MATRIMONIAL OR CIVIL PARTNERSHIP PROCEEDINGS (BANKRUPTCY ONLY)
The Part concentrates on matrimonial or civil proceedings that are ongoing at the date of bankruptcy, but there is also advice on proceedings that are concluded prior to bankruptcy.
The court has the power to make an order transferring the interest of one party to the other party as part of matrimonial or civil partnership ‘divorce’ proceedings. Such an order in known as a property adjustment order.
A property adjustment order can often provide for a share in the former matrimonial home to be charged to one member of the divorcing couple on terms that the interest is released to them at a future point – the age of a child, for example.
Where matrimonial proceedings have been completed prior to the bankruptcy order, consideration should be given to their effect on the bankrupt’s interest in the property. In particular, a property adjustment order (see paragraph 31.3.281) may have been made which may have resulted in the property being transferred in whole or part to the bankrupt’s spouse or civil partner. Guidance on this is provided in Chapter 31.4A, paragraphs 31.4A.82 to 31.4A.85.
Where a property adjustment order is made, the transfer of the property does not have to have been effected before the bankruptcy order for the interest in the property to have passed (where, for example, the order provided that the transfer takes effect 14 days after pronouncement and the bankruptcy order is made in the interim period) [note 1].
The official receiver should still consider whether the property adjustment order was a transaction at an undervalue, following the guidance in Chapter 31.4A, paragraphs 31.4A.82 to 31.4A.85.
A consent order is where the parties to the divorce proceedings agree terms for the financial settlement and other matters. A property adjustment order (see paragraph 31.3.281) is one element of a consent order. The official receiver should be mindful that a transfer of property under a property adjustment order by consent is more likely to constitute a transaction at an undervalue (see paragraph 31.3.282) than a property adjustment order following hard fought divorce proceedings.
A consent order generally takes effect at decree absolute, but the wording of the order can provide that it takes effect at another date.
When the official receiver becomes aware of matrimonial or civil partnership proceedings still in progress and, in particular, that an application for a property adjustment order has been made, the official receiver, as trustee or receiver and manager, should immediately contact the court in which the proceedings are ongoing. The court should be informed of the bankruptcy proceedings and should make application for an adjournment or stay of the matrimonial proceedings, as required, to give the bankruptcy court opportunity to consider the interests of the bankruptcy creditors (see paragraph 31.3.292).
The official receiver should also give notice of the bankruptcy proceedings to the bankrupt’s spouse or civil partner and any solicitors acting for the bankrupt’s spouse or civil partner, where known, to ensure that the parties are aware of the bankruptcy and the official receiver’s (or prospective trustee’s) interest in the property.
Where matrimonial or civil partnership proceedings are ongoing, and depending on the value of the property to the estate, steps should be taken to ensure that a trustee (the official receiver or an insolvency practitioner, as appropriate) is appointed so that the bankrupt’s interest in the property vests in the trustee and is beyond claim by the spouse or civil partner. If necessary an urgent application should be made for the appointment of an insolvency practitioner as trustee, following the guidance in Chapter 17, paragraph 17.52).
It is possible for a property adjustment order transferring property from the bankrupt to be made in the period between the making of the bankruptcy order and the vesting of the property in the trustee because, between those dates, the property effectively still ‘belongs’ to the bankrupt.
The bankrupt is, however, prevented from disposing of his/her property during the period between the presentation of the petition and the vesting of the estate in the trustee without the consent, or subsequent ratification, of the court [note 2]. The property adjustment order would not be considered a disposition of property [note 3], but action taken giving effect to the order would.
In such circumstances, the early appointment of a trustee (see paragraph 31.3.286) is likely to be appropriate, possibly with an application to the matrimonial court for a stay of the property adjustment order in the interim (see paragraph 31.3.285).
An order against the bankrupt’s spouse or civil partner made prior to the making of the bankruptcy order requiring him/her to transfer or settle property on the bankrupt will be effective and the property will become part of the bankruptcy estate when the order is given effect.
If a property adjustment order is made after the bankrupt’s estate has vested in the trustee it will be negated if it requires the bankrupt to settle or transfer any property which forms part of his/her estate. This is because the bankrupt will, at that stage, no longer be entitled to the property (the interest having vested in the trustee [note 4]) and, therefore, the bankrupt will be unable to transfer the property, or any part of it, in accordance with the property adjustment order. Any requests for the official receiver, as trustee, to transfer the property should be resisted as the relevant law applies only to parties in the marriage/civil partnership [note 5] [note 6]. The court cannot make a property adjustment order against a trustee in bankruptcy [note 7].
A property adjustment order made after the date of the bankruptcy order against the bankrupt’s spouse or civil partner requiring settlement or transfer of property on/to the bankrupt will be effective notwithstanding the bankruptcy. The property should be claimed as after acquired property, following the general guidance in Chapter 31.8. After acquired property must be claimed within 42 days from the date the official receiver, as trustee, becomes aware of its existence (see paragraph 31.8.12).
A secured maintenance order is an order made by the court in matrimonial or civil partnership proceedings giving the spouse/civil partner security against the property of the other party (see paragraph 31.3.281). The enforcement of such an order should be resisted where it is made against a bankrupt after bankruptcy (see paragraph 31.3.285) or after the presentation of the petition (see paragraph 31.3.287).
It is generally desirable for any property adjustment order (or similar) to be determined in the court in which the bankruptcy order was made. The official receiver (as receiver and manager or trustee) should therefore make early application to the family court (attending the hearing if time is short) for a adjournment until the appointment of an insolvency practitioner as trustee or, as appropriate, for a stay of proceedings. The intention of a stay of proceedings are that that new proceedings are brought before the bankruptcy court.
The official receiver, as trustee, has no interest in the non-property/income aspects of the matrimonial or civil proceedings (divorce, custody, etc.) so any stay or adjournment should be in relation to those aspects of the proceedings relating to property and/or income.
After taking the initial steps to deal with the application for a property adjustment order (see paragraph 31.3.285), the official receiver, as trustee, will have to consider the effect of the application on the property of the bankrupt, making representations to the court as appropriate. The official receiver should be particularly concerned to see that any proposed order does not diminish the assets available to creditors and should also take into account the effect of any proposed order on the ability of the bankrupt to (continue to) make payments under an IPA/IPO (see Chapter 31.7).
Paragraph 31.3.93 provides guidance on dealing with the bankrupt’s interest in the family home in the form of a charge following matrimonial proceedings.