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Credit Crunch – Beware – MARK II!

We are now seeing a number of cases where clients, having thought that they had mortgage or loan facilities, have faced a number of additional queries from proposed lenders, presumably designed to postpone or even perhaps extinguish the actual provision of funds.

The crisis has produced another spectre – Bankruptcy. This causes shivers in the spines of matrimonial lawyers because the presentation of a Bankruptcy Petition can, at a stroke, destroy months of negotiations or court proceedings. Until the recent case of Hill –v- Haines was resolved by the Court of Appeal, it was also possible for a Trustee in Bankruptcy to apply to overturn an otherwise valid Matrimonial Financial Order, even years after the event. Fortunately, sanity was reinstated but only where there was no evidence of collusion, fraud or possibly even lack of enquiry.

Again this emphasises the need for full provision of financial information before meaningful negotiations take place. After all it would be unwise, if not reckless, to commit to buying a car for say, £10,000 without seeing the vehicle or having any details in relation to it.

If there is a risk that a persons’ liabilities exceed his or her assets, beware – especially if a transfer of property is envisaged as part of the settlement.

With falling house, share and investment values, over-extended mortgages and multiple loan and credit card liabilities, such a situation will not be uncommon.

If you are the intended recipient of a property transfer, it is vital that detailed enquiry is made to satisfy yourself that your spouse is not insolvent. You will also need to include a Declaration of Solvency clause in the proposed Order and you may then be able to successfully fight off any later application by a Trustee in Bankruptcy to set aside (cancel) the property transfer. (Trustees in Bankruptcy have a duty to try to recoup, within reason, all available assets to enable them to distribute a dividend amongst the bankrupt’s creditors. A bankrupt’s share in a former matrimonial home may often be the only asset left).

This area of law is a minefield and so it is extremely important that clients seek advice from experienced specialist family lawyers as soon as problems arise in a marriage.

January 2009

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