Unlike with married couples, when a cohabiting couple separates there is no single piece of legislation that provides guidance on how property and financial issues are to be resolved.
Research by family law group Resolution reveals that one in five UK families cohabit and they are the fastest growing family type in England and Wales, yet 46% still mistakenly believe in the common-law marriage myth. Even though it is common for partners to live with each other without tying the knot, in law, unmarried couples do not acquire the same rights as those who are married, no matter how many years they have lived together or how many children they have. There is no possibility of looking into issues concerning pensions, and, although it is possible to obtain child maintenance through the CSA, it is not possible to obtain maintenance for your personal benefit.
And what about capital? In most cases, a couple’s largest capital asset is their home. So how is this dealt with? It is necessary to look to other areas of the law to ascertain how financial issues are to be considered in the event of separation.
Where a property is owned by an unmarried couple, it is first necessary to look at the deeds to establish in whose name the property is held:
- Jointly Owned Property
There are two ways in which a property can be owned jointly:
- Beneficial Joint Tenants
This is the most common way in which property is held jointly. It will provide for each party to hold a 50% share in the property and, in the event of the death of one party, their share will pass automatically to the other. On separation, if a property is held as beneficial joint tenants, the starting point would be that each party would receive a 50% share of the property upon sale. However, in 2011, the case of Jones v Kernott demonstrated a willingness of the Courts to look at the wider position. The Supreme Court concluded that the presumption of an equal split could be displaced where:
- at the time of purchasing the property the couple had a different common intention; or
- they later formed the common intention that their respective shares would change.
If this were the case and there was no evidence as to the specific shares in which the property would be divided, each party would be entitled to ‘that share which the court considers fair having regard to the whole course of dealing between them in relation to property’. This unfortunately means that there may be considerable uncertainty as to how the proceeds of sale should be divided upon separation and underlines the importance, when purchasing a property, to ensure that any unequal contributions are reflected in the deeds.
- Tenants in Common
If the property is held as Tenants in Common, it is possible to specify the share that each party has in the property, for example, 70/30, 60/40, 50/50 etc. Holding the property in this way will also mean that, in the event of death, the deceased’s share will not pass automatically to the other party but will instead pass in accordance with the deceased’s will. It is possible to transfer ownership from Beneficial Joint Tenants to Tenants in Common so that you are able to have control as to how you leave your share in the event of your death. If the deeds to the property have specifically recorded the shares in which it is held, it can be very difficult to argue that one party should receive a greater share. Therefore, if a couple do not wish to hold a property in equal shares, it is strongly recommended that the property is held as Tenants in Common, accompanied by a Declaration of Trust to specify in what proportion each party holds the property.
- Property in One Party’s Name Alone
If the deeds state that the property is held in only one party’s name, this again will usually be determinative. However, it may be possible for the other party to demonstrate that they have a financial interest in the property. The rules in this area of the law are relatively complex and relate to the intention of the couple at the time of the purchase of the property or when one party to the couple has moved into the other’s property. Preferably, the intention will be expressly declared on documents relating to the property but, if this is not the case, a financial interest may arise through trust principles as a result of financial contributions or as a result of a common intention to share the financial interest in the property and for such common intention to have been relied upon to that party’s detriment. Proving such interest is rarely an easy task and, again, it is therefore very important for a couple to set out very carefully how they would wish the proceeds of sale of the property to be divided on separation when they first look at purchasing the property.
The ownership of property as set out above may be affected where the couple has children. In the event that the resident parent is unable to provide an appropriate home for the children, it may be possible for them to seek additional financial support from the other parent to assist in purchasing alternative accommodation, or indeed to remain in the property which was used by the couple prior to separation. Such a claim can be made under Schedule 1 of the Children Act 1989. Therefore, while the above principles will still apply, it may be possible for the resident parent to secure a greater interest in the property, at least until such time as the child has finished his or her education (usually secondary). At the end of this period, it will usually be necessary to repay the amount which in effect has been borrowed, thereby reverting to the original shares in which the property was held. Whether such arrangement is appropriate will depend very much on the individual circumstances of the case and the finances available to the couple.
All the above demonstrates how important it is particularly for unmarried couples to consider matters very carefully before purchasing a property together.
We are able to advise couples and would strongly recommend that any couple buying a property together considers entering into a Cohabitation Agreement that sets out the basis on which the property is owned and what would happen to it in the event that the relationship broke down.
There have been moves afoot to change this area of the law for many years. The Law Commission set out recommendations as long ago as 2009 for cohabitees to acquire greater rights but, despite two bills having been introduced in this respect, we retain what many might consider to be outdated laws until such time as any suggested changes are implemented by Parliament.