Some might say that “hell hath no fury like a spouse scorned”. Perhaps the fury might be fuelled further if the scorned spouse is obstructed by attempts to put assets out of reach by a strategic insolvency. But how successful is the insolvency strategy of the obstructive spouse?
When a relationship ends, some spouses try to put assets beyond reach by using insolvency processes or hurried transfers. The Insolvency Act 1986can be a powerful tool to unwind those moves, and it can also limit what the family court can achieve if bankruptcy is already in play. Here, Ali Zaidi explains in plain terms, how these rules can help or hinder you, what warning signs to watch for, and how early, joined‑up advice can protect outcomes.
The Important Points
Insolvency law can set aside asset transfers made to frustrate claims, even years later.
Victims, including spouses with unpaid financial orders, can sometimes apply directly to unwind avoidance transactions.
Trustees in Bankruptcy may challenge family‑court transfers only where they can show undervalue, dishonesty, or collusion, but they also have tools to revisit periodical payments.
Any transaction after a bankruptcy petition is presented may be void unless validated, which can derail intended family‑court orders.
Act early, disclose candidly, and coordinate between family and insolvency specialists to preserve and enforce outcomes.
When Family Finance Meets Insolvency
Divorce and separation often trigger urgent financial moves. Some are legitimate planning; others are designed to keep assets out of reach. Alongside the family court’s powers, the Insolvency Act 1986 can unwind transactions and redistribute assets. Used correctly, it protects the fair sharing of resources. Used cynically, insolvency can be weaponised to delay or frustrate enforcement. Understanding the boundary line is essential.
What do we mean by “insolvency” and “avoidance transactions”?
Insolvency: In everyday terms, a person who cannot pay debts as they fall due, or whose liabilities exceed assets, may enter an insolvency process such as an Individual Voluntary Arrangement (IVA) or bankruptcy. A court‑appointed Trustee in Bankruptcy collects and realises assets for creditors.
Avoidance transactions: Deals made to put assets beyond the reach of creditors. Examples include gifting property to a relative for no real value, selling a business share at a knock‑down price, or diverting funds offshore shortly before or during a dispute.
How The Insolvency Act Can Help Spouses Seeking Fair Outcomes
Section 423: setting aside transactions to defeat creditors
In certain circumstances, the court can set aside a transaction entered into with the purpose of putting assets beyond the reach of creditors. Importantly, the intention to defeat creditors need only be a substantial factor rather than the dominant purpose. The remedy can restore assets to the estate or route them to the creditor, which can include a spouse with an unsatisfied financial order. Section 423 of the Insolvency Act allows not only a Trustee in Bankruptcy but also any creditor, such as a spouse with an unsatisfied financial order, to ask the court to set aside avoidance transactions, provided the intention to put assets beyond reach was a substantial factor. Section 423 has extra‑territorial effect and generous limitation: a creditor has up to 12 years to bring a claim, and a Trustee has 12 years from appointment. A Bankruptcy Judge can order assets to be transferred back to the Trustee or even directly to the aggrieved spouse.
Practical example: A spouse gifts a valuable art collection to a sibling for “safe‑keeping” just as financial remedy proceedings start. Bank statements show the items were insured by the donor and remained at the marital home. Evidence like this can support an application under section 423 to unwind the transfer.
Trustees Challenging Family-Court Transfers
When do they succeed?
Trustees challenging family‑court transfers: when do they succeed?
Trustees sometimes seek to unravel assets transferred under a financial remedy order, for example where property is moved to the non‑bankrupt spouse. The bar is not low. In Sands (as trustee in bankruptcy of Mr Tarlochan Singh) v Singh and others [2016] EWHC 636 (Ch), a Trustee failed to show undervalue, and trustees will find it harder to overturn such transfers in the absence of dishonesty or collusion. Questions arise where lawyers for one spouse knew of imminent bankruptcy of the other but did not inform their client or the court. Trustees also have additional power to challenge periodical payments on the basis that the receiving spouse is being preferred over other creditors.
Practical example: A home is transferred to the non‑bankrupt spouse under a consent order agreed days before a bankruptcy petition is presented. If the deal reflected fair value and there was no collusion, it may stand. But if documents show an undisclosed pending bankruptcy and a rushed transfer for no consideration, the Trustee may attack it, and regular maintenance might also be revisited where it unfairly prefers one creditor.
The “Trapdoor”: Dealings After a Bankruptcy Petition Is Presented
Even well‑intentioned family‑court orders can be undermined if a bankruptcy petition is already afoot. Section 284 of the Insolvency Act declares any transaction by the debtor between presentation of a bankruptcy petition and the making of a bankruptcy order to be void, which can include property adjustment orders. A matrimonial court does not validate an obstructive spouse’s scheme simply by making an order; the Insolvency and Companies Court may still set it aside.
Whilst Sands v Singh focused primarily on sections 339 and 423 claims, the interaction between matrimonial property orders and section 284 of the Insolvency Act has been addressed in related cases.
In Robert v Woodall [2016] EWHC 538 (Ch), the court held that a consent order approved by the court within divorce proceedings was void under section 284 where it was made during the relevant period. The court distinguished between a negotiated agreement to settle an application for financial provision (which is not a disposition) and the order itself, which becomes a disposition when made. The decision confirmed that financial provision and property adjustment orders are dispositions by the individual, not the court.
More recently, in Durkan v Patel [2018] EWHC 3231 (Ch), section 284 assisted a trustee in transactional avoidance where a payment made by a bankrupt husband to his wife to settle family expenditure was held void because the wife knew of the bankruptcy petition and leave to make the payment had not been sought.
Practical example: The family court orders a property transfer on Friday. Unbeknown to the court, a bankruptcy petition was presented the previous week. Without validation from the insolvency court, the transfer may be void, leaving the receiving spouse exposed and delaying settlement.
Warning signs and immediate steps
Sudden asset transfers to relatives, trusts, or new companies without clear commercial reason.
Large gifts, write‑offs, or sales at obvious undervalue in the run‑up to negotiations.
Talk of “protecting” assets, or professional advisers refusing to disclose financials.
Whispers of creditors pressing, statutory demands, or court petitions.
If you see these signs, act quickly. Seek urgent advice, avoid agreeing to transfers before checks are done, consider protective orders in the family court, and where appropriate, explore remedies under the Insolvency Act.
How The Family and Insolvency Courts Interact
Family judges focus on fairness between spouses. Insolvency judges focus on fairness between creditors. When both jurisdictions are engaged, timing and transparency are critical. A coordinated approach can preserve legitimate outcomes while allowing the insolvency regime to unwind abusive transactions.
Case‑study style scenarios
The concealed company: One spouse claims to have “lost everything” but has routed contracts and profits to a new company owned by a friend. Bank and email evidence suggest control remains. A section 423 claim can target the transfer of value, while the family court addresses needs and sharing.
The pre‑petition dash: On learning a creditor intends to present a petition, a spouse transfers the family home to the other spouse “for the children.” If the petition is presented soon after, section 284 risk arises, and the Trustee may seek to recover the property.
The maintenance preference: A generous maintenance order is agreed while suppliers remain unpaid. The Trustee may ask the insolvency court to adjust periodical payments to avoid preferring one creditor unfairly, while the family court reassesses needs on updated evidence.
Coordination and good practice
Full disclosure: Ensure both courts and all parties are told promptly about any insolvency risks, petitions, or IVAs.
Evidence first: Preserve documents showing control, value, and purpose of transfers. Contemporaneous records often make or break section 423 claims.
Timing checks: Before implementing any property adjustment or significant transfer, confirm whether any petition has been presented and obtain validation if needed.
Specialist input: Early engagement of insolvency and family specialists reduces cost and exposure.
Why This Matters To You
For the financially stronger spouse, misusing insolvency can backfire, exposing you to reversal orders and adverse costs. For the financially weaker spouse, the Insolvency Act offers routes to claw assets back and enforce your award. Either way, early, integrated advice is the safest route to a durable outcome.
Our Experience
Edwin Coe’s Restructuring & Insolvency Team advises practitioners and spouses on these intersections and is recognised in the Legal 500 and Chambers for personal insolvency work. The firm has acted successfully on a matter where assets were ordered to be transferred to an aggrieved spouse using insolvency remedies.
How We Can Help
We work closely across our Private Client and Restructuring & Insolvency teams to assess risk, preserve assets, and, where needed, bring or defend applications under the Insolvency Act alongside family‑court proceedings. We can review your position swiftly, map the options, and coordinate the right court applications at the right time.
If you would like to discuss your situation in confidence, please contact Ali Zaidi, Head of Restructuring & Insolvency, or your usual Edwin Coe contact.
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