Common Law? Would they take the house?

[Mantzy]

Hi all, great site, this is my first post. I am trying to raise finance for my business and have initially been turned down by my bank. I have found I can raise half the finance by a personal loan which will give me the 50:50 the bank want before loaning me the rest.

Obviously I want the business to do well and not go bankrupt but if it does, would I be declared bankrupt on the business loan and the personal loan or just the business loan? The thing is, I don't own the house, it's totally in my girlfriends name and neither loan will be secured on it but we've heard that because we've been living together for over 3 years, that we're considered married by common law and so therefore the house is half mine, of which they can take. Is this true or is it just a scare story and any moneys that are taken out in mine or the business's name only affect me and not her and the house.

She's a little worried - hence the post and the call to a solicitor tomorrow. Any advice you people can give would be greatfully appreciated.

Cheers
R

 

[bwglaw]

I advise that you obtain accurate advice from the solicitor you plan to call. They will be the best people to advise you rather than perhaps receiving inaccurate or irrelevant advice on here.

 

[Mantzy]

Maybe it's best I clarify my situation. I'm currently a sole trader but am planning to be a Ltd and the loan/s are going to be for starting up. Tesco's loans seem to be cheap and there's nothing in the small print that says they can't be used for business purposes. If I took this loan out, would it be me taking it out or the business? If I/the business couldn't pay for it, who would be liable for it - the business or me? If it's me, would they try and take the money from my assets, of which legal i have none. If it's the business, would the business be liquidated and I/my girlfriend be able to keep the house.

It's all very confusing. Handsongroup, you seem to be the Legal bod on here, is there anything in what i've just written that you can see would make my girlfriends house be at risk? - no loans will be secured against it in the first place.

Cheers
R

 

[bwglaw]

I'm currently a sole trader but am planning to be a Ltd and the loan/s are going to be for starting up.

Setting up the Ltd Company first would probably be the best route and reduces your liability. However, if you take out a personal loan in your name, you will remain liable in the event the company cannot pay.

If I took this loan out, would it be me taking it out or the business?

If you take the loan as a sole-trader, you remain liable. If you take out a loan under the Ltd Company then the company is liable as a seperate legal entity/person. However, some lenders require Director's to sign a Personal Guarantee in the event that the company fails. (as above)

would they try and take the money from my assets, of which legal i have none. If it's the business, would the business be liquidated and I/my girlfriend be able to keep the house.

If you are a sole-trader then your assets are at risk. If the property title deeds are in your girlfriends name I cannot see how they can claim against your girlfriends house or issue a garnishee order but I would need to check this since there is a family law issue here that I do not cover. Although I cover litigation I have not run into this kind of issue, yet!

To conclude, legally, you would be in a better position to form a Limited Company and apply for a loan under the company (but you may have to sign a personal guarantee, which in theory brings you back to square one). Whether this is tax efficient for you, or whether banks will consider lending a new Ltd Company is another issue which you need to seek advice from an Accountant/Bank

 

[Mantzy]

Another quick question, if I took the loan out say tomorrow in my name and then wanted the business to pay for it, could I simply transfer the responsibilities of the loan to the Ltd company or would a lender not see it like that and still see me as the person to pay for it.

I have a feeling it'd be the latter.

Thanks for all your help.
R

 

[bwglaw]

Another quick question, if I took the loan out say tomorrow in my name and then wanted the business to pay for it, could I simply transfer the responsibilities of the loan to the Ltd company or would a lender not see it like that and still see me as the person to pay for it.

I have a feeling it'd be the latter.

Thanks for all your help.
R

To assign the loan from you to the Limited Company you would need to enter into an agreement with the lenders.

To take out a personal loan and get the business (I presume you mean the Ltd Company) to make the monthly payments, is a question for your Accountant. However, if you take out the personal loan and remain a sole trader you can include the loan and loan repayments in your accounts. This, again is a question for the Accountant.

I think the Accountant may say you can take a personal loan, lend it to the Limited Company and the company pays you each month the equivalent of the repayments that you pay from your personal account. You would then be lending the company the money.

 

[Mantzy]

In that situation I'm sure that I'd personally still be liable for the loan if the business went down then too. I'll speak to either an accountant or a solicitor tomorrow and see what they say. Problem being, there is an excellent premises up for grabs and I need the financial backing to get it before someone else does. If I can get funding asap, then i'll have to take it. I suppose I could just risk it, but I don't think the ol dear would be too happy if Mr Baliff comes a knocking.

Cheers for you help, you're a star...and i'm a little less confused now which is a bonus.
R

 

[Pebble Communications]

'Common law' wife or 'common law' husband or 'common law' marriage is a complete myth. There is no such thing in law. If your finances are interconnected then that might affect what happens if you split up (i.e. if you had been contributing seriously to the mortgage) but you don't get anything just for having lived together. This '3 year' myth causes people so many problems as they assume they have rights they don't.

I doubt it would affect any loans either. In fact, even if you were legally married, you are not responsible for each others separate debts.

 

[Alpha]

Bit late but in answer to some of your points

If you take a personal loan out and it is unsecured the bank will only be able attempt to take the money from your assets not your girlfriends. They may however charge you a substantial fee for insurance so that they can at least cover some of the loan if you are unable to repay it.

As far as the loan to the business is concerned if you are going to form a limited company the bank will ask for a personal guarantee. As Handson as said this will negate the protection of the limited company and will mean that you will be responsible for both loans and a likely bankruptcy should the worst case scenario happen.

for this reason you should ensure that you have drawn up a well thought out business plan with plenty of contingencies and compiling a number of what-if scenarios before going ahead.

As far as the treatment of the personal loan is concerned in the limited company
effectively you will put the money into the company as a loan from yourself. the company can then repay you at an agreed interest rate (which you will have to deduct and pay over 20% tax each quarter and complete and file form CT61 with the revenue) or you can enter the interest payments from the loan on your personal tax return as it will qualify as a business loan and you will get tax relief in this manner. Which way is best will again depend on your and the limited companys circumstances.

 

[Ian J]

I'm not sure that a loan from a lender directly to the limited company will be possible as many of the lenders (including Tesco) are only involved in personal loans and won't lend to a company.

You haven't mentioned the amount involved as it will have a bearing on how the bank/lender will react in the event of your default. If the amounts are relatively small the lenders won't try and bankrupt you or take away a house as long as you make some proposals of repayment as it isn't worth the hassle

 

[Joanne_UK]

From my personal experience if you take a personal loan (Tesco) don't tell them it's for your business because they will cancel it.
A personal loan is not to start a business or to inject money into your business.
If you tell them it is for home improvement them they will ask no other question. You pay it from your bank account (but then you can repay yourself with the business account).
It will always stay a personal loan.
A business loan is completely different, you will need to do a business plan, cash flow previsions , etc... And the interest rate is never as good as the personal loans. And as you said before you will need to raise half of the money yourself (and they may ask you to be personally responsible if the company cannot pay the loan).
So you will end up beeing responsible for both loans even if the company is limited (in case of bankcrupcy) so make sure you have done your research to see if your business idea is viable!