Divorce and Bankruptcy Latest - May 2007
When someone is made bankrupt, all their assets automatically pass to their trustee in bankruptcy, or the Official Solicitor, to be distributed to their creditors, normally after a hefty bill for costs is first met.
The courts have been busy over the last few weeks changing the law as it affects the family home when someone becomes bankrupt. This marks a big change as to how much will be available to the bankruptcy estate. This article explains the consequences. If you are affected by this issue you can contact Woolley & Co here.
Joint Ownership of a Property – Who Owns What?
Usually a family home is registered in joint names and there is no document stating the precise percentage of the property that is owned by each partner.
This has led to a lot of litigation where a trustee in bankruptcy makes a claim for the bankrupt’s share of the equity in the property. The bankrupt will often argue that their partner has a higher than 50% share so that there is less money available to go to the creditors.
Consider this example. A married couple own a house worth £250,000. There is a £50,000 mortgage outstanding on the property leaving an equity of £200,000. If the property were owned 50:50, then £100,000 would have to be found for the bankruptcy estate and the house could be sold if no other funds were available.
In such a situation, the couple would often argue that the non-bankrupt spouse in reality owned more than 50% of the property. Maybe they had spent more on the property, usually by paying more of the deposit when the property was bought or by paying for repairs. Maybe they had paid more of the mortgage or had contributed in other ways to the marriage allowing the other party to pay more of the mortgage.
Until now, the courts have been readily prepared to look into all the circumstances to decide what proportion of the property was owned by each partner. In the example above, if the bankrupt spouse could show that, in reality, they only owned 30% of the property, then they would have saved £40,000 from going to their creditors.
This line of argument has now become a lot harder after the House of Lords decision in Stack v Dowden given on 25th April 2007.
For the first time, the courts have said that the starting point is that, if a house is registered in joint names, then it is owned 50% by each party. The court said that it would not move from the 50% position “unless the facts are very unusual.”
So what would need to be taken into account in a ‘very unusual’ case?
The court set down a non-exhaustive list as follows:
- Any advice or discussions at the time of transfer which cast light on the parties’ intentions then.
- The reasons why the home was acquired in their joint names.
- The reasons why (if it be the case) the survivor was authorised to give a receipt for the capital moneys.
- The purpose for which the home was acquired.
- The nature of the parties’ relationship.
- Whether they had children for whom they both had responsibility to provide a home.
- How the purchase was financed, both initially and subsequently.
- How the parties arranged their finances, whether separately or together or a bit of both.
- How they discharged the outgoings on the property and their other household expenses.
- The inferences to be drawn from who pays for what may be different from when only one party is the legal owner.
- The arithmetical calculation of how much was paid by each is also likely to be less important.
- It will be easier to draw the conclusion that they intended that each should contribute as much to the household as they reasonably could and that they would share the eventual benefit or burden equally.
- The parties’ individual characters and personalities may also be a factor in deciding where their intentions lay.
This case also affects decisions on how to distribute the proceeds of sale of a house jointly owned by non-married partners when they split up.
Anyone in this situation needs to take legal advice from a suitably qualified and experienced lawyer. Contact Woolley & Co and we will put you in touch with a member of our team.
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