Bankruptcy - escape from divorce debts?

Posted: 24th October 2012

A High Court judge is considering arguments that a businessman’s discharge from a bankruptcy in which his ex-wife was listed as a creditor expunged his obligation to pay her the balance of a lump sum awarded to her after their divorce. However, Mr Justice Hildyard was warned that, if Alexander McRoberts’ arguments succeed, the floodgates could open to a multitude of similar attempts by discharged bankrupts to wipe out marital debts.Money

When Mr McRoberts and his ex-wife, Mandy McRoberts divorced in 2003, she was awarded their former marital home and he agreed to pay her a lump sum of more than £500,000 by instalments. £210,000 of that sum has since been paid but, after Mr McRoberts hit hard times, he argues that his ex-wife is better off than he is and that there is no prospect of him being able to pay the £349,000 balance.

Mr McRoberts was declared bankrupt in September 2006 and his bankruptcy, in which his ex-wife was registered as a creditor, was discharged in September 2007. His lawyers, who acknowledge that the case raises a ‘novel point’, argue that his matrimonial debt did not survive the discharge of his bankruptcy.

However, Mrs McRoberts’ lawyers argued that a ruling in her ex-husband’s favour could create a legal loophole ripe for exploitation by unscrupulous spouses. They argue that such a decision would ‘open the door to all the bankrupts out there who don't want to pay their lumps sums in family proceedings.’

The judge observed: ‘I don't want to do anything that suggests that, so long as you go into bankruptcy, that is the gateway to avoiding the family court's orders….the default position is that, although the bankrupt gets a new start in life, he still has around his neck orders made in family proceedings for lump sums and costs.’

Recognising that the case ‘raises some curiosity as to the relationship between the bankruptcy jurisdiction and the family jurisdiction’, the judge added: ‘If the on-going order was made as a crystal ball assessment of the parties' needs, it may well be that the bankruptcy court can take those changing needs into account.’

‘There is a point which possibly needs some further reflection,’ said the judge, who reserved his decision in the case until a later date.