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Family Law

The leading authority on all aspects of family law

04 FEB 2009

BANKRUPTCY/PROPERTY: Panicola v Fagan [2008] EWHC 3348 (Ch)

(Chancery Division; HHJ Raynor QC sitting as a High Court judge; 20 November 2008)

The husband had a history of alcohol and gambling problems. During a period of sobriety, when all outstanding debts had been paid off, the wife took advice from a matrimonial lawyer. The wife then gave the husband an ultimatum: either he executed a declaration of trust, stating that the husband and wife held the matrimonial home on trust for the wife absolutely, or she would issue divorce proceedings. A declaration was executed, stating that the husband was giving the wife his interest in the matrimonial home in consideration of his natural love and affection for her. The husband began to get into financial difficulties 3 years later, and about 4 years after the declaration of trust had been signed, the husband was made bankrupt. The trustee in bankruptcy sought to have the declaration set aside as a transaction at an undervalue, designed to put the husband's assets beyond the reach of creditors.

The execution of the declaration had not made the husband insolvent; at the time of the declaration the husband's assets had been greater than his liabilities, and he had been able to pay debts as they fell due. Further, the declaration had not been a transaction at undervalue. The fact that the declaration of trust had been expressed to be by way of gift was not conclusive; in fact valuable consideration had been given in the form of the wife's promise not to petition for divorce. Finally, the declaration had not been entered into for the purpose of putting assets beyond the reach of creditors, although that had been a consequence of the declaration. The real substantial purpose of the declaration had been to protect the family home from the husband's gambling and to save the marriage.

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