Taking legal advice when borrowing for any purpose is important, as a recent case in which a wife faced the possibility of the sale of her home when her husband was made bankrupt shows.

When he faced financial difficulties in 2005, the husband raised a mortgage against the family home in order to provide finance for his professional practice. The house was owned by him and his wife as tenants in common in equal shares. Tenancy in common means that each person owns a specific proportion of the property and the title to the whole is split, so if one of two owners dies, the title to the whole does not pass automatically to the other. The husband therefore owned half of the value of the house.

The husband’s practice failed and he was declared bankrupt in 2011. His trustee in bankruptcy sought a sale of the family home, arguing that his wife had enjoyed a benefit from the loan, because it had allowed his practice to continue to operate, and therefore it should be taken that she had accepted that the burden of the mortgage debt would fall on them both. The trustee argued that couples regard their assets and earnings as a single pool which is shared between them and that the wife should have to show the actual intention that she would not be bound by her husband’s debt for what lawyers call the ‘equity of exoneration’ principle to apply.

The Court of Appeal did not accept the trustee’s argument, concluding that any benefit the wife might have received was too uncertain to justify the idea that her intention had been to share her husband’s financial burden. The way the property ownership had been set up gave her legal protection.