Cohabitees and Property Ownership

As the number of cohabiting, unmarried couples continue to grow in the UK it is important for cohabitees to protect their assets and contributions in the event of separation. Cohabitees do not have the protection of the Matrimonial Causes Act 1973 (MCA) which provides a right to a financial claim against all assets of the marriage regardless of how the assets are held, for cohabitees usually their financial rights are limited to assets that are in joint names only.

In a previous article we explained how cohabitation agreements and declarations of trust can confirm and protect a cohabitee’s interest for assets held in the other cohabitee’s name. In the absence of these documents, a cohabitee can also acquire a beneficial interest in an asset by establishing that a trust exists between the two cohabitees. A trust can arise where one person owns the legal title of an asset on behalf of or for the benefit of another person (the beneficiary).

Resulting trust, constructive trust and proprietary estoppel are trusts that can provide protection to a cohabitee who may be a beneficiary of an asset and not the legal owner.

Resulting trust

Resulting trusts arise where one cohabitee contributes towards the purchase of an asset but is not a legal owner; for example, a cohabitee who has contributed towards the deposit on a property but whose name does not appear on the legal title to the property. It is important for the cohabitee (beneficial owner) to evidence that their financial contribution was not intended as a gift or a loan.

In the event of a separation and dispute over the monetary value or percentage of the beneficiary’s interest, the court will calculate the beneficiary’s entitlement based on the deposit, the purchase price, and the capital appreciation in the property. Prior to any final determination being made, the court will also look at other factors, including any constructive trusts to ensure that each party is awarded a percentage which accords with their true entitlement.

Constructive trust

For a constructive trust to arise, the cohabitee who is not the legal owner must show that there was a common intention to share ownership and that they acted in reliance on this to their detriment.

The common intention can be established by an express agreement, or it can be implied from the cohabitees’ conduct. The court will generally find that a trust exists based on discussions in the course of which the legal owner agrees, either explicitly or implicitly, that the non-legal owner has an interest in the property. If this instance were to arise, the legal owner, would have to give evidence to show why the equity should not be shared.

Constructive trusts are implied through circumstances where a beneficiary has acted to their detriment, thus leading them to acquire a beneficial interest in the property. For instance, making financial contributions to towards the mortgage or paying for significant renovation works. There must be an understanding between the cohabitants and the contributions must be significant so that it would be unconscionable for the cohabitee who holds the title of the asset to deny the beneficial party any interest.

The court will look to see evidence of common intention between the parties to share the beneficial interest of the property based on their behaviours and words. It would be unlikely that a cohabitee who holds no legal ownership, would make significant financial contributions without a common intention and expectation that they will acquire a beneficial interest in the property.

Generally, contributions to household expenses other than the mortgage are much less likely to establish a trust. However, indirect contributions to the mortgage may mean that the court will infer that the cohabitees commonly intended that the non-owning party should have a beneficial interest.

Proprietary Estoppel

Proprietary Estoppel arises when assurances are given by the cohabitee with legal ownership (either verbally or by way of conduct) to the other that they will acquire an interest in the property. The party receiving the assurances must act to their detriment by relying on that assurance to such a degree that it would be unfair and unreasonable to allow the other cohabitee to go back on the promise.

Conclusion

If you are not a joint legal owner of an asset, such as the family home, but have made a direct financial contribution towards the deposit, it is always advisable to have a formal document, such as Declaration of Trust, drawn up to ensure that your interest in the property is protected. A Declaration of Trust is usually prepared at the time of the purchase of the property; however, it can also be drafted afterwards, particularly in circumstances where subsequent financial contributions are made towards the mortgage or payments are made for home improvements and so forth, which give rise to a beneficial interest. Similarly, if there is a common intention to share ownership, there is no reason why either party should be resistant to preparing a Declaration of Trust confirming the extent of the non-owner cohabitee’s beneficial interest.

Nevertheless, in the event that there is no Declaration of Trust, and a dispute arises as to ownership, being able to establish a trust based on the parties’ conduct, can also provide a remedy.