By Sarah Archibald
In the Family team our focus tends to be on relationships, whether that is a relationship between husband and wife, partners living together or not, or between parents and their children. Often these relationships require advice on a range of issues. One such example that arises not infrequently is what to do when your partner or spouse becomes, or may become, bankrupt.
In January we all have to watch the pennies a little closer. With this in mind it is worth bearing in mind some warning signs when it comes to bankruptcy and your part in it from a relationship perspective. Here are my basic dos and don’ts to start with:
- Do: Seek legal advice if your partner is in financial trouble and is considering moving assets around as a result, and
- Don't: Agree to transfer or gift property or other assets until you have obtained legal advice about the implications.
Sadly some people fall foul of the rules when it comes to transferring or receiving assets when an individual is already, or may become, insolvent or bankrupt. Below are two situations you should be aware of.
Default on Personal Guarantees
If your partner has provided a Personal Guarantee for a loan it is important to be aware that their property and other assets could be at risk should they default on repayment of the loan. If you live in the same property as your partner the roof over your head may be at risk, I shall explain why.
The Creditor (i.e. the person your partner owes money to) could apply to Court for a range of Orders involving your partner’s assets to obtain payment of their loan. If your partner does not have sufficient other assets to clear the debt the Creditor may look to obtain a charge and thereafter an Order for Sale against your family home. Whilst it could be difficult for the Creditor to actually force a sale of your family home, the Court will still consider all the circumstances of the case and does have the power to push through a sale. If the Court does not force a sale there are still options for your partner’s Creditor. Your partner’s Creditor could issue a Petition within the Bankruptcy Court declaring your partner bankrupt.
Once a Bankruptcy Petition has been issued matters become far more complicated. It is important to note that even if your partner has not yet been made bankrupt there are very strict laws on what assets can or cannot be disposed of, sold or transferred in the years leading up to a bankruptcy, during the bankruptcy, and possibly afterwards.
If your partner has been declared bankrupt then a Trustee in Bankruptcy will be appointed to deal with their assets and liabilities. Whilst there are circumstances in which a sale of your family home could be delayed or exceptionally prevented altogether, it is worth noting that it is relatively easy for a Trustee in Bankruptcy to eventually force a sale of your family home.
There are serious implications associated with transferring or selling assets so as to put them beyond the reach of a Trustee in Bankruptcy, whether this is during a bankruptcy or in the years leading up to it. It is therefore crucial to take tailored legal advice before receiving any assets from your partner or being complicit in any transfer/sale. This applies whether you are in a stable relationship or considering separation.
If you are considering purchasing your partner’s share of the family home directly from the Trustee in Bankruptcy, and you are not considering a separation, then it is crucial that you enter into either a Cohabitation Agreement or Post-Nuptial Agreement, or at the very least a Declaration of Trust, with your partner. A Cohabitation Agreement or Post-Nuptial Agreement can be used to record your financial circumstances and deal with any bankruptcy matters in a manner that will not fall foul of the rules.
If you are considering a separation it is crucial to ensure that you deal with your family’s financial affairs in a manner that does not fall foul of the bankruptcy rules. The Trustee in Bankruptcy will need to be involved to a certain degree in the financial agreement that you and your partner reach, whether this is recorded in a Separation Agreement or a Financial Consent Order.
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