A woman who faces being stripped of her divorce settlement to pay for her former husband’s debts was at the centre of a test case yesterday with far-reaching implications for “clean break” divorces.

Wendy Haines, 43, thought that she had achieved a clean break from her insolvent husband David when she was awarded their former matrimonal home in Worcestershire. In return for keeping the £500,000 home at Dunhampton, Stourport-on-Severn, Mrs Haines agreed that her former husband should pay her maintenance of just 5p a year.

But all this was jeopardised when Mr Haines was declared bankrupt in May 2005 and his trustees in bankruptcy launched a court action to obtain the farm house so that they could pay off his creditors. The divorcée, who owned a garage business with her husband in Kidderminster, was faced with the trustees’ demands for half of the sale proceeds after the mortgage was paid off, about £120,000.

The former matrimonial home has since been sold although Mrs Haines retained part of the land around it.

In May this year, the trustees were granted their wish by Judge Pelling, QC. But Mrs Haines’s legal team is now challenging the decision in the Court of Appeal in London.

Her counsel, Avtar Kanghure, QC, told the senior judges that her appeal raised legal issues with far-reaching implications for both insolvency and matrimonial cases.

If Judge Pelling’s decision is allowed to stand, the QC said, it would mean that that for at least two and possibly five years after a marriage break was finalised, divorcées will be at risk of having their assets seized if their former spouse is declared bankrupt.

Mr Kanghure told Sir Andrew Mor-ritt, head of the Chancery Division, Lord Justice Thorpe and Lord Justice Rix: “The risk of abuse by disgruntled husbands who deliberately incur substantial debts after the order with the express purpose of defeating the matrimonial court’s order is obvious.”

Mr Kanghure said that if Mr Haines’s trustees were allowed to claw back the value of the former matrimonial home, it would potentially undermine the whole basis of “clean break” divorces. He said: “This case raises significant policy issues as to the relationship between the matrimonial and insolvency courts. It raises squarely an important point of law on which there is no reported decision.”

Arguing that Judge Pelling’s decision was “wrong in law”, Mr Kanghure said that far from getting the matrimonial home for free, Mrs Haines had foregone a claim for maintenance payments that she might have had against her former husband.

At the original hearing last December District Judge Cooke said that it was Mr Haines’s own case that he was “hopelessly insolvent”.

Living beyond their means, the couple had “been extravagant in the acquisition of the house, horses and cars” and District Judge Cooke had also observed that “it was difficult to think of a case where the husband had done more to raise serious suspicion”.

District Judge Cooke had dismissed the trustees’ application against Mrs Haines but, in allowing their appeal in May this year, Judge Pelling said that the transfer of the farmhouse to the divorcée was a “transaction at an undervalue”.

The Court of Appeal hearing continues. The judges’ decision is expected to be reserved.

Explore Law

• Corporate Law

• Public Law

• Columnists

• Law Panel

• Student Law

• Law Reports

Times Recommends

• Linklaters hits record on 15% revenue rise
• Guy Hands sues Baker Tilly over tax advice
• Vodafone defeats Customs in tax fight