Case law: Couple's failure to clarify property rights results in costly court action
Couples in a relationship should clearly record their intentions in relation to property ownership, and other rights in property in which they both have an interest - or risk costly court proceedings.
This update was published in Legal Alert - January 2018
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A husband and wife separated. The wife remortgaged a property she owned in order to buy another one. The new property was registered in her sole name, and was subject to an interest only mortgage. She lived there with their children.
However, she and her spouse then signed a declaration of trust to the effect that they beneficially owned the property in equal shares, and that the husband would pay half of the mortgage. In the event, he neither paid the mortgage nor made any other financial contribution.
Several years later, the wife was in financial difficulty and remortgaged the property. As part of the transaction, the property was transferred into the husband and wife's joint names as joint tenants so that the lender would give the wife the new mortgage. Again, it was agreed that the husband would contribute to the mortgage but, again, he made no financial contribution to the new property of any kind.
The husband later became bankrupt and his trustees in bankruptcy claimed that he owned half the property. The High Court granted the trustees an order that the property be sold, but it then had to decide whether the wife should be given more than half the proceeds because she had been paying the mortgage and all other costs associated with the property up until the date of the bankruptcy.
The Court ruled that the wife should receive more than half of the proceeds of sale because she had been paying not only her own half of the mortgage but also her husband's half. It made no difference that the mortgage was interest only. However, she could not claim reimbursement from the sale proceeds for running expenses as they did not go to the capital value of the property.
The trustees then argued that her share should be reduced on grounds she should have been paying rent for her occupation of the property from the date of the bankruptcy. The Court disagreed, ruling that neither spouse had intended the husband to occupy the property - nor had he done so at any point. If he had had a right to occupy before his bankruptcy, or had in fact done so, the ruling on this point may have gone against the wife.
- Couples in a relationship (even if unmarried) should make sure they clearly record their intentions in relation to ownership of, and other rights in, property in which they both have an interest, or risk costly court proceedings
Case ref: Davis v Jackson  EWHC 698
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