Alexander Chandler KC sitting as a High Court Judge. A complicated case, involving a consideration of three areas of law: insolvency, trusts of land, and financial remedies. Useful analysis of how the courts address the tension between paying creditors under a bankruptcy order and meeting the parties’ needs in a limited assets case. Useful guidance on how to resolve issues of beneficial ownership between divorcing spouses.

Background

H was declared bankrupt on 9 July 2019. H was discharged on 9 July 2020. W made a financial remedies application on 22 July 2020. Main asset is a modest two-bedroom property in London. Two children of the marriage; L 18 years and M 12 years. They both live with W in the former matrimonial home and have little, if any, contact with H.

Preliminary issues

W asserts 50% beneficial interest in the former matrimonial home; H disputes that he held or holds the property for their joint benefit; [5]. W’s case is based on a declaration of beneficial ownership, and H’s case is based on his position in law; set out at [20].

At [10], Mr Chandler KC sets out the crux of this case:

‘The essential question, which arises by way of a preliminary issue, is as follows: at the date of his bankruptcy order, was the Husband the sole beneficial owner of the family home or did he hold it on trust, or subject an estoppel, in equal shares with the Wife. Looked at another way, can the trustee in bankruptcy now recover against 100% or 50% of the net equity in the family home?’

At the first stage (beneficial ownership) the main issues are (1) common intention, (2) detriment, (3) quantification. In relation to the second stage (distribution), see [70].

Bankruptcy

The Insolvency Act 1986 (IA) states that the bankrupt’s estate, as defined by s 283, vests with his trustee in bankruptcy; s 306. Section 281 of the IA says that when the bankruptcy is discharged (normally after one year and here on 9 July 2020) the bankrupt is discharged of all his debts. Under s 283A, the trustee in bankruptcy has three years from the date of the order to realise the bankrupt’s interest in his home. In this case it is accepted that a valid order for sale was issued within the statutory timescale albeit it was adjourned generally to deal with W’s application to annul the bankruptcy, which was dismissed on 24 February 2024. The parties agree the property will be sold; therefore, this was not an issue.

Beneficial interest in financial remedies

The well-established rule is that the court has broad discretion to adjust ownership within the merits of the Matrimonial Causes Act 1973 so that asserting a beneficial interest in an asset is of no effect. Per Ormrod LJ in Fielding v Fielding [1977] 1 WLR 1146, a declaration of the parties’ equitable interests would be ‘of very little value … it simply adds confusion and trouble and achieves nothing’. At [2] Mr Chandler KC, quoting Thorpe LJ, states that a claim for financial remedies should normally ‘be determined within the four corners of the Matrimonial Causes Act and on the application of the statutory criteria there set out’, not by reference to equitable interest; Prazic v Prazic [2006] EWCA Civ 497, per Thorpe LJ at [25].

The two exceptions to this general position are as follows: (1) an intervenor or (2) arising from a bankruptcy of the party who is the sole legal owner of the parties’ former matrimonial home; [4]. The court firstly considers the beneficial interest of the asserting party, if any, then proceeds to consider what would be a fair distribution of assets, applying the s 25 factors of the MCA and the guidance of the higher courts in cases such as White v White [2001] 1 AC 596 and Miller; McFarlane [2006] UKHL 24. See also Tsvetkov v Khayrova [2023] EWFC 130 at [3] (Peel J) and Nicholas Mostyn QC sitting as a Deputy High Court Judge in TL v ML [2005] EWHC 2860 (Fam).

Constructive trust

Mr Chandler KC’s consideration at [71] follows Baroness Hale’s ‘domestic consumer context’ in Stack v Dowden [2007] UKHL 17. There is a presumption that equity follows law, whereby the starting point is that H as sole legal owner is the sole beneficial owner. The burden of proof is on W, as she asserts otherwise. In the Privy Council case of Abbott v Abbott [2007] UKPC 53, Baroness Hale opined at [4] that ‘it is now clear that the constructive trust is generally the more appropriate tool of analysis in most matrimonial cases’.

Per Baroness Hale in Stack v Dowden at [69], the court should take a ‘holistic approach’ to the quantification of beneficial interest, surveying the whole course of dealing between the parties.

Housing needs; [121] – ‘one of those cases’

Per Thorpe LJ in M v B (Ancillary Proceedings: Lump Sum) [1998] 1 FLR 53:

‘In all these cases it is one of the paramount considerations, in applying the s 25 criteria, to endeavour to stretch what is available to cover the need of each for a home, particularly where there are young children involved. Obviously, the primary carer needs whatever is available to make the main home for the children, but it is of importance, albeit it is of lesser importance, that the other parent should have a home of his own where the children can enjoy their contact time with him. Of course, there are cases where there is not enough to provide a home for either. Of course, there are cases where there is only enough to provide one. But in any case, where there is, by stretch and a degree of risk-taking, the possibility of a division to enable both to rehouse themselves, that is an exceptionally important consideration and one which will almost invariably have a decisive impact on outcome.’

Outcome

W has a 50% beneficial share of the former matrimonial home, under a constructive trust. This was inferred from the parties’ actions, notably the property’s purchase shortly before marriage, pre-marital discussions about its use as a family home, W’s regular payments towards the mortgage at H’s request, her income being significant to the remortgage, and W becoming jointly and severally liable. There were also express discussions in relation to (1) W’s regular payments and (2) W taking on the debt of the re-mortgage, and H’s use of the term ‘our home’. W acted to her detriment by becoming jointly and severally liable under the remortgage; her position changed then. Similarly to ‘excuse cases’ under TLATA, the Husband gained the Wife’s confidence, the Wife trusted him, and the Husband abused that trust by conniving an outcome whereby the Wife took on a share of the mortgage debt without gaining any legal interest in the family home.

The net equity in the FMH is £310,000. H’s share falls into the hands of the trustee in bankruptcy, the trustee in bankruptcy has no claim against W’s 50% share; [104]. The division of net equity is set out at [126]: H’s 50% will be received by the trustee in bankruptcy, and W’s 50% will be divided so that the first £149,000 (the shortfall between what she needed to rehouse herself and what she could borrow) is received by her with any surplus divided equally between the parties. A costs order had been made against W for a failed application she had made to annul the bankruptcy order, and this debt was factored as a liability when the court calculated her shortfall.

H’s bankruptcy debt assessed as at the date of this judgment as £220,945. The 50% share was therefore not sufficient to meet all the creditors’ claims.

Proprietary estoppel

Available to W, however not considered in-depth because there is a considerable overlap between the arguments for this and a constructive trust. The remedies available to W can be wider under proprietary estoppel: however, in this case there was no difference in the remedy sought.

Other matter – intervenor

Mr Chandler KC rejected H’s assertion that he owed his uncle, Mr X, for the house deposit; [109]. Not only was the liability not included in the bankruptcy proceedings, a significant 20 years had passed and H had quoted at least three different figures for the alleged liability.