Miles Croally represents ex-wife who successfully resisted claim by former husband’s trustee in bankruptcy to recover out-of-court divorce settlement proceeds

24 June 2021

Miles Croally acted for an ex-wife who successfully defended her former husband’s trustee in bankruptcy’s claim to set aside an out-of-court divorce settlement under section 339 of the Insolvency Act 1986 as a transaction at an undervalue.

Background to the case of Jackson v Song

The bankrupt and the wife had married in 2003.

By 2012, when they had two children aged 10 and 8, the bankrupt and the wife agreed to separate. They agreed that the matrimonial home (registered in the sole name of the bankrupt) should be sold and that the wife would receive 80% of the equity to acquire a home for her and the two children.

They also agreed there should be no other financial provision under the agreement. This agreement was embodied in a written separation agreement drawn up by matrimonial solicitors acting for the wife.

The bankrupt had no solicitors acting for him at the time and there had been no financial disclosure by either side. He had a very substantial pension pot built up over his years of employment but this was unaffected by the separation agreement.

The sale of the matrimonial home took place in April 2012. And with her share of the proceeds of sale, the wife bought a flat nearby as a home for herself and her children.

Unknown to the bankrupt and the wife at the date of the separation agreement and the sale of the property, HMRC had raised assessments against the bankrupt in respect of his failure to submit self-assessment returns for the tax years 2008/2009 and 2009/2010.

With penalties and interest, the total amount owed by the bankrupt was about £60,000. This debt ultimately led to a bankruptcy order in December 2013.

Thereafter, the trustee in bankruptcy pursued the wife for return of the proceeds of sale which she had received under the separation agreement and/or for the value of the flat which she had bought with the money. The trustee in bankruptcy argued that she had provided no consideration for the proceeds of sale of the matrimonial home paid to her under the agreement because the matrimonial home had been owned solely by the bankrupt.

The High Court’s decision

In Hill v Haines [2007] EWCA Civ 1284; [2008] Ch 412 the Court of Appeal had decided that, where an order for financial relief in divorce proceedings had been made by the court, the determination or settlement of the relevant spouse’s claim for financial provision under the Matrimonial Causes Act 1973 constituted good consideration for any transfer of property made pursuant to the order for the purposes of section 339 of the Insolvency Act 1986.

However, the position in relation to out-of-court divorce settlements where there had been no court order remained unclear.

In Jackson v Song the High Court has decided that the Hill v Haines principle applies to out-of-court divorce settlements as well as court orders, as long as the out-of-court settlement qualified as a “maintenance agreement” within the meaning of section 34 of the Matrimonial Causes Act 1973.

Section 34 “maintenance agreements” are to be distinguished in this respect from compromise agreements of existing financial relief applications in pending divorce proceedings which require to be formalized in a court order under the principle in Xydhias v Xydhias [1999] 2 All ER 386 before they take effect.

The court also made interesting comments on the care which needs to be taken in properly understanding evidence given through an interpreter. (The wife gave evidence in Chinese.)

Read the judgment in Jackson v Song [2021] EWHC 1636 (Ch) on Bailii