In the recent case of Armstrong –v- Onyearu (2017) the Court of Appeal considered the situation where a co-owner of a property received an indirect benefit from a debt charged on the property against the other co-owner, and the impact of this on the operation of what is known as the “equity of exoneration”. The Court, considering the equity of exoneration for the first time since 1898, laid down the following new guidance:
- A Court will presume that unless shown otherwise on the surrounding evidence, that as between the co-owners themselves, liability for such a debt should fall only on the debtor’s share of the property.
- Where evidence can be brought forward to show that the debt was incurred by one co-owner for the direct benefit of the other co-owner, the non-debtor co-owner will not be able to successfully claim that the debt should not be enforced against their share of the property.
- The old-fashioned proposition that household expenses are ordinarily the responsibility of a husband has been consigned to history.
- Borrowings by one joint owner of a property to fund the ordinary expenses of both co-owners will be treated as being shared equally between them.
- Where one co-owner borrows against the jointly owned property to fund his or her business, the other co-owner may well still be able to successfully argue that they have no liability for that debt – even though the borrower may confer an indirect benefit on the co-owner through their business income being used to pay joint household bills and other expenses.
- There is no presumption, even today, that couples pool their resources, and jointly organise their finances so that the equity of exoneration will ordinarily be automatically defeated.
- As with almost every case involving domestic arrangements, a detailed consideration of the particular facts of each case are needed to decide whether the property share of the non-debtor co-owner is protected.
If you would like to discuss this with one of our specialist Family Law Finance Team, please contact James Myatt on 0117 906 9251 or email@example.com.