Potential separation and 99% to 1% Declaration of trust

by Readers Question

11:17 AM, 29th September 2015
About 3 years ago

Potential separation and 99% to 1% Declaration of trust

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Potential separation and 99% to 1% Declaration of trust

I have read some of the articles that sound similar to mine but not sure they answer my specific question!seperation

In 2010 I sold a business and raised a nice amount of cash. With this I paid off my wife’s mortgage on her house we rented out and over time we purchased some more BTL homes. This was my wife’s business as I remained in the company I had sold under an earn out. I am not going to go down the route of “all the money invested was mine….” as I think a 50:50 split is fair (there are 2 great kids involved) but you need to know some facts before you can even begin to offer advice!!!

My wife says she wants to split but it seems mostly amicable (apart from I don’t want to split!) but you need to know that she is a (no longer practising) solicitor so she knows her way around the law.

So, point 1:- we own 7 BLTs
5 have declaration of trusts (99%-1%) for tax reasons (its was her business)
2 are solely in her name
All deposits were funded by my business sale and mortgages arranged whilst I was in employment.

So- first question before point 2- Does she really own these properties as described above? And I am entitled to nothing from this (apart from the 1% of 5 of them?)??? If so, was I mad in using this technique to buy the BLTs?

Point 2- I had 6 months off on garden leave, and then 6 months off renovating one of the properties. In other words, I no longer earn a salary (just yesterday I invested in another business but no earnings for at ;east 6 months)- so if my wife does own these properties how will she get mortgages going forward? Likewise- if we split them how would I take over the mortgages?

My personal preference (advice on how we do this so I own 50% legally and not just morally) would be to keep the property business (its not a LTD) moving forward at 50% each but take a salary (I would be happy to pay my wife (might be ex!) more as she will run this. The whole idea was as an investment for our kids future so I can work with that.

Not sure if it is of relevance but we own our family home with around £375k of equity in it.

Any advice on where I currently stand and maybe where I could stand going forward?

Greg



Comments

Neil Patterson

11:22 AM, 29th September 2015
About 3 years ago

Hi Greg,

Mark is a bit of a specialist in this type of scenario and I have asked him to comment for you when he gets back into the office later on today 🙂

Mark Alexander

18:09 PM, 29th September 2015
About 3 years ago

Hi Greg

I can't really offer you sound professional guidance without more information and a public internet forum is not the right place for that.

The starting point for a Family Law Court is that you will both need to disclose all of your assets and liabilities. If you are unable to agree how the net value of the assets is to be shared then the Court will make that decision. You must not assume that a 50/50 split will be the case.

If finances or other circumstances do not allow for one or partner to buy out the other then the Court will order that assets are sold and that net sale proceeds will be divided. The current basis of ownership will not be factored into the Judges decision but other factors will be considered such as the length of the marriage, what you both owned prior to the marriage, responsibility for children, pensions, earnings and future ability to earn etc. The objective of the Court will be for you both to enjoy as close as is possible a similar lifestyle to the one you had whilst married, assuming funds allow, or for any sacrifices to your standards of living to be shared fairly.

Please note that I offer private consultancy on such matters - see >>> http://www.property118.com/consultancy-mark-alexander/61522/

I am not a practising lawyer but my experience often results in my consultancy clients spending significantly less on professional legal advice than would otherwise have been the case if it wasn't for my involvement.
.

Puzzler

22:24 PM, 29th September 2015
About 3 years ago

Just to add to Mark's comment - the structure you own them now is not relevant as they will be assessed and a division made regarding all of both of your assets. All assets must be declared not just those owned jointly or in joint names.

Simon Lever

9:56 AM, 30th September 2015
About 3 years ago

To reiterate above - you do need specialist advice.
Having said that there are one or two things to consider.

From what you have said it would appear that the properties with 99:1 ownership are actually shown at the land registry as being jointly owned and that in order for your wife to retain most of the income a declaration of trust was made by you both confirming that actual ownership was 99% for your wife and 1% for you. You now wish to take back ownership so that they are owned 50:50 again.

The split was not necessarily a bad decision as at the time the split was made presumably your income was greater than hers and she paid less tax on the rental income. Assuming you have informed HMRC of the split of income on a Form 15 and there is a formal declaration of trust then she does own 99% of the capital of each of the relevant properties.

If, as you say, the split is amicable then would your wife be willing to gift you back the 49% you gave her when making the declaration of trust. If so this must be done before a formal split occurs as at that point the exemption of gifts being exempt for CGT and IHT between spouses would cease.

For the 2 properties she owns in her own name you will have to accept that they are hers. If she wishes to give you half of them then that is down to her.

It is not possible to take a "salary" from the rental "business". (By law it is not considered a business for tax purposes) The profits are assessed on the owners in the proportion that they own the underlying capital unless the joint owners are husband and wife in which case it is deemed that the share of income is 50:50 unless a Form 15 is filed confirming the actual underlying ownership in which case the income is split in the ratio of the ownership..

You will be assessed for tax on your share of the rental surplus no matter how much you take out of the "business".

I will leave it up to others to comment on the mortgages.

Finally, and sadly, it is my experience that no matter how amicable a divorce starts out the lawyers seem to find ways of making conflict which makes things much more difficult.

Puzzler

15:46 PM, 3rd October 2015
About 3 years ago

Reply to the comment left by "Simon Lever" at "30/09/2015 - 09:56":

I think you'll find the decision isn't down to her at all as it will be part of the financial settlement of the separation/divorce. Likewise the ownership of the two in her name. All are matrimonial assets to be divided by the court if agreement cannot be reached between you and if agreed between you, to be ratified by the court. As I said previously the current ownership arrangements are not relevant. Even if one of you had everything in their name it would not mean they would get to keep it. By definition this would be done before the final split so CGT etc. is likewise not relevant.


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