If you think divorce signals the end of your financial relationship with your spouse, think again. Depending on the outcome of a current Court of Appeal case, ex-partners may find that assets awarded to them during a divorce could be taken away if their former spouse goes bankrupt within five years of the split.
Wendy Haines was awarded the proceeds of her matrimonial home in a divorce settlement in 2003. When her ex-husband went bankrupt two years later, the bankruptcy trustees sought to set aside the divorce order and recover the money from the sale of the home. Their initial attempt failed, but in May this year a court ruled Mrs Haines could be forced to hand over the assets awarded to her. She appealed and is now awaiting a decision, which should be made before the new year.
If Ms Haines loses, it could open the way for other divorcees to lose assets. "There is a period of vulnerability," explains Ann Thomas, a solicitor at Boodle Hatfield. "If the individual is insolvent at the time a settlement is made, there is a five-year period in which assets are at risk. If not, the period of vulnerability is shortened to two years."
Ms Thomas says the case could lead to situations in which disgruntled spouses deliberately incur debts in order to overturn an award. "There is a chance that a particularly malicious husband who has had to give part or all of the family home to his wife could live a reckless life which would lead to bankruptcy. The ex-spouse could then be pursued by the creditors."
But she adds that even if Ms Haines loses, it would not necessarily put all recent divorcees at risk. "In this case, the bankruptcy was foreseeable at the time of the divorce. I think this case belongs in a different bracket from one in which there is no prospective disaster looming. I think it is unlikely we will see that a spouse is vulnerable every time there is a bankruptcy within five years."
The result of the case will coincide with what family lawyers call divorce season. "There are always a very high number of petitions in the new year. People are thinking about starting afresh," says Ms Thomas.
If you are contemplating a split, she has some advice: choose a solicitor who is a member of Resolution an organisation set up to promote a non-confrontational approach to divorce.
Also, do not expect everything to be divided equally. There a number of factors at play, such as what assets each party brought to the marriage, whether there are children, and the needs of the divorcing parties. What's more, conduct during the marriage has little influence on the nature of the financial settlement. In other words, even if one spouse is unfaithful or violent, their actions do not automatically translate into a more beneficial settlement for the other spouse.
Divorcing women, in particular, are urged to consider future pension provision.