A 50/50 Property split? Beneficial Interest vs Legal Title

May 9, 2014

In the recent case of The Official Receiver for Northern Ireland v Stephen Snoddon and Monica Frances McShane [NIMaster 5] the Court considered whether the bankrupt’s former partner held the sole beneficial interest in the subject Property, despite the fact that the Property was held in joint names.

Mr Snoddon (“the Bankrupt”) was adjudicated Bankrupt on 4 April 2011. The effect of the Bankruptcy Order was that all assets which the Bankrupt owned automatically vested in the Official Receiver (“the Trustee”) to be realised for the benefit of his creditors.

The Bankrupt completed his Preliminary Examination Questionnaire and Statement of Affairs for the Trustee. In both of these documents, the Bankrupt stated that he was the joint owner of the subject Property with Mrs McShane. The Court was also advised that the Bankrupt had previously attempted to enter into an Individual Voluntary Arrangement and that he had stated that he was the joint owner of the Property in his IVA proposal.

The Trustee issued an Application pursuant to Article 310 (2) (a)(i) of the Insolvency Order (Northern Ireland) 1989 for leave to evict the Bankrupt from the Property, and an Order that the proceeds of sale be divided between the Trustee and Mrs McShane in equal shares. Mrs McShane defended the Trustee’s application and sought a declaration from the Court that she held the full beneficial interest in the Property.

The history of the ownership of the Property was not contested. Mrs McShane purchased the Property in 1999 from the Northern Ireland Housing Executive. She held the Property in her sole name from 1999 to 2005. In 2005 the Bankrupt moved into the Property to live with Mrs McShane and her two grown up children. Some months later in and around May 2005, the Property was transferred into the joint names of the Bankrupt and Mrs McShane and a mortgage taken out with Santander.

The Trustee argued that the beneficial interest followed the legal title (i.e. a 50/50 split) for the following reasons:
1. The transfer of the Property into joint names in 2005 was “contemporaneous with them commencing co-habitation” with all the “attendant shared expenses of that”.
2. Mrs McShane could not have afforded to service the Santander facility based on her own “modest income”, and further there was evidence to show that Santander was not prepared to offer mortgage facilities to Mrs McShane on her own.
3. There was no Declaration of Trust drawn up between the parties at the time of transfer
4. The Bankrupt treated the Property as a joint asset, as was evidenced by his PEQ, Statement of Affairs and IVA proposal

Mrs McShane argued that she held the full beneficial interest in the property for the following reasons:-
1. There had never been a common intention between herself and the Bankrupt that he would have interest in the Property. She stated that the only reason the Property was put into joint names was to allow her to raise extra funds to carry out improvements to the Property.
2. Whilst she accepted that Santander would not agree to provide her with the funds based on her own income, Mrs McShane stressed to the Court that despite the fact that her income was “modest”, so was her lifestyle, and that she could have afforded the mortgage repayments on her own.
3. Both she and the bankrupt were “clear that the Property was her home, regardless of the fact he lived there.”

Based on the evidence provided to the Court, the Court was satisfied that Mrs McShane had rebutted the presumption that beneficial interests will follow legal title (as per the main authorities Stack v Dowden [2007] UKHL 17, Jones v Kernott [2011] UKSC 53 and Oxley v Hiscock [2005] Fam 211), and accepted that there had never been any common intention that Mrs McShane and the Bankrupt would have a joint beneficial interest in the Property.

The next point the Court had to consider was whether the Bankrupt had any beneficial interest in the Property at all. In order to determine this point, the Court was required to look at the “whole course of dealing” between the parties. In this case, the Court held that Mrs McShane was entitled to the full beneficial ownership of the Property. This was largely due to the fact that since the re mortgage, Mrs McShane had made the mortgage repayments “alone, from her own personal funds and her own bank account”. In addition, there was no evidence that the Bankrupt and Mrs McShane shared financial resources or that he had made any contribution to the Property at all.

This judgment provides a helpful reminder that in certain cases, beneficial interest will not always follow legal title. The Courts will follow the principles set out in Stack v Dowden [2007] UKHL 17, Jones v Kernott [2011] UKSC 53 and Oxley v Hiscock [2005] Fam 21, however the outcome of each case may very much depend on the particular circumstances of each case and the evidence provided by the parties involved.

Caitriona Morgan, Associate Solicitor, Cleaver Fulton Rankin

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.

Please contact Cleaver Fulton Rankin on 028 9024 3141 or alternatively visit www.cfrlaw.co.uk