Bankruptcy! Can the Family Court handle it?

Family Law has a tendency to spread its tentacles into other practice areas and bankruptcy is no exception, not least because financial difficulties are often cited as a contributing factor to the breakdown of the relationship but also because the sudden need to support two households can cause cash flow problems.

When a relationship breaks down there can be a lot of mistrust and resentment between the spouses and so it is no wonder that, in the context of financial remedy proceedings, an application for bankruptcy can be viewed as a spiteful attempt to ensure that the money goes to anyone except the ex.  Further suspicion could be aroused when the bankruptcy petition is made by the bankrupt themselves and the creditors are also members of the bankrupt’s family.  This was the scenario in Arif v Zar where the wife, unsurprisingly, made an application for the husband’s bankruptcy petition to be annulled on the grounds that his debts were shams and that he was not balance sheet insolvent as he claimed.  The Family Court cannot look at assets that are not owned by the spouse when making a financial remedy order, so if her application failed then, unless she could demonstrate a significant surplus of assets over liabilities, her claim for a financial remedy would be severely prejudiced.

The recent judgement of the Court of Appeal in Arif v Zar did not look at the details of the husband’s financial position, nor did it consider the merits of the wife’s application for the bankruptcy order to be annulled.  In fact, it only dealt with the limited procedural question of whether Mostyn J had acted within his jurisdiction when he transfered the annulment hearing to the Family Division as he had done at a case management hearing in the family proceedings. The original bankruptcy registrar, Registrar Derrett, had considered the issue of the annulment to be one which required swift resolution and so had timetabled a summary hearing in the Chancery Division.  Mostyn J had considered that it was more appropriate for the matter to be dealt with in the Family Division together with the financial remedy hearing (avoiding multiplicity of hearings) and so had transferred the proceedings under CPR 3.1(7).  In the family proceedings the husband (and the wife of course) would have been subject to a higher level of disclosure and could have been subjected to cross examination which would not have been the case at the summary hearing because Registrar Derrett had not ordered it.  The Court of Appeal held Mostyn J did not have the powers to make such a decision as there had been no material change of circumstances since Registrar Derrett’s decision and any appeal would have to be made in the appropriate court.

So was Mostyn J a little too keen to take this matter out of the hands of the Chancery Division, and in doing so overstepped his judicial limits?  Or was Registrar Derrett reluctant to let a matter involving the Insolvency Act 1986 go to the Family Division.  After all, the circumstances where the Insolvency Act 1986 and the Matrimonial Causes Act 1973 clash are not uncommon and judicial confusion as to where best to resolve such issues is to be avoided. It is perhaps no wonder then that the Court of Appeal took this opportunity to give some useful guidance as to how bankruptcy registrars should deal with annulment applications that arise in conjunction with matrimonial proceedings.  In his judgement, Lord Justice Patten said (at paragraph 21):

• Registrars should be “alive to the real possibility that a spouse may attempt to use the protection of a bankruptcy order as a shield” in financial remedy proceedings; and 
• Where there is credible evidence of such an attempt then Registrars should not be afraid to use their powers to:
• order full disclosure;
• order witness attendance and cross examination; and
• consider whether a transfer of proceedings to the Family Division would be the most appropriate way to determine the issues and save costs.

In conclusion, he said that the court will have to “balance the need to secure justice for the spouse against the need to ensure that all issues in the bankruptcy proceedings are resolved at a minimum cost to the creditors”.  So the Family Division can look at matters involving the Insolvency Act 1986 but the discretion to transfer lies with the registrar in bankruptcy or the Chancery Division judge.  If there is any dispute as to how that discretion was exercised then an appeal should be lodged against the decision before proceedings could be transferred. Something that family practitioners, and judges, should be aware of when dealing with such cases.

UPDATE: Children & Religious Upbringing

In August 2012, I wrote about a judge’s decision in relation to the religious upbringing of a child whose parents (one Jewish and the other Christian) disagreed on the matter. The Court of Appeal has recently revisited this topic in the case of Re G(Children) (Education: Religious Upbringing).  In this case both parents were orthodox Jews but the father wanted the children to continue their education at an ultra-orthodox school while the mother wanted them to attend a less orthodox co-educational school with, she argued, superior education opportunities.  The father was appealing a decision in the mother’s favour.

Lord Justice Munby, acting as a ‘judicial reasonable parent’, dismissed the father’s appeal concluding that the trial judge had been right to find that the mother’s choice of school better served the best interests of the children.  Munby LJ justified his decision by saying that the more liberal school, with superior educational opportunities, would better prepare the children to make their own decisions as to how they would want to live their lives once they reached adulthood.

A Formula for Spousal Maintenance: Is maths the solution to nightmare divorces?

Could a formulaic approach to maintenance calculations help divorcing couples to stay out of court?

The message from the Law Commission’s consultation on Matrimonial Property,Needs and Agreements is clear: they want to help separating couples reach a fair financial settlement without the need to go through costly and stressful court proceedings.  One of the problems which has been identified is the unpredictability of court proceedings which has been put down to a number of factors including the wide discretion provided to the Court and the inconsistency of the court in applying the case law to the cases they deal with. 

At the moment, the court has a very wide discretion when it comes to making an award of maintenance.  This is set out in section 25 (1) of the Matrimonial Causes Act 1973 where judges are required to “to have regard to all the circumstances of the case”. Sub-section (2) does provide further guidance with the list of factors to be taken into account but it is not exhaustive, as was recently demonstrated in Radmacher where the Court took viewed the existence of the pre-nuptial agreement as a relevant factor. The application of case, law which includes White v White, Miller & Macfarlane and Jones v Jones, can be problematic, has it has emerged from scenarios that do not usually crop up in most divorce cases.  Not every family has an ancestral estate to argue about (White), or a business whose value increases from £12m to £25m within a year of separation (Jones).  The inconsistency could also be attributed in part to the unique circumstances, resources and needs of each and every couple and family going through a divorce.

The above factors make it difficult for practitioners to advise clients what they are likely to get if their case goes all the way to a final hearing and it therefore makes negotiating a settlement more difficult.  One of the suggested ways of removing some of the uncertainty, at least in relation to spousal maintenance, is to introduce a formula so that couples would have a better idea of what they can expect to receive or pay out.

The Law Commission has the benefit of being able to look at other jurisdictions, such as Canada, where a formulaic approach has been in use for several years.  A simplification of the Canadian formula for a childless couple is set out below, whereby Income 1 relates to the income of the higher earning spouse and Income 2 relates to the income of the lower earning spouse at the date of separation

(Income 1 – Income 2) x 1.5 to 2% x Length of marriage/cohabitation = £pa*

*Subject to a cap of 50% of the paying spouses income.

Once the amount of annual maintenance has been calculated then a further calculation is done to establish how long the maintenance should be paid for, with each year of marriage equating to between 6 months to one year of maintenance.  The formula is flexible (the % of the difference and the calculation for duration can be adjusted within certain defined limits) and is designed to provide guidance rather than being a rigid scheme which the judges are bound by.

It is not difficult to imagine how things could quickly get complicated.

The formula does not take into account child maintenance (for which other formulae exits), neither does it cater for those couples who have a sporadic income or who live exclusively off capital.  It does not take into account earning capacity, age, or the cost of living and does not look at the standard of living which has been enjoyed during the marriage or any other circumstances such as disability or contributions from third parties.  All these issues would need to be addressed at some point during negotiations or proceedings. The formula might only add an additional layer to the already cumbersome financial remedy proceedings it that it would be used and then disregarded as it is too restrictive to be of any real value.  Furthermore, if emphasis is given to a formula based solely on a spouses income at the date of separation, might that not discourage couples from maximising their earning potential in order to avoid paying out more or receiving less?

So is a formulaic approach to maintenance calculations a good idea?  Even if it only serves to provide a starting point for settlement negotiations?  Or is it too simplistic and it will only prove to be an extra exercise for practitioners and clients to go through and then discard before focusing on what their client really needs and what is available whilst taking into account all the circumstances of the case?

UPDATE: Decision in Australian Hague Convention Abduction Case

On 21 June 2012, I posted a link to an article I had written entitled "Social Media and the Voice of the Child in Hague Convention Applications".  The article looked at the use of Facebook in proceedings which  related to four sisters who were resident in Italy and who went with their mother to Australia for what their father thought was a four week holiday.  The mother did not return with the children and the father issued proceedings for their return under the Hague Convention on Child Abduction.  The sisters, who claimed they wanted to stay in Australia with their mother, were adamant that their views had not been taken into account when the first application was heard last year.  The Facebook page, entitled Kids Without Voices, was part of their campaign to remain in Australia.

The sisters' mother, and her family, used every possible tactic to try and keep the girls from being returned to Italy including talking to the media, taking the girls into hiding (which attracted further media attention) and challenging the order to return the girls on a constitutional basis as the girls had not been not given separate legal representation.

All this meant that a significant amount of time had passed since the original order had been made and so Justice Forrest, who made the original order, agreed to a further hearing to determine if there were any exceptional circumstances that would justify the discharge of the order and allow the girls to remain in Australia with their mother.  The hearing was held last week and Justice Forrest released the decision today refusing to allow the mother's appeal and ordering that the girls be returned, against their wishes, to Italy.  He held that the children's wishes and the lapse in time since the original order were not significant enough to override the operation of international law.

A link to the original article is here, which includes a more detailed summary of the case and the law, and an update on today's decision can be found here.