Bankruptcy: Equitable interests in the matrimonial home

18 March 2020

Practitioners in bankruptcy often encounter estates where the matrimonial home is owned by the non-bankrupt spouse.

There are circumstances in which a court will declare the existence of a proprietary interest in a family home on the part of a spouse. This will occur when, in the circumstances of the case and in accordance with equitable doctrine, it would be unconscionable on the part of the person against whom the claim is brought, to refuse to recognise the existence of the equitable interest:  Baumgartner v Baumgartner 164 CLR 137 at 147 per Mason CJ, Wilson and Deane JJ. Any claim to an equitable interest must be based upon a trust. The trust may be express, resulting or constructive: Allen v Snyder [1977] 2 NSWLR 685 at 689F-G per Glass JA.

Whilst the categories of case in which this may occur are not closed, the common example which is the subject of this article is where a spouse makes a financial contribution towards the cost of acquiring, improving or maintaining a property held in the other’s name.

Constructive trust

In order to establish an equitable interest arises by a constructive trust, the party asserting the existence of the trust must prove:

  • that the spouses held a common intention that they would own the property together; and
  • that the party asserting the trust acted upon that common intention by making contributions or other action to their detriment: Green v Green (1989) 17 NSWLR 343 at 354-355 per Gleeson CJ (Priestly JA agreeing at 371).

A constructive trust, unlike an express or resulting trust, is raised by the operation of law without reference to the intentions of the parties: Allen v Snyder at 699A per Samuels JA. A constructive trust will arise where, according to the equitable principle, it would be unconscionable for the legal owner to assert a beneficial interest: Allen v Snyder at 690B per Glass JA and 699B per Samuels JA; Muschinski at 620 per Deane J; Baumgartner at 147-148 per Mason CJ, Wilson and Deane JJ. The important point to note is that the intention of the parties is generally irrelevant to the imposition of a constructive trust.

The contributions to the matrimonial home may be both direct or indirect (Gissing v Gissing [1971] AC 886 at 908; Green at 354). The costs of acquisition is an obvious direct contribution. Other common types of contributions include the costs of any improvements or costs relating to maintenance (Green at 353). In cases involving financial contributions, detriment is relatively simple to establish by the fact of the contribution itself: Silvia (Trustee) v Williams [2018] FCAFC 194 at [15] per Perram, Barker and Derrington JJ.

Generally, mere support and accommodation is, without more, insufficient to establish the trust: Silvia at [14].

Once the constructive trust is established the interest arising under it will be to the extent that the couple are inferred to have intended: Gissing at 908. When joint ownership can be inferred to have been intended this may suggest equal beneficial interests: Eves v Eves [1975] 1 WLR 1338 at 1345 per Brightman J, but it is not determinative. Unequal contributions is significant to determination of the proportions too: Green at 355. There is, however, no inflexible rule as the issue is of fact.

The proof of the common intention is a question of fact too. It may be proved in the various ways that the facts about states of mind may generally be proved. Such proof may be direct by means of express agreement or be implied from conduct. Matters of this kind are evidentiary and do not involve legal principles: Green at 355.

Consideration is required for a trust to arise from a common intention, the spouse in whom the title is not vested must have contributed in some way towards the acquisition of the property. A want of consideration would be a voluntary declaration of trust and unenforceable: Allen v Snyder at 691B per Glass JA.

Resulting trust

A resulting or implied trust arises where the legal owner has provided none or only part of the purchase price. In those circumstances, a resulting trust is presumed in favour of the party who provided the money.

The beneficial interest of the other person who provided the purchase money is proportionate to his or her contribution: see generally Allen v Snyder at 689G-690A; Calverley v Green (1984) 155 CLR 242 at 246 per Gibbs CJ and 255-256 per Mason and Brennan JJ; The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at 297-298.

In an example of law not keeping pace with modern relationships, where the legal owner is a wife, and the purchase price is provided by the husband, there is a countervailing presumption, called the presumption of advancement, that the wife takes the beneficial interest as a gift: Allen v Snyder at 690A; Calverley at 247 per Gibbs J. In such a case, there is no reason to presume that a trust has arisen: Calverley at 267 per Deane J; Cummins at 298.

Both of the presumptions are rebuttable. They will yield to evidence of the actual intentions of the parties: Allen v Snyder at 690B. Evidence of actual intention can be explored by a trustee conducting examinations of the bankrupt and the spouse.

Import for bankruptcy practitioners

The common intention constructive trust is more common than a resulting trust because of the latter’s susceptibility to the presumption of advancement.

The common intention should be specifically pleaded, if only so the trustee is clear in his or her own mind about the nature and extent of the trust being alleged. Silvia is a cautionary tale in that regard.

A trustee would be well advised to conduct examinations before commencing litigation.

Lastly, in the writer’s opinion the time has come for the High Court to extend the presumption of advancement to all matrimonial relationships and all that awaits is the appropriate vehicle to find its way there. Watch this space.

Many couples choose one person to own the home for asset protection purposes. In our recent article, found here we discuss how best to protect your home in the event that the person who provided financial contribution falls into financial difficulty.