The economic downturn has had a dramatic impact on financial settlements on divorce and has even affected those once considered financially stable.

The law in Scotland relating to financial settlements on divorce can be found in the Family Law (Scotland) Act 1985. But when looking at the effect of bankruptcy (or sequestration) on separating spouses, it is necessary to also consider the terms of the Bankruptcy (Scotland) Act 1985.

When advising clients of the effect of their spouse's bankruptcy following separation, it is important to bear the following in mind:

• On bankruptcy, the 'estate' or property of the debtor transfers to the Trustee appointed in the sequestration. It therefore no longer belongs to the debtor.

• If a capital sum is to be paid by one spouse to the other following separation, and the paying spouse is made bankrupt before payment is made, the other spouse (to whom payment is due) will require to apply to the debtor's Trustee to be ranked as a creditor. If there are insufficient assets to pay all creditors then only a proportion of the sum due will be paid.

• If it transpires that the debtor was 'apparently insolvent' when an order for payment of a capital sum, transfer of property or pension sharing order was made, or if the order itself rendered the debtor insolvent and the debtor was then sequestrated within 5 years, the Trustee can apply for recall of the order.

• In most cases, bankruptcy will not affect a pension policy. If a debtor's pension is an occupational one, the fund will not vest in the Trustee on sequestration.

• If a debtor's Trustee proposes to sell a family or 'matrimonial' home, then he or she must first obtain the consent of the spouse. If this consent is not forthcoming then the Trustee must seek authority from the Court before the house can be sold. The Court can refuse, grant, or postpone the granting of any such application. The maximum period of postponement is three years.

Bankruptcy, or the threat of bankruptcy, can cause further uncertainty during what is already a difficult and emotional time for separating spouses. It is important to seek advice as early as possible in order to ensure specialist and tailored advice is tendered in order to protect your interests.

Contact our team of experienced family solicitors in either Glasgow and Edinburgh for further advice.