A divorcee who faced having to pay £120,000 to help clear the debts of her former husband even though they made a clean break settlement when they divorced four years ago has won her case in the Court of Appeal.

David and Wendy Haines owned a house near Stourport-on-Severn in Worcestershire while they were married.

They divorced in 2003 and Mrs Haines received the house as part of the settlement ordered by the court. When Mr Haines petitioned to be declared bankrupt two years later, the bankruptcy trustees took legal action to set aside the divorce settlement. The High Court ruled in their favour which meant that Mrs Haines would have had to give back her husband’s share in the house, estimated to be £120,000.

The High Court ruling had overturned the concept that divorce settlements ordered by the courts could not be set aside by bankruptcy proceedings. It would have applied retrospectively so people who divorced up to five years ago could also be affected.

If that ruling had stood it could have had major implications for other clean break divorce settlements. Some experts feared it could have led to some people running up debts and declaring themselves bankrupt just to thwart a clean break settlement ordered by a court.

However, the Appeal Court has now ruled that Mrs Haines should be allowed to keep all the assets granted to her in the original settlement. Lord Justice Rix said it would be "unfortunate in the extreme" if a settlement ordered by a divorce court could later be set aside because the husband went bankrupt.

The trustees are now considering whether to try to take the case to the House of Lords. We shall keep clients up to date with developments.