A recipe for disaster – Part 2

Informal property ownership arrangements don’t just affect people who are divorcing. They cause terrible problems with unmarried couples too.

There were only 1.5 million unmarried couples in England and Wales in 2021 in 1996, but by 2021 the number had risen by 144% to 3.6 million. That figure has almost certainly continued to rise since then. Many of those couples will jointly own their homes, but if their relationship ends, they can often find that they are not entitled to a share that meets their needs or achieves fairness.

The law that applies in relation to unmarried couples and their property is utterly different to the law that applies to a married couple who are getting divorced. In a divorce, the court has enormous discretion as to how it can divide all of their asset. This applies not just to their home, but also to savings, investments and pensions.

In contrast, where the court is dealing with an unmarried couple, it has far less discretion. It largely has to decide what the parties’ shared intentions were in relation to the property. That often means that the court’s decision may not meet one parties’ needs or even achieve fairness.

For example, a couple may purchase a property in their joint names and declare in the transfer deed that they will hold the property as joint tenants. This is the most common away of jointly owning a property. Where there is a joint  tenancy, the couple will each be entitled to a 50% share of the equity in the property. There are some other ways that might possibly be available to seek a greater share, depending on the circumstances, but the law is astonishingly complex, and a claimant would be far from guaranteed to succeed in any claim for a greater share.

But, you may say, 50:50 is fair, isn’t it? Well, not necessarily.

Firstly, it is entirely possible that one party paid more towards the purchase price. Fairness dictates that they should get more, but if they declared that they would hold the property as joint tenants, they have no entitlement to it.

Secondly, what if 50% is not enough to meet one parties’ needs. In a  divorce, where the wife has a lower income and therefore lower mortgage capacity, it would not be unusual for her to receive more of the equity in the house than her wealthier husband because she will find it difficult to rehouse herself. Of  course a lot depends on the overall circumstances, but often 50% may not be enough. So what, you may think? At the end of short relationship, why should she get more? But, what if the couple were together for, say, 25 years? Would it be fair for her to have less than she needs?

There are plenty of other examples where an equal split may not achieve fairness or meet needs. There are also many cases where the couple hold the property as tenants in common in equal or unequal shares which again, it may not achieve fairness or meet their needs.

Furthermore, where there are minor children, their needs may not be met. This may require one the parents to make a separate, albeit simultaneous, application for financial provision for the children under Schedule 1 of the Children Act 1989, a piece of wholly inadequate legislation.

Additionally, there are the huge number of cases where a couple live together in a property which is held in the sole name of only one of them. There can be all sorts of reasons why this happens. It may be that the house was owned by one of them before the relationship, or only one of them was working or one party had a poor credit rating, so the mortgage (and therefore the house) had to be in the sole name of one party.

The non-owning partner may be contributing towards the mortgage or might even have contributed some of the purchase price or the cost of refurbishments later, but on the face of it the partner who is registered as the sole owner at HM Land Registry is entitled to all of the equity. The other partner may have to issue a claim in the County Court for a declaration of beneficial interest so that the court decides how much, if anything, that partner is entitled to. All litigation is expensive and risky; success cannot be guaranteed.

The cause of many of these disputes is informality. A lot of people are very Informal about what their agreement is in relation to a property. Each may have a different understanding of what they have agreed. There is often a total lack of documentary evidence to help the court decide who owns what and  how much. There was a swathe of cases a few years ago where a large number of owners of jointly owned properties did not tick the box on the transfer deed  saying whether they were going to be joint tenants or tenants in common, which led to much litigation where the court had to decide what they had intended, usually by examining their conduct.

The lack of formality causes enormous problems. People are familiar with the concept of a pre-nuptial agreement, but very few people have heard of cohabitation agreements (also known as living together agreements). These are very similar to pre-nups, save that they did not involve the couple marrying. They are also much more likely to be upheld by a court than a prenup where the court can ignore them if they don’t achieve fairness or meet needs.

A cohabitation agreement is essentially a contract that sets out a clear and binding agreement between the cohabiting couple about who owns what. Everyone who decides to cohabit and who owns a property should have one, but hardly anyone does. These people risk becoming embroiled in expensive and risky litigation about the ownership of their home if their relationship ends.

At the very least, there should be a formal declaration of trust setting out the respective shares to which the couple are entitled. These can be surprisingly rare.

Many people wrongly assume that if they cohabit, they are in a common law marriage. They assume (if they have given it any thought at all), that they have the same or similar rights as married couples. However, there is no such thing. So-called common law marriages are not recognised in law in this country.

The Labour Party has recently announced that of it wins the next election, it will legislate to introduce reforms to the law relating to cohabitation. In her speech at the Labour Party conference on 10 October 2023, Shadow Attorney General Emily Thornberry MP stated:

“For too long, women in co-habiting couples have been left with no rights when those relationships come to an end. If there is no joint property or shared parental dues, a man can leave his partner with nothing, especially if he has the means to take it to court and – thanks to the Tories – she does not.

It is time we reviewed this issue in England and Wales, just as it has been in New Zealand, Scotland and Ireland. No woman should be forced to get married or stay in an unhappy relationship, just to avoid ending up on the street … And no woman should have to hope for the best when it comes to keeping a roof over her head.”

Thornberry’s speech concentrated specifically on the disadvantages experienced by women, but it is worth pointing out that the new law would apply equally to men. Nevertheless, it is worth reflecting that under the current law, it is women who are disproportionately disadvantaged.

The extent of Labour’s proposed reforms is not yet clear. At first sight it seems to go a great deal further than the proposed reforms suggested by the Law Commission in 2007, which did not find favour with the Labour government at that time, who then dodged the whole issue.

18% of families in this country live in cohabiting relationships. They account for three-quarters of the total growth in the number of families in the UK in the last 10 years. Despite this, successive governments of all persuasions have ignored this enormous demographic change and have failed to introduce law that reflects our modern world. The current government seems to think that change would undermine marriage, while failing to take note that the current law is not inhibiting couples from cohabiting nor is it encouraging them to marry or enter into civil partnerships.

Until such time as we have sensible laws about cohabitation, the lack of formality that cohabiting couples often have for property ownership does nothing but lead to unfairness and unmet need. The solution, until the law changes, is to formalise arrangements by getting a cohabitation agreement or a declaration of trust. Not doing that just leads to uncertainty and expense later on.

30 November 2023


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