Equitable Accounting: Getting A Fair Result Upon Relationship Breakdown
Published date | 29 November 2022 |
Subject Matter | Accounting and Audit, Finance and Banking, Real Estate and Construction, Accounting Standards, Charges, Mortgages, Indemnities, Financial Services, Real Estate |
Law Firm | Birketts |
Author | Ms Laura Tanguay |
This article concerns co-owned properties and the ultimate division of sale proceeds when a property is sold.
Where property is co-owned, disputes can occur over how to divide the equity (or 'beneficial interest') in the property. When, for instance, an unmarried couple separates, it is not uncommon for there to be disagreement over how the equity in their home (and thus the proceeds of sale) should be shared between them.
Even where the couple's respective shares in the property are undisputed, there remains potential for dispute over contributions made towards the property after the date of separation. For example, money paid towards the mortgage or for improvements to the house.
How does the law cater for such scenarios and provide an outcome that is fair between the parties? By a process known as equitable accounting.
Equitable accounting can be described as the 'fine-tuning' of the ultimate division of sale proceeds. It can be ordered at the court's discretion under the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA").
An equitable account will only be awarded where it is necessary or desirable to do so to achieve justice between the parties. It almost always considers the position post-relationship breakdown, and is generally not concerned with circumstances which arose during the course of the relationship.
By equitable accounting, the court makes adjustments to each party's share of the sale proceeds to reflect the post-separation state of affairs and achieve fairness. Once the sale proceeds are apportioned according to the parties' beneficial shares, the proceeds of sale that each party is due to receive becomes a pot, out of which sums payable as equitable accounting are made and received. By way of example:
- A couple purchase a property as tenants in common in equal shares and are thus each entitled to 50% of the equity
- The couple split up and their property is sold for '500,000
- They would each be entitled to '250,000 of the sale proceeds (assuming for present purposes that there is no mortgage to repay or costs of sale)
- Each party therefore has a pot of '250,000 available for equitable accounting
- If an equitable account is ordered, money will move from one pot to the other, such that the amount actually received by the parties ends up being unequal
Under the broad umbrella of equitable accounting, three issues are commonly encountered:
- claims for mortgage payments;
- occupation rent; and
- improvements to property
Mortgage payments
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