Bankruptcy could be being used as a way to avoid huge divorce payouts

For many couples divorce means a more economical lifestyle but the combination of the economic recession and huge divorce settlements is forcing increasing numbers into the bankruptcy courts, according to family lawyers.

According to several recent articles in the press, some men are resorting to bankruptcy or simply the threat of bankruptcy, to avoid paying out huge divorce settlements to their ex-wives. David James, the former England goalkeeper is just one example: although he earned a £20 million fortune during his football career, he recently filed a debtor’s petition. Mr James’ expensive divorce back in 2005 is said to have cost him £3 million and is being cited as one of the reasons for his current financial position.

Miranda Fisher, a partner with Charles Russell, has said that the recession has led to a spate of bankruptcies after divorce but in some cases bankruptcy is being used as a tactic to avoid payouts. The recent and very high-profile case of Scot Young, a tycoon who was jailed last year for refusing to disclose details of financial assets to his wife who has since accused Mr Young of creating a sham bankruptcy to protect his wealth.

Mr Young’s ex-wife, Micelle, was awarded a settlement of £26 million after their divorce but she had hoped to receive up to £300 million. Miranda Fisher has commented by saying: “It is not uncommon for one party in a divorce to claim that they are going bankrupt and that the money once used to fund a lavish and flamboyant lifestyle that no longer remains.

But bankruptcy is sometimes used as a tool to frustrate the financial claims one person may have against the other.”

However it does seem as though the courts are taking a hard line when doubts arise about a bankruptcy. Ayesha Vardag from the law firm Vardages (the law firm who secured the £26 million award Scot Young) has said that: “There has always been a temptation to use a bankruptcy as a ‘get out of jail free’ card to scupper creditors and fending off a spouse’s divorce claim is no exception.

After the bankruptcy has been discharged, in what can be as little as a year, assets can magically appear in the British Virgin Islands or Cayman trusts, or in the hands of associates, dressed up as new money, taking the bankrupt from rags back to riches.”

According to Ayesha Vardag, the divorce courts are well aware of such tactics, saying: “We achieved the record Scot Young award based on the judge deciding for himself that Young had £40 million clear despite his alleged poverty. The problem, thereafter, is enforcement, and it’s important to co-operate with the trustee in bankruptcy – you have a common interest in finding funds that have been spirited away.”

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