Archive for January, 2011

The Family Home and Bankruptcy

The past few years have seen a rise in personal bankruptcy in the UK as the levels of consumer debt increase and individuals struggle to pay their bills. With the looming threat of unpayable debt it is foreseeable that homes may be at risk.

 It is an unfortunate reality that single parents together with separated and divorced people in the UK are statistically the most likely to fall into serious debt. This blog considers the position where one party to a divorce is declared bankrupt and the impact this has on the right of the other spouse in the family home.

 When someone becomes bankrupt their property automatically vests in (i.e. passes into the control of) the trustee in bankruptcy. This includes any interest in the family home. However, the bankrupt can retain sufficient assets to meet the basic needs of himself and his family.

 When it comes to the family home, the law has to balance two conflicting interests: those of the trustee and creditors and those of the bankrupt as well as his family.

 The most frequently occurring situations are:

 1.Where the bankrupt remains in the family home and

2.  Where the bankrupt is separated but his family remain in the home.

Where the home is owned and occupied exclusively by the bankrupt, there may be an immediate sale for the benefit of the creditors. However, if there are others living in the home, for example a spouse and/or dependent children, then the Trustees have to make an application to the court for an order to sell the property. Generally speaking if someone has acquired occupation rights, they are entitled not to be evicted without a court order. Where the Trustee in Bankruptcy applies to the court for an order for sale or possession of the property, the court must have regard to the following:

Where the spouse/civil partner is living in the home

-          the interests of creditors

-          the conduct of the spouse  so far as it contributed to the bankruptcy

-          the needs and financial means of the spouse

-          the needs of any children

-          all circumstances surrounding the case

-          but not the needs of the bankrupt themselves (unless there are exceptional circumstances)

It is important to note that the non-bankrupt spouse’s rights of occupation which are registered as a charge against the property subsist notwithstanding the bankruptcy.

Where a minor child is living in the home

-          the interests of creditors

-          the financial resources of the bankrupt

-          the needs of the children

-          all circumstances surrounding the case

-          but not the needs of the bankrupt (unless there are exceptional circumstances)

Where the bankrupt and their spouse are getting divorced then the trustee in bankruptcy may be joined to financial proceedings where a final order has not yet been made. In those circumstances the court will require that any application in relation to the family home issued by the trustee be heard at the same time as the application for financial relief. The trustee may therefore become quite involved in the financial proceedings and may ask for any financial disclosure provided by the bankrupt. This may reveal assets and income previously undisclosed to the trustee which might then form part of the pool of the bankrupt’s property available to creditors.  

If final order has been made in relation to the property prior to the commencement of bankruptcy proceedings, the order cannot be challenged by a trustee in bankruptcy.

It may be the case that both parties are not married but are cohabiting. A cohabitant living with the bankrupt, other than a child, who has no legal or beneficial interest in the property, generally has no home rights unless an occupation order is in force which has the effect of delaying eviction for a certain period of time. If there is no occupation order, then it is likely that the trustee will be able to evict the cohabitant without a court order. Even if the cohabitant can say they are a tenant or licensee of the bankrupt, this will not necessarily offer them protection against eviction.

At the end of the bankruptcy, many debts cease to exist with some exceptions such as arrears of spousal maintenance and child support for which the bankrupt remains liable.

Top Tips

  1. Check whether the property is held in joint names or in one party’s sole name. If the party is held in the bankrupt’s sole name, then the spouse may be able to establish a beneficial interest in the property that affords them rights as an occupier. For example, have you contributed towards a mortgage? 
  2.  If you are the non-bankrupt spouse, register your beneficial interest in the family home as soon as possible with the Land Registry.

 This is a complex area and specialist advice should be sought if you believe you may be affected, directly or indirectly, by bankruptcy.

 For more information contact info@flip.co.uk

Discrimination against men?

For many years the law of financial provision on divorce in England and Wales has been governed by the provisions of the Matrimonial Causes Act 1973. The courts are required to take into account the different factors of the case listed in s25 (http://www.legislation.gov.uk/ukpga/1973/18/section/25/2006-01-01) For many years after that until the House of Lords decision in the case of White in 2000 it was generally thought that the application of the law in s25 was discriminatory against women. White changed all that. From then on the courts were to regard as equal the contributions of the home maker and those of the bread winner. Discrimination was at an end. A close read of the provisions of s25 reveal that there is no discrimination in the wording. The law is (and always was at least in the statute) gender blind.

However, it seems that discrimination may still exist in the increasing number of cases where the wives are the ones with the wealth.  The recent Supreme Court case of Radmacher v Granatino (see our blog http://www.flip.co.uk/blog/?p=151 ) would, according to informal discussions amongst family lawyers, have been decided differently if Mr Granatino had been the wife. That is a point that might be debated for ever but anecdotally family lawyers in England and Wales report that men without wealth do less well in their financial claims than women without wealth.

In a recent case in the High Court (KvL 2010), a husband after a long marriage of 20 years, was awarded less than 5% of the total assets. Admittedly the substantial family wealth had come from the wife’s family but was it fair?

In this instance, the wife had inherited a small shareholding worth approximately £300,000 which throughout the 20 year marriage, due to “passive” growth, became worth an astounding amount – in excess of £55m gross. 

The husband and wife enjoyed a modest lifestyle with their 3 children; neither worked and both participated equally bringing up the children. Again the consensus amongst family lawyers was that if the husband had been the wife he would have received a higher award.  Surely there is an onus on the Court to encourage the couple to “share” in the passive growth accumulated during the lengthy marriage – which after all is judicially recognised as a partnership. 

Was the husband’s award fair or is it discriminatory? Watch this space! The husband has appealed to the Court of Appeal with a hearing due in February 2011.

If you think that this case affects you then please contact info@flip.co.uk

Nuptial agreements – Proposals for reform

The law in England and Wales regarding pre and post-nuptial and civil partnership agreements has been in a state of flux for many years.  Traditionally, pre-nuptial agreements were said to be void (and so ignored) on the grounds that they ran contrary to public policy. Because they contemplated a future separation/divorce they were said to undermine the institution of marriage. 

However in recent years there have been a number of cases culminating in the English Supreme Court 2010 decision in the case of Radmacher v Granatino that have made these agreements increasingly important.  The current state of the law can be summarised from the decision in Radmacher as follows:

1.    The rule of public policy that pre-nuptial contracts are void because they anticipate a future separation is obsolete and should be swept away;

2.    No distinction should be drawn between the legal treatment of pre-nuptial and post-nuptial agreements (an earlier decision of the privy council had suggested that post-nuptial agreements should be enforceable but pre-nuptial agreements should not);

3.    Nuptial agreements still cannot exclude the jurisdiction of the court;

4.    However, the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.

Although there was some discussion about what might render an agreement unfair this has effectively been left to the discretion of the court and so will be decided by judges on a case by case basis.

This may all be set to change.  This morning (11th January 2011) the UK Government Law Commission published a consultation paper on what the Commission calls “Marital Property agreements”.  The paper asks whether a couple should be able to enter into a binding agreement not to seek ancillary relief (financial relief) on divorce and, if so, whether the agreement should be able to encompass all of a couple’s property or to contain only terms relating to pre-acquired, gifted or inherited property.  The consultation then goes on to suggest the sort of formalities that should be required if these agreements are to become binding.  It suggests the following:

  1. The agreement should meet contractual requirements i.e. there must be an agreement to which both parties intend to be bound and each should get something from the bargain (this would also mean that neither party is under duress or undue influence);
  2. The agreement should be in writing and signed by the parties;
  3. There should be financial disclosure; and
  4. Each party should have legal advice prior to entering into the agreement;

The Law Commission have also said that nuptial agreements should not be enforceable to the extent that they fail to meet the needs of children of the family or either party would be put in a position of being reliant upon state benefits.

This is however a consultation and a final report is not expected until 2012.  If you have a view and wish to respond to the consultation you must do so before 11 April.  You will find a copy of the consultation together with an Executive Summary and the Law Commission press release at http://www.lawcom.gov.uk/marital_property.htm.   

If you are interested in having a nuptial agreement then please contact us at info@flip.co.uk

PAYING TO USE THE CSA v D.I.Y

There is talk of bringing back in fees for those making use of the Child Support Agency’s services.  For those who can only recall the poor service common over the first 15 years of its life which began in 1993, this may seem like a strange joke.  The reality however, is that for most, the Agency of 2011 is a transformation and will represent good value for money for any reasonable fee that is likely to be proposed.

Recent reports show the Agency handling around 1.15million cases but at a cost of over £600million a year.  It is an expensive business and in these straightened times, it is probably reasonable to expect those making use of the CSA’s services to make an appropriate contribution towards its costs.

However, the prospect of paying to use the CSA will raise, centre stage, the prospect of parents making greater use of direct agreement between them.  This form of agreement is encouraged by the CSA. The relevant forms can be downloaded here: http://www.cmoptions.org/en/toolbox/maintenance-form.asp  

In our view however these forms, and the system which supports direct agreements, are flawed in three ways:

1        The Agency insists that their forms produce a non-binding agreement.  What this means is that if there is a disagreement at a later stage, the only alternative is to ask the Agency to become involved in the usual way. Unfortunately if this happens any “arrears” that have accrued under the direct agreement cannot then be pursued.  There may be a place for an unbinding agreement but it is difficult to understand what it is or why such an agreement should be advocated as a viable option. 

We suggest that if a direct agreement is reached then it should be binding and there should be legal consequences if it is not honoured. 

2        Secondly, the Agency forms are insufficiently clear about the details. For example:  Should the payments go up with inflation?  When does the obligation to child support end? Into which account should the payments be made? None of these important points are covered in the CSA forms

Working with Resolution (see www.resolution.co.uk ), we have developed a form that aims at addressing these problems. If you would like a copy please contact info@flip.co.uk and ask for one.

3        Thirdly, there is the question over whether direct agreements will be struck at the “correct” level anyway.  Will the information going into the calculation be correct? And more significantly lying behind the relatively straight forward formula lies the complexity of the variations scheme.  It aims to take into account some of the particular circumstances common within families that fail to be reflected in the basic formula.  Where parents agree a level of child support by reference only to the basic formula, they may be doing their children a disservice. 

So our view remains that if there is any question over the amount of the liability for child support or if there are concerns about whether the obligations contained in direct agreements will be honoured then families may want to think carefully about any DIY solution simply to achieve an economy of whatever fees Government may have in store for them.

For more information contact info@flip.co.uk

PARENTING AFTER PARTING

One of the many challenges facing couples when they separate is how to co-parent their children.  All too frequently the issues that have brought about the end of the marriage manifest themselves again in squabbles over the children. How often do we hear parents accusing each other of using the children as pawns?

Given that the break up of a relationship is one of the most stressful experiences people can have it is perhaps not surprising that people do not function to their highest capacity during the experience. And yet we expect those same people to function at their highest capacity when it comes to parenting. Perhaps it is unrealistic to expect them to do so without help.

Just as expectant mothers attend National Childbirth Trust (or similar) courses helping them prepare for giving birth, so there are courses being run for separating parents helping them prepare for their lives as separated parents, putting their children at the focal point of their discussions. The courses are practical and give participants the chance to discuss issues and concerns with, and learn from, other people in the same predicament.

The courses are run under the umbrella of Resolution, the national association of family law professionals. Details of the courses can be found at http://www.resolution.org.uk/editorial.asp?page_id=185  along with other useful resources for separating parents and their children.

These “Parenting after Parting” courses are held regularly at the offices of Family Law in Partnership LLP in Covent Garden and presented by our in house family consultants Dominic Raeside and Ruth Smallacombe. The next course is being run over two nights on 30th  June and 7th July 2011. For an application form please contact info@flip.co.uk or ring 020 7420 5000.