional circumstances that would displace the presumption, she appealed the Order of the District Judge to the High Court stating that none of the events specified in the 1985 order had occurred and, therefore, the application brought by the Trustee should have been dismissed.
This appeal was dismissed and sent back to the District Judge to determine whether there were circumstances to displace the statutory assumption that the Bankrupt’s creditors should take priority.
An appeal to the Court of Appeal was also dismissed resulting in the matter proceeding to a hearing on the merits as intended by the District Judge and the High Court Judge. If Mrs. Avis does not succeed in proving exceptional circumstances, the property will have to be sold which means she will lose her home of 20 years unless she can buy out the one third share owned by her former husband.
November 2007
For an updated article on bankruptcy and divorce, click here.
