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At the point of divorce or separation a division of assets takes place, often involving an intricate task of assessing entitlement based on past contributions and an understanding of each party’s future needs.
This task is made that much more complicated when some or all of the assets are held not just by the husband and wife or cohabiting partners, but also by other family members.
The ownership by other family members may arise because their name appears on the title deeds, or because they have contributed towards the assets and seek to make a claim even though their name does not appear on the title deeds.
There are two categories of ownership: legal and beneficial ownership. Legal ownership is based on whose name is on the ownership documentation. In the case of land or property, this will be the title deeds. Beneficial ownership is based on who really owns the property. In many cases the legal title will be the same as the beneficial owner. This allows for simplicity and avoidance of dispute.
There will be cases, however, in which the legal title does not reflect the true nature of the beneficial ownership. Over the last few years there have been a number of cases that have provided clarification on how the law should determine who owns what and to what extent.
If the asset is owned in the names of the husband and wife, but a family member believes they own a share in the property, then in any proceedings for financial settlement the family member will need to join the debate on a determination as to what their share is. As their name is not on the title deeds, they will need to explain clearly how much they believe is their share and on what legal basis.
If there is a dispute then that family member will need to seek the judge’s permission to join the financial settlement case between the husband and wife. It is important to join the family member at the outset of proceedings to give sufficient time to consider their interest. If their claim is left too late, or is made after the final hearing, a judge can ignore their claim.
In the case of Burns v Burns  CH 317 the Court held that a third party may prove a claim to an asset held in the names of the husband and wife, if they can show:
Where a relevant contribution is shown it tends to resolve the issue of quantum of the beneficial interest, with the same often being calculated in percentage terms based on the current equity in the property.
It is commonplace for a property to be purchased in the name of someone, whilst really belonging either wholly or partially to another, due to their contribution, with the intention to minimise potential tax liability. There is then the agreement between them as to the real ownership, and the visible position as indicated on the title deeds. What then? Which view will the Court give preference to?
There are cases that help identify what the Court will do in this situation. In the case of Sekhon v Alissa  2 FLR 94 the mother contributed two thirds of the purchase price. However, the legal title of the property was placed in the sole name of the daughter to take advantage of capital gains tax exemptions on the subsequent sale of the property by the daughter. The mother was not to reside in the property and so as to avoid a tax liability on sale. At the point of determining the mother’s share, the house had not yet been sold. Hence no actual representations had been made to HMRC. The Court held that it was still free to infer what the “underlying intentions”, of the parties were, and to abide by that in splitting the equity at that point. If the representations had already been made to HMRC, then the decision may have been different.
It is therefore important that if there is to be an agreement as to what a third party’s interest is to be –all surrounding facts should be consistent with that agreement. This includes declaring the interest in any tax returns either for income or capital tax.
In the current financial climate in which mortgages are difficult secure, it is not unknown for a property to be purchased in the name of one person – using his ability to secure a mortgage – whilst the property really belongs to another. Would the Court consider this a fraud on the mortgage company if the real (beneficial) owner sought to claim back the property from the legal owner? Case law suggests not. In the case of Ivin v Blake  1 FLR 70 the mother paid the deposit to acquire the property. It was, however, placed in her son’s name as he was able to secure a mortgage in his name. The mother then paid the mortgage instalments. The court held that she was the beneficial owner.
It is important for anyone who considers that they have a share in a property where their name does not appear on the title deeds, to either have the title deeds amended to reflect what they believe is their rightful beneficial holding, or to have an express agreement or declaration confirming the same. If not, they risk losing out.
Furthermore, there are cases in which during a separation or divorce either the husband or the wife seeks to make a larger claim on a property that is held in the joint names of other family members. In the case of Bhura v Bhura  EWHC 727 the wife claimed that a property, which was legally owned by her husband, his parents and his sibling, was either wholly or mainly his. It was her assertion that they as a couple had paid the deposit, and that the common intention was that the property was theirs. However, it was held that the property was acquired by contributions of each from the legal owners and the wife failed to prove they had no beneficial interest. Whilst the wife failed in this case, it is possible for a claim to succeed if there is adequate proof of contribution or lack thereof.
In hindsight, it seems crucial to ensure that any contribution you make to a property is accurately recorded and agreed so that you do not lose out your share. However, often in family situations, there are high levels of trust and unspoken agreements. I It is often in hindsight that the issue of beneficial ownership needs to be determined.
At Mills Chody we can offer you advice either at the time you are contributing or at a later stage. We can advise you how best to protect your interest or how to determine your share based on past contributions.
We offer a free initial meeting that can give you crucial advice and possible avoid lengthy litigation.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.