Divorce Wins…Again by Milsted Langdon

By Simon Rowe, Partner

The battle between family law and the insolvency law has been raging for so long that I don’t know that anyone holds the correct score but the recent judgement in Jackson v Song [2021] EWHC 1636 (Ch) appears to be another skirmish in which a trustee in bankruptcy ended up skulking away from the battlefield.

Whether you consider that a good thing or not will very much depend on your particular stance in the wider debate but in this specific instance the decision appears to give yet greater strength to separation agreements, where one party is later made bankrupt.

The couple in question had been married for under ten years when they separated and whilst H was the sole registered owner of the matrimonial home, both parties agreed that it was considered jointly owned by them.

On separation, it was agreed that the matrimonial home should be sold and 80 per cent of the equity given to W to buy a new home for her and the two children, the agreement also stated that it fully extinguished any other claims between the parties.

Unfortunately, once the sale was completed, 80 per cent was insufficient for W to buy the house she wanted and so H provided an additional £40,000 from his share to balance the books. H was then made bankrupt.

The trustee brought a claim that the disposition in the settlement agreement and the later £40,000 were a transaction at an undervalue and that W had no interest in the property.

W was able to convince the court (with support from H) that it had always been the intention of the parties that the property was owned jointly, notwithstanding the registered title and that she had acted to her detriment in “managing, supervising and ensuring the renovations”.

The trustee’s claim that this work was undertaken as part of her wifely duties or to ensure that she lived in a nicely decorated house did not prove in any way persuasive.

Having concluded that she had an interest (of whatever size) the judge then turned her attention to whether W provided any consideration as part of the settlement agreement.

There is a lengthy discussion in the judgement on whether agreeing not to bring proceedings could constitute consideration that is worthy of review but I won’t repeat it here.

Suffice to say the judge concluded that it could and then turned her attention to the value that could be attributed to it in this case and whether that was “significantly less” than the amount given up by H under the settlement agreement.

Here the judge is quite critical of the trustee’s stance, which was ostensibly that there was no consideration and that if there was, then it was for W to prove the extent of the value or for the court to form a view.

The judge pointed out that the burden of proof was on the trustee and that she had failed to reach that evidential hurdle.

Whilst stating that it was not her place to value the consideration, the judge then does precisely that and finds that the claims given up were far in excess of the consideration given and, therefore, did not constitute a transaction at an undervalue.

Even in relation to the additional £40,000, it was found that this constituted an amendment to the original agreement rather than a further gift and, therefore, still did not constitute a gift.

This case, whilst in places quite peculiar in its facts, further reinforces the position that even where the split of funds does not, on the face of it appear equal, the courts will be unwilling to allow trustees to come along after the event and overturn such agreements.

That said, it does still leave the door ajar for trustees but they will need to undertake a detailed analysis of exactly what the spouse could have been awarded in any ancillary relief proceedings and compare that with the eventual outcome rather than assuming that it amounted to some sort of gift.

If you are experiencing a divorce and would like advice from our team about any financial elements of your separation, including subsequent insolvency proceedings, we are here to provide compassionate support. To find out more, please contact us.