In the current economic environment, more individuals are likely to find that they are unable to pay their debts or will need to take action to manage their debts.
When faced with financial difficulties where debts have become too difficult to service, individual insolvency proceedings might be unavoidable, and an individual might consider entering into an individual voluntary arrangement (IVA) or might be made bankrupt.
Either way, this could have a significant bearing on a financial settlement if that individual is divorcing or separating from another and could make a divorce or separation more stressful and complicated than it would otherwise have been. In some cases, a financial settlement which has already been agreed, might be affected if one of the parties subsequently becomes bankrupt.
A bankrupt’s ability to raise a mortgage to secure a home will be affected and there is inevitably a conflict between the trustees in bankruptcy and the rights of the bankrupt’s family. The trustee in bankruptcy owes duties to the bankruptcy creditors and is under a duty to realise the assets in the bankrupt’s estate as quickly and effectively as possible. This could be to the detriment of the bankrupt’s spouse / partner and their children.
In financial remedy proceedings, the court has powers to redistribute assets and income between spouses following the breakdown of the relationship in order to ensure that a fair settlement is reached. When trustees in bankruptcy are involved, this inevitably becomes more complicated.
Depending on whose name the family home is in, issues regarding the occupation of the family home and protecting the home from the trustees in bankruptcy are likely to arise.
Timing is often critical and if there is a possibility of insolvency proceedings, immediate advice should be sought so that both parties have a full understanding of the impact of insolvency proceedings on a financial settlement. Likewise, if the finances have recently been agreed and a party subsequently becomes insolvent, advice should be sought.
Edward Bible, a solicitor and licensed insolvency practitioner at Blaser Mills Law commented: “The cost of living crisis and the increase in interest rates is likely to put pressure on the finances of a large number of individuals. Financial pressures are inevitably exacerbated where a couple divorce or separate as it usually leads to additional costs alongside a dislocation in the family and sometimes a reduction in income. Where individuals are considering taking action to end a relationship, and one of the parties is facing possible insolvency, it is important to take early advice to secure assets and minimise the impact on the insolvent individual’s partner and their children.
Get in touch
Whether you require assistance during a divorce or separation or need to escalate your matter in relation to insolvency, please get in touch with Lucinda Holliday on ljmh@blasermills.co.uk or Edward Bible on ceb@blasermills.co.uk.