Monday, November 26, 2012

High Court rules - Debt to ex Wife remains after Bankruptcy

If one party goes bankrupt after a divorce and has not repaid the other what happens to the debt?

It remains in place but an Application can be made to Court to have it discharged. The Court has a wide discretion and each case is decided upon its own facts.

The case of Mr and Mrs McRoberts was reported in  The Daily Telegraph

Since the article the Judgement has been issued and the High Court decided to leave it in place for the following reasons:

1. Mr McRoberts would not be adversely prejudiced by the debt remaining.

2.Mr McRoberts had pursued a lifestyle which did not support his claim that he had no income to pay the debt, for example holidaying in the Maldives at Christmas time.

3.  It was not evident that Mr McRoberts had no potential income source in the future.

The court was therefore left to conclude that Mr McRoberts had not done everything he could to discharge his obligations to his ex-wife and had a sense that his finances  "may not be entirely transparent".

The court also concluded that it was likely that Mr McRoberts could continue to earn sufficient in the future to meet both his and his family needs and his obligations to his ex-wife.

Mr McRobert's lawyers tried to argue that although this was a lump sum payment it should be viewed as a spousal maintenance order and Mrs McRoberts should not be able to pursue it given the debt had been outstanding for more than 12 months. The court rejected this argument stating that Mrs McRoberts should not be punished for her restraint. This was a lump sum payments order and the Matrimonial Courts would be unable to review its payment unlike an application to vary a Spousal Maintenance Order.

Mr McRoberts has stated he may go bankrupt again. His bankruptcy was discharged in 2007. Perhaps he feels that delay has prejudiced his case. The judge did point out that the crucial element was whether there was so little prospect of the outstanding lump sum being paid, even in part, that its release would not substantively prejudice Mrs McRoberts but would materially advantage Mr McRoberts in a realistic effort to build a viable financial future.