Divorce and Bankruptcy

Published: 20th September 2007

The recently decided case of Hill v Haines has made a significant change to people whose spouse or former spouse becomes bankrupt after financial matters within divorce proceedings have been resolved.

The decision in the case has effectively closed the loophole protection that spouses enjoy over their share of assets ordered on divorce.

It means that if in the future a husband or wife goes bankrupt, their spouse or former spouse will be exposed to creditors over assets won in a contested divorce. Bankruptcy trustees will be able to pursue the non-bankrupt spouse or former spouse for up to five years. Importantly, the decision also applies retrospectively to divorce orders within the past five years.

It is estimated that this could affect 20% of the 120,000 people expected to file for bankruptcy this year.