An insight into when the beneficial and legal interests in a property are transferred upon divorce.
What is a Property Adjustment Order?
A property adjustment order is an order made by the court during financial proceedings on divorce which alters the parties’ legal and beneficial interests in property. Typically, it provides for property to be transferred from one spouse’s sole name, or from the joint names of both, into the sole name of one spouse.
There are three stages involved in implementing a property adjustment order:
- It is set out in a court order – the document recording the financial settlement made by the court or agreed between the parties on divorce.
- It takes effect on the final divorce order (formerly called the decree absolute) – the document that legally ends the marriage.
- The legal title is transferred by way of a signed transfer deed – in the case of a house this is the document filed at the Land Registry to register the property in one party’s sole name.
But what happens if the third stage does not take place, or is frustrated in some way, for example because one party dies or becomes bankrupt?
Mountney v Treherne [2002] EWCA Civ 1174
In this case, the husband became bankrupt after the court order had been made and the decree absolute had been granted, but before the transfer deed was signed. This meant that the property had not yet been legally transferred and, because the husband’s interest had vested in his trustee in bankruptcy, it could no longer be transferred in the usual way. The question was whether the property could still be transferred to the wife.
The court decided that the property adjustment order gave the wife an equitable interest in the property from the moment the order took effect. This meant that, although the property had not yet been registered in her sole name, she had rights in relation to the property and its value.
The court also held that the property adjustment order took effect when the decree absolute was granted, not when the consent order was dated. That position did not change simply because the transfer deed had not been signed. This was because the order was specifically enforceable in equity, allowing the court to continue giving effect to the transfer so that the legal title could pass to the wife.
This approach is supported by section 24(3) of the Matrimonial Causes Act 1973, which provides that a property adjustment order cannot take effect until the divorce order has been made final.
This gives rise to the following general principle:
- On the making of the consent order, the property adjustment order is made.
- On the final divorce order, the beneficial interest is transferred.
- On completion of the transfer deed, the legal interest is transferred.
Exceptions
The general principle does not apply where the consent order expressly postpones the transfer.
A common clause in a court order states that the interest is to be transferred within a specified number of days, such as 56 days. However, provided the wording says the transfer is to happen within 56 days, rather than after 56 days have passed, this does not postpone the transfer and the general principle above will still apply.
Support for this can be found in Mountney v Treherne. Although the transfer of the legal and beneficial interests was to take place ‘forthwith’, the former spouse had 14 days in which to give effect to it. The decree absolute was made within that period, but the transfer deed was never signed because the husband was declared bankrupt. Despite this, the court still held that the beneficial interest had already transferred.
Conclusion
The beneficial interest in a property that is subject to a property adjustment order passes on the date of the final divorce order, rather than on the date of the court order or the transfer deed.
Accordingly, if the transferring party loses their interest in the property before the transfer deed is signed, whether through death, bankruptcy or another event, equity can step in to ensure that the transfer is completed, provided the final divorce order has been made.
If you have any queries regarding property adjustment orders, other financial orders that can be made in divorce proceedings, or any other aspect of family law, please contact a member of the Field Seymour Parkes family team.
