Property disputes in the Family Court

The Family Court has a wide range of powers in financial remedy claims, including the ability to transfer assets between parties and to order the sale of a property as well as the payment of a lump sum. As a result, in most financial remedy cases, the question of who actually owns a property is not usually determinative of the outcome.

The exception to this is where third parties (i.e. someone other than the spouses or civil partners) claim ownership of an asset. Examples can include where parents of one party argue that they are entitled to equity in the family home because they helped to buy it or, as in the recent case of DDR v BDR, a trustee in bankruptcy claiming an entitlement to an asset because one of the parties has been declared bankrupt.

Such property disputes are usually dealt with by the Chancery Court, but they can cross over into family law cases and, where they do, the question of who owns the property will need to be determined by the Family Court before it can move on to determine the parties’ financial remedy claims.

Background

The parties married in 2004 and the family home was bought in the husband (H)’s sole name for £184,000 shortly before the wedding. H borrowed the deposit from his uncle and took out a mortgage in his sole name. The wife (W) initially made monthly contributions of £500 to the household bills. These monthly payments reduced when she was on maternity leave and then stopped for a period but were then reinstated. The parties had subsequently remortgaged, with the new mortgage being taken out in joint names, even though H remained the sole legal owner of the property.

In total, W had given H £36,681 towards the household bills, including the mortgage, during their relationship. Following their separation in 2017, H moved out and W remained in the property with their children. She took over the full payments of the mortgage on an interest and capital basis, but the house remained legally owned in H’s sole name.

H was declared bankrupt in 2019. This meant that all of his assets automatically transferred to his trustee in bankruptcy, at which point they were no longer resources available for distribution between the parties. W subsequently applied for divorce and issued financial remedy proceedings.

As H was the sole legal owner of the family home on the date of the bankruptcy, the question for the Family Court was whether he was also the sole beneficial owner (in which case all of the equity automatically transferred to the trustee in bankruptcy and W had no entitlement) or if he was holding the property on trust for himself and W. If W was found to be a beneficial owner as at the date of the bankruptcy, only a portion of the equity would have transferred to the trustee in bankruptcy and H’s creditors would not receive everything they were owed in practice.

Where there are disputes about the ownership of property, the court can only ever declare who owns what. It cannot adjust ownership in the hope of achieving a fair outcome between parties who are not married or in a civil partnership. This law applies equally to couples who have cohabited, regardless of how long they have lived together and regardless of any children, in the same way that it applies to other litigants. This is a key distinction between the rights of cohabitees and those who are married or in a civil partnership.

The outcome in this case

The court’s starting point is to presume that beneficial ownership is the same as legal ownership. As H was the sole legal owner, it was for W to prove her beneficial entitlement. In the absence of any express declaration of trust, W had to prove that she was a beneficial owner by way of a constructive trust. This required clear evidence that both parties intended she would have a beneficial entitlement and that W relied on that common intention to her detriment.

The alternative claim in other cases could have been based on proprietary. W would need to show that, whatever he actually intended, H had made her promises or given her assurances that she was a joint owner of the property and that she relied on those to her detriment, meaning that it would now be wrong for him to renege on those promises. A successful proprietary estoppel claim could result in her receiving a share of the property, a right to occupy it or, alternatively, a lump sum by way of compensation.

In this case, the court was satisfied that H held the property on constructive trust for the two of them at the date of the bankruptcy. The court inferred a joint intention from their actions and their discussions, based on H's requirement that W should make regular payments to him and that she should be jointly responsible for the re-mortgage. The court also accepted that H frequently referred to the family home as "our home". Such comments alone will not always prove beneficial ownership, but on these facts, the judge accepted showed H’s intention to indicate to W that she was a joint owner. The judge also found W’s detrimental reliance because her payments went beyond what a spouse with her income might reasonably have been expected to contribute to shared expenses and because of the joint mortgage.

When assessing the extent of W’s interest in the property, the judge noted that there were no express discussions. However, there was a joint mortgage, for which they were both equally responsible and he found that W had contributed as much as she reasonably could. On the evidence, he, therefore, inferred a common intention that they each had an equal entitlement to the equity. He added that, if he were wrong and this was not their joint intention, in the absence of any evidence to the contrary, he would have imputed an equal share to W in any event.

The trustee in bankruptcy therefore had no claim against W’s 50% share of the equity and the husband’s creditors would not have recovered the sums due to them as a result.

This case highlights the different approaches which the court must take depending on whether it is dealing with:

• claims brought between spouses and civil partners, where the Family Court has the power to make property adjustment orders to achieve a fair outcome; and
• claims brought by third parties in family cases or by cohabitees against each other, where the court can only declare who owns what, regardless of how unfair the outcome may feel to one party in practice.

If you're separating and are facing issues around property disputes or financial settlements, please get in touch with our family lawyers.

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