If the creditors of one spouse seek to recover the debt owed to them against the matrimonial home then obviously the other spouse will wish to protect their interest in the property. If the property is owned jointly then it should be a simple matter to prove the value of their interest, but what if the property is in the sole name of the debtor spouse?
The most common scenario here is when the debtor spouse is made bankrupt, and the trustee in bankruptcy obtains an order that the house is sold. If the house is clearly owned by the debtor and his/her spouse in equal shares then the trustee will only receive half of the proceeds of sale, to pay to the creditors. On the other hand, if the house is owned solely by the debtor spouse then the trustee will receive the entire proceeds of sale.
It is therefore critical that if the property is ‘owned’ solely by the debtor spouse and the non-debtor spouse seeks a share they must prove that they have an interest in the property. This is normally done by reference to principles that we most often see in cohabitees cases, where one cohabitee claims a share in the property they jointly occupied, which was owned by the other cohabitee. The principles can be quite complicated, but usually involve the non-owner claiming that a trust had been created giving them a share in the property. The trust can be expressly set out in a declaration of trust, it can be ‘constructive’, coming from a joint intention between the parties that the non-owner had an interest, or ‘resulting’, coming from the fact that the non-owner contributed a significant sum towards the purchase or improvement of the property.
I say all of this to (hopefully) clarify what was going on in the case Sparkasse Koln Bonn v Cutts & Another, which concerned a wife’s attempts to establish an interest in the matrimonial home which was in the husband’s sole name, and which the husband’s creditor was seeking to have sold so that the debt could be repaid. The husband owed the creditor some £1.3 million. We are not told the present value of the property, but presumably its net value was worth less than £2.6 million, as the wife was arguing that she had a half share, which would therefore have ‘saved’ part of the net proceeds from falling into the clutches of the creditor.
The property was originally purchased as three flats by the husband in 2002. The flats were subsequently combined into one property, in which the husband and the wife resided. It was not until the wife became aware last year that the creditor was seeking to have the property sold that she asserted, for the first time, that she had an interest in the property.
The wife put forward three arguments to support her claim:
- That she and the husband had signed a declaration of trust in 2003, stating that she had a half interest in the property.
- Alternatively, that a constructive trust had arisen, as she and her husband had a common intention that she should have an equal share.
- That in the further alternative, a resulting trust had arisen, due essentially to her contributions towards the property.
The case was heard by Chief Master Marsh in the Chancery Division of the High Court. He dealt with the wife’s three arguments as follows.
As to the declaration of trust, he was suspicious that the wife claimed to have only found it recently. Further, the wife claimed that it had been entered into after the husband had sought to re-mortgage the property to Halifax Plc in 2004, and Halifax had refused to add her name to the mortgage as she was not employed at the time. In fact, the declaration was entered into before this, and in any event the wife was employed in 2004. The declaration also only referred to two of the three flats. Chief Master Marsh concluded:
“…the declaration of trust bears all the hallmarks of a document created long after 2003. In my judgment, it was created recently with a view to using it to minimise the harm created by the judgment obtained by the [creditor] when the point was reached at which [the creditor] ceased to be willing to defer enforcement. It does not have the effect of evidencing [the husband and wife’s] joint intention at the date it bears.”
As to the wife’s constructive trust argument, Chief Master Marsh found that this was inconsistent with the existence of the declaration of trust, that expressly stated that the wife had a half interest.
And as to the resulting trust argument, the wife had failed to produce evidence in support of her claim to have made a financial contribution.
In short, Chief Master Marsh found the arguments put forward by both the wife and the husband (who supported the wife’s claim) to be “an extremely muddled and unconvincing case” that was “an attempt to re-write the clear history” that was set out in the deeds to the property.
The claim was therefore dismissed, and directions were given for the sale to proceed.
You can read the full report of the judgment here.