Do I Need to be Concerned if My Partner Goes Bankrupt and We Live Together in My Property?
Beneficial interest is something that you may hear or read about, and usually comes up as an outcome of something like a relationship ending, or in some instances, someone goes bankrupt.
In contractual terms it has a meaning, and in other terms it has another meaning, but not to make it too complicated, the basis of the term beneficial interest means you or someone has an interest in something of value.
For our little example here, that value will be a property. A property with equity.
And the context will be if you own a property, and your spouse, partner, boyfriend, or significant other, who resides with you goes bankrupt.
Your spouse or partner has debts they cannot afford to pay, and make the decision to go bankrupt, and they live with you in your property, which has equity, and has a value.
In looking at this, we need to explore a few different scenarios to show when beneficial interest may be involved, and also, how to prove this interest.
This will not be an exhaustive list of examples.
You and your spouse purchase a property together, both saving for the deposit. You purchase a property valued at £175,000, paying a 20% deposit of £35,000. You have lived in the property for almost 10 years, and the property is now valued at £200,000. Your mortgage balance is £50,000, which means the property has equity of £150,000.
Your spouse has a business deal for their business go bad, which leaves the company in ruin. As your spouse is the Director of the company and liable as a guarantor for all the company debt, they feel they may need to go bankrupt.
How does beneficial interest come into play in this example?
Beneficial interest comes into play in this example big time!
If you and your spouse contributed to the deposit, and also to the mortgage payments, you both are entitled to the equity of £150,000, which means if your spouse goes bankrupt, half of that £150,000, or £75,000, could be taken by the Official Receiver in a bankruptcy.
Your portion of any equity is just that, yours, and preserved. And the OR may allow you to “buy-out” your spouse’s portion of the equity, but it still puts the property in peril.
You own your own home and it has a value of £300,000, and it is registered in just your name. You have owned it for years, and recently you had your partner move in with you. They have a lot of debts and are looking at a form of insolvency and you are worried about your property.
In this example the property is fine, as it is in just your name and your partner has not contributed in anyway to the property. They do not have a beneficial interest in the property.
You and a friend decide to purchase a property as an investment, both contributing £25,000 as a deposit, for a property valued at £100,000.
There is a mortgage of £50,000, however instead of letting the property out as planned, you decide to reside in the property and pay the mortgage.
Your plan is to live there 5 years, then sell the property, you both split the proceeds of the sale.
Then your friend goes bankrupt.
This will prove to be an issue as technically your friend contributed £25,000 or half of the £50,000 deposit. This is an interest in the property, and as asset.
Again, in the bankruptcy the Official Receiver can allow you the opportunity to buy-out your friend’s interest, but this may need to be done via a sale of the property.
Proving Beneficial Interest
Proving beneficial interest can be tricky, but there are some overt signs:
Someone has contributed to the deposit for the property.
Both parties contribute equally to the mortgage payments.
One person sold a previous property, and those proceeds were used to purchase a new property.
One party has paid for the upkeep or maintenance of the property.
Joint bank account to pay the mortgage.
One party has paid for renovations, such as adding a conservatory, or other additions.
It really comes down to showing/proving the person who may have debts and may be going bankrupt, has some financial interest in the asset, which in these examples are a property.