Divorcee seeks change in law to protect her home

A divorcee who faces losing her home after her former husband was declared bankrupt will today seek a change in the law which could benefit thousands of other ex-wives threatened with financial ruin by their spouses' creditors.

Barristers for Wendy Haines will try to persuade three appeal court judges to grant her protection against her ex-husband's creditors, who are trying to recoup money on the home she was awarded in her divorce settlement two years ago.

Under existing law, any spouse who has been paid a lump sum or awarded property can be forced to hand it back if their partner is declared bankrupt within five years of a marriage dissolution.

Mrs Haines jointly owned a property near Stourport-on-Severn, Worcestershire, with her husband, David. The couple divorced in early 2005 after an acrimonious court battle culminated in a two-day hearing at which it was decided Mrs Haines should be given a 100 per cent interest in the former matrimonial home.

After months of legal proceedings, Mrs Haines thought matters had finally reached a conclusion.

She was not granted a lump sum because of the risk, the judge said, that Mr Haines might become bankrupt in the near future. In March 2005, he filed for bankruptcy with liabilities estimated at £132,000.

At the time, lawyers predicted that trustees in bankruptcy would start "rummaging through their files" to see whether there were assets in other divorce cases they could proceed against. It is estimated that the decision could affect at least 20 per cent of the 120,000 people expected to file for bankruptcy this year.

As a consequence of his bankruptcy, Mr Haines's estate became vested in the trustees, who were responsible for securing any assets so that his creditors might be paid at least part of what they were owed.

In December 2006, the trustees went to court to challenge the divorce settlement in an attempt to help pay off Mr Haines's creditors.

But the judge ruled in Mrs Haines's favour, allowing her to keep her home. The decision had wide-ranging ramifications for the insolvency profession as a whole.

Transactions concerning transfer of property just before a bankruptcy are often investigated by trustees as a potential source of recovering assets to the benefit of creditors.

At the High Court in London earlier this year, Mrs Haines was ordered to hand half of the proceeds from the sale of her home to her husband's trustees.

That ruling was confirmed in June when Vivienne Avis, a divorcee from Kirkby, Merseyside, lost a similar case. A court ruling made it clear that divorce settlements can be overridden if the partner moving out falls on hard times and is declared bankrupt.

Mrs Haines is being represented by the Worcester-based law firm Harrison Clark and barristers from St Philips Chambers in Birmingham.

Her team is expected to argue today that the case is hugely significant because it goes to heart of the principle of the "clean break" settlement, which allows divorcing couples to make plans for their futures after separating.

Before the Haines ruling, divorced wives enjoyed the certainty that they could stay on in the marital home until their children grew up, or either they or the ex-husband remarried, or if one or other of them died.

A spokeswoman for Harrison Clark said yesterday: "Parties who previously thought a clean-break order from the divorce courts was sacrosanct will have to think again unless Mrs Haines is successful in her appeal.

"On the basis of the present law, a nasty letter could always drop through the letter box of a divorcee."