In times gone by the rich could somehow circumvent the worst effects of bankruptcy by judicious preparations for its possibility.

Discretionary family trusts often came to the rescue.

However, the Insolvency Act 1986 s 339 enables a trustee in bankruptcy to apply to set aside transactions at an undervalue made within five years prior to bankruptcy, so the husband (as it usually was) entering into a set of suspect dealings had to plan well in advance.

But these cases were more the exception.

So, take an average sort of chap, living in a large London house with a highly paid job and a private pension, who happens to face unexpected misfortune as a result of an ill-advised and costly piece of litigation, for which, of course there was no state funding.

His wife was naturally dead against the whole litigation anyway, and reckons her lot may well be better without him.

She comes for advice, weighing the options.The pensionProudly you tell her of the Welfare Reform and Pensions Act 1999 (WRPA).

On bankruptcy petitions presented on or after 1 December 2000 any rights of the husband under an 'approved pension arrangement' (as defined in s 11(2)) are excluded from his estate: in other words, the trustee does not get his hands on them for the benefit of the creditors.Needless to say there are exclusions, not least if the commissioners of Inland Revenue withdraw approval to the scheme.

But under s 12 a court may decide whether the rights under an unapproved scheme should nonetheless be excluded from the bankrupt's estate after looking at, amongst other things, 'the future needs of him and of his family'.A personal pension scheme cannot now be forfeited through bankruptcy (Pension Schemes Act 1993 s 159A as inserted by WRPA).

But, if the bankrupt, anticipating his potential demise, throws loads of mon ey at his pension scheme, his trustee can apply, if there is prejudice to the bankrupt's creditors, to restore the position and negative the effect of the excessive contributions.

So, all is far from lost.Better to divorce him?The pension arrangements being largely excluded from the bankruptcy estate, the wife can attack them in divorce proceedings.

We are now familiar with the concept of earmarking, but going one better.

WRPA sched 3 introduces the new concept of pension sharing into divorces in respect of petitions filed on or after 1 December 2000.

This is achieved by adding s 21A into the Matrimonial Causes Act 1973.

The effect of this is to enable all pensions, except the basic state pension, to be divided into percentage shares on divorce.

Such an order will be compatible with a clean break, and would not be variable after decree absolute.An Englishwoman's home is her castle?If the matrimonial home is wholly owned by the husband, it vests on bankruptcy in his trustee: a beneficial joint tenancy is automatically severed and the trustee acquires.

By the Insolvency Act 1986 s 336 there is a statutory presumption in favour of the wife remaining in possession for the first 12 months.

Thereafter, only exceptional circumstances will keep the wife in the home.

If the wife establishes or has a beneficial interest, she may retain that interest in the proceeds of sale but the procedure to force a sale is governed by the Trusts of Land and Appointment of Trustees Act 1996 (TLATA).

The recent High Court decision of Neuberger J in Mortgage Corporation v Silkin and Shaire [2000] 2 FCR 222 is the first authoritative decision on the 1996 Act, and is a model of clarity.The court held that Parliament had intended by enacting TLATA s 15 to alter the basis established under the Law of Property Act 1925 s 30.Fair shares for all?The court in Silkin and Shaire was being asked to order a sale of a North London home bought by Mr and Mrs Shaire.

Mr Shaire left in 1980 and by 1986 Mrs Shaire had begun a relationship with a Mr Fox.

Divorce followed, and on £15,000 passing to the husband, the property was transferred by Mr and Mrs Shaire to Mrs Shaire and Mr Fox.

To pay the £15,000, a new mortgage was taken out and the existing one redeemed.Unfortunately Mr Fox died in 1992, but not before he had forged Mrs Shaire's signature on a further charge and then a subsequent mortgage to the present claimants.

Although there were also claims against solicitors, the reported aspect revolves around the claimants' claim to possession against Mrs Shaire.

The court decided on the facts that Mrs Shaire was not bound by the mortgage to the claimants and that her interest in the equity was 75%.

The issue then arose of potential sale.

Neuberger J reviewed the relevant cases.

Re Citro (a bankrupt) [1990] 3 All ER 952 decided that merely because the bankrupt's wife (with a beneficial interest) was left in the property with young children was not normally exceptional, and the trustee's claim prevailed.

Lloyds Bank plc v Byrne [1993] 2 FCR 41 held that although a trustee (as in Citro) had a statutory duty to realise assets, in a non-bankruptcy case, the same principles under s 30 should apply.

You now look at the s 15(1) factors (intentions of the settlor; purposes of the trust; welfare of any minor who occupies or may reasonably be expected to occupy as a home; and the interests of any secured creditor) and determine which are relevant and the weight to give to each factor.So, the balance may now be tipped away from chargees and in favour of families.

I n Mrs Shaire's case, the judge endeavoured to broker a negotiated settlement, with the mortgagees' equity converted into a loan serviced by Mrs Shaire, and on that basis a sale would be refused.

However, despite the shenanigans of Mr Fox, in Mrs Shaire's case there was no bankruptcy element.

Does Citro still apply if it is the husband's trustee, as distinct from chargee, who seeks a sale under TLATA? Sadly it seems it does, through Insolvency Act 1986 s 335A, inserted by TLATA s 15(4).On application to the bankruptcy court, the criteria then are the interests of the creditors; the wife's conduct if contributing to the bankruptcy; her needs and resources; the needs of any children; and all the circumstances except the needs of the bankrupt.

After 12 months the presumption remains in favour of the trustee.

A trustee failing to force a sale because of exceptional circumstances, could have his interest converted into a charge under the Insolvency Act 1986, s 313 and ultimately, as chargee, apply as a person interested under TLATA ss 14 and 15.

Shaire principles would then apply.Stand by your man?Assuming she does not think that the grass on the other side is greener, as the trustee has claims against assets acquired during the bankruptcy, the wife should ensure that family wills are re-written in favour of the wife and any children (even creating discretionary trusts?) Unless a bonanza win to discharge all bankruptcy debts can be guaranteed, it should be the wife that buys the winning lottery ticket!