Your partner does not automatically have a claim on part of your house if you go bankrupt. There are only limited circumstances where you could protect any of the equity in the property by arguing it belongs to them.
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As a general rule, your partner can only claim part ownership of your house if the property is registered in joint names.
Where this is the case, it will be assumed that their share does not form part of your assets. It can’t be claimed by the Official Receiver (OR) and is protected from your bankruptcy.
However, if the house is registered in just your name, your partner does not have an automatic claim. This is the case even if you have been living together for a long time.
In these circumstances, if you go bankrupt, the OR’s initial position will be that your partner has no claim. As a result, 100% of any equity is your asset and is realisable for your creditors.
Arguing that your partner is your common law wife and that in itself gives them a claim on your property has little or no standing.
There are certain circumstances where your partner can have a valid claim over some of the equity in your property. If they have legitimately built up a financial interest, their share is protected. They might have done this in a number of ways.
Firstly, where they assisted you financially with the initial purchase. If they paid for all or part of the original deposit with their money, they will be able to claim this amount from any equity.
Secondly, if your partner has paid for any material improvement to the property with their money. This would be something like paying for an extension, or conservatory. Money spent on general redecoration or upgrading a bathroom are not normally taken into account.
In these circumstances, their claim would be calculated as the additional value added to the property as a result of such improvements. As a minimum, the amount they paid for the improvement.
Thirdly, they may have built up a financial interest in the property via equitable accounting. This is where they have specifically maintained the mortgage payments on your behalf.
This argument will only accepted if you can prove the payments came from their sole income. This would be most likely where you had no income of your own. In addition, such payments must have reduced the mortgage owed (i.e. didn’t just pay interest). Your partner’s financial interest is calculated as the amount that the mortgage went down during the time they were paying it.
Equitable accounting is unlikely to apply where both you and your partner had an income and your partner’s monthly wage merely contributed towards the household expenditure.
The short answer to this is no. You can’t give away substantial assets to anyone within 5 years of going bankrupt to protect them. This is known as a transaction at undervalue.
If you sign over your property to your partner within 5 years of going bankrupt, it would still be treated as if it was yours. The Official Receiver can still claim the equity in the property to assist with paying your debts.
If your partner has already sold the property, the OR will make a claim against them for any money raised from the sale. They can take court action against your partner to enforce the repayment of the funds if necessary.
There is one way the ownership of your property can safely pass from you to your partner within 5 years of going bankrupt. This is where they have actually paid you a fair market price for the transaction. However, the funds you have received would then have to be paid to the OR as part of your assets anyway.
If you are a home owner, call us for further advice about bankruptcy and the options for your property (0800 044 3194). Its free and confidential.