Cohabitation: Trusts of Property and Cohabitation Agreements

Cohabitation: Trusts of Property and Cohabitation Agreements

10 January 2017 Mary McEvoy

In 2015 cohabiting couple families accounted for 17% of all families in the UK and the percentage of over 16’s who were married decreased to 50.6%. These figures may be explained by an increasing trend for couples to cohabit before marriage or to cohabit instead of marrying at all. It is therefore becoming increasingly important for cohabiting couples to consider their financial position carefully.

It is a misconception that couples can rely on a ‘common law marriage’ to protect their financial interests when cohabiting however that is not to say that a trust of property may not form as a result of cohabitation. S.53(2) of the Law of Property Act 1925 confirms that the creation or operation of resulting, implied or constructive trust is still possible without a written agreement. Furthermore it is possible for such a trust to be formed even when the property is in the sole name of one of the parties.

Property in Joint Names

When a couple own a home in joint names and are not married the presumption will be that they intend for the property to be owned in equal shares, unless there is a specific agreement such as a Declaration of Trust or Cohabitation Agreement defining their shares.

This presumption can be displaced if the parties can show that they had a common intention that the shares would not be held equally at the time they purchased the property; or that they later formed the common intention that their respective shares would change.

The ‘common intention’ is to be deduced from the parties conduct and the court can make a decision as to what they consider is a fair division of the shares based on the whole course of dealing between the parties in relation to the property, not just their initial contributions.

There are many factors that will help a court decide on what shares a property will be held in such as mortgage contributions, council tax and utilities, repairs to the property, insurance and housekeeping.

This approach can therefore translate into one party having a greater share than the other.

Property in Sole Name of one party

When a couple live in a property together but one of the parties owns the property in their sole name there will be a presumption that the sole owner has the sole beneficial interest and it will be for the non-owner to prove to the court that they have an interest. The starting point for this type of claim is therefore different to the above as the court will need to decide firstly, whether the non-owner does have an interest before they can go onto consider what that interest is.

However, the courts have made it clear that the common intention will once again be deduced from the parties’ conduct and that the share will be decided based on what the court decides is fair, having regard to the whole course of dealing between them in relation to the property.

This intention is best demonstrated by financial contribution to the purchase price of the property or by way or mortgage payments. However the courts have recently been considering other contributions, or the lack of them by the owning party, such as failure to contribute to the maintenance of children.

So why should you consider a Declaration of Trust or Cohabitation Agreement?

In both of the above scenarios the courts’ powers to interpret the trusts created are effectively providing the kind of relief available to a husband and wife in financial divorce proceedings,  so why would you need an agreement?

Ultimately any proceedings under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) will be expensive and time consuming. Although relief is available, it will often not be the same level as a financial settlement in divorce proceedings and it can be difficult to prove a resulting trust. If you are successful the court may not interpret your interest to be the value of your contributions to the relationship as a whole.

A Declaration of Trust is a document that sets out the way the beneficial interest in a property is held and indicates the parties’ intention at the time of purchase. This way if parties separate they can rely on this document to inform the courts of their intention and how they wished their contributions to be considered, saving both time and money.

Cohabitation agreements are frequently entered into by cohabitees who want to regulate their financial and living arrangements both during cohabitation and if cohabitation comes to an end. A Cohabitation agreement can protect your property interests but it is a much wider agreement than a Declaration of Trust and can govern other issues such as:

  • How the mortgage and other household expenses are to be paid, by whom and in what proportions
  • What should happen if a co-owner wants to sell the property and realise their investment and the other does not
  • The arrangements for one party to buy the other's share
  • How and when the property is to be sold and costs of this are met
  • Ownership of joint and separate property, if cohabitation comes to an end
  • Financial support between cohabitees during and after cohabitation ends
  • The living arrangements and financial provision to be made for the parties' children, if cohabitation ends
  • Pets (a subject which can be very difficult to deal with at the time of separation).

A Cohabitation agreement can be entered into at any time during a relationship, pre or post cohabitation. It is worth noting however that if no separate Declaration of Trust is in place from the time the property is purchased then the parties’ intentions are not formally recorded until the agreement is executed.

As with all legal agreements careful drafting is needed to ensure that parties’ intentions are easily interpreted.

If you have been cohabiting with your partner and are separating and need assistance with a claim or alternatively would like Neves to draw up an agreement to protect you and your partners financial interests then please get in touch with the Family Department at info@nevesllp.co.uk

Glossary

Common Intention - In the legal terminology of property law, common intention is where there is an express or implied agreement between unmarried cohabitees as to their beneficial entitlements in the family home. The common intention constructive trust has been used by English courts to divide assets upon separation.