To intervene or not to intervene – that is the question!
I have dealt with quite a few matrimonial finance cases where third parties – be it a family member or a business associate – claim to have an interest in the family home or in other matrimonial properties (owned by one or both spouses). This can be a complex area of law, particularly where the third party’s name is not actually on the legal title to the property.
In that instance, if they have a legitimate interest in the property, it is advisable for all the concerned parties to enter into a Declaration of Trust (or Trust Deed) which sets out the parties’ intentions, the nature and amount of the third-party interest, and when this would be repayable to them.
Where they have not entered into a Declaration of Trust and there is little or no evidence of any other written agreement between the third party and the divorcing spouse/s, this leaves the door open for the court to determine the nature and extent of the third party’s interest in the property, which can be a costly and risky exercise for all parties.
If the spouses disagree over the extent (or indeed the existence) of any third-party interest, it is best to establish whether the involvement of the third party will be necessary at an early stage of any matrimonial finance case. If court proceedings have been issued, at the first hearing (the First Hearing and Dispute Resolution Appointment), either spouse may request that the third party be given permission to join as a party to the proceedings.
The judge will then direct that the third party pleads their case via a Points of Claim document, with separate witness statements and evidence to be filed concurrently or shortly afterwards. The court will allow both spouses the opportunity to file Points of Defence and witness statements in response by a certain date, after which the case will be listed for a ‘Preliminary Issue Hearing’.
The purpose of the Hearing will be to identify the key issues in dispute, determine the nature and extent of the third-party interest, and how this will impact upon the value of the ‘matrimonial pot’. The preliminary issue hearing should take place before the Financial Dispute Resolution (FDR) Hearing.
What is a Declaration of Trust?
A Declaration of Trust or Trust Deed is a legally binding document which sets out the terms of property ownership between the parties, namely the financial arrangements, how the property is to be managed between them, and how the sale proceeds would be divided in the event of a sale. It would usually also state what each party’s financial contribution was towards the property.
If the name of the third-party is on the title to the property, it is likely that the property will be held as Tenants in Common rather than as Joint Tenants (*please see explanation below for these terms). In such circumstances, the likelihood is also that the contributions were unequal, in which case it is sensible to have a Trust Deed setting out what proportion each party owns and/or what each party would receive in the event of a sale or transfer of ownership.
The purpose of a Trust Deed is to avoid future disputes occurring and prevent the need for costly and acrimonious court litigation.
Loan, Gift or Beneficial Interest?
If a family member claims to have contributed financially towards a spouse’s property purchase, it would first need to be established whether the funds were intended as a gift or loan, or whether it was intended that they would acquire a beneficial interest in the property as a result of the money they contributed.
If the money was intended to be a loan, then it is advisable for the parties to enter into a Legal Charge document. This would be tailored to the particular circumstances but could include details as to whether there would be any monthly repayments, whether interest is payable (and if so at what percentage), and if funds would be repayable by a specified date or upon the sale of the property only.
A gift given by a parent or family member to either spouse or both spouses to aid the purchase of a matrimonial property would not be repayable in the event of the spouses subsequently divorcing.
What is a Beneficial Interest and what is Legal Ownership?
If a third party’s name is registered on the legal title of a property at the Land Registry, this means they are a legal owner of the property.
If a third party’s name is not on the legal title of a property, although they are not a legal owner, they may still be a beneficial owner. A beneficial owner is entitled to the benefit of a property (i.e. the actual value/net equity), even though their name is not on the title.
Difference between owning a property as Joint Tenants and Tenants in Common
With a Joint Tenancy, the co-owners both own the property equally and, in its entirety, and the ‘rule of survivorship’ applies, which means that if one owner dies, their share automatically passes to the surviving owner. If the property is held as ‘Tenants in Common’, each owner has a specified share of the property, and they can pass their respective shares on to other people if they prepare a Will.
If you are married; it is not usually advisable to own a property with a third-party as Joint Tenants because the non-owner spouse may lose out on inheriting their spouse’s share of the property if their spouse dies before the other co-owner. Conversely, if the third party dies before the spouse, the spouse will acquire the third party’s share of the property, and the non-owner spouse may be entitled to make a claim in respect of the entire property in the event of a divorce.
In a situation where a spouse owns a property with a third-party as Joint Tenants, either owner can sever the Joint Tenancy at any time by serving notice on the other owner and filing a Notice of Severance at the Land Registry. Once the Joint Tenancy is severed, the property will be held as Tenants in Common and either party can pass their share of the property to someone else under the terms of their Will.