A prominent divorce lawyer once identified the secret to his own, happy relationship as ‘separate bank accounts’. For many couples, though, sharing is fundamental. Only when their relationship breaks down do they appreciate the consequences. These differ depending on whether a couple are cohabiting, or are married or have a civil partnership. The following is general guidance on safeguarding your assets:
If you own your house or flat, be sure you understand the type of ownership. Seek advice on whether you need a declaration of trust recording in writing you and your partner’s respective interests. There are three main types of ownership:
- Sole ownership: the whole property belongs just to you. If your partner lives there with you, they may be able to claim a share in it, for example if they made payments towards the mortgage or the cost of renovations. Conversely, if you are the non-owner, your interest may not be adequately recognised after you have split up.
- Joint ownership as ‘joint tenants’: each of you owns the whole property. If one of you dies, the other automatically becomes sole owner of the whole property, regardless of the provisions of the deceased partner’s will.
- Joint ownership as ‘tenants in common’: each of you owns a distinct share (assumed to be 50%, unless you specify unequal shares). If one of you dies, the other does not automatically receive their share. It passes under the deceased partner’s will or the intestacy rules. As a result, the surviving partner may be left owning the property jointly with a third party.
The recent Court of Appeal decision of Fowler v Barron is an instructive case in point, confirming the importance of getting the paperwork right and understanding what it means. The parties acquired a property for their home which was registered in joint names. The man paid the deposit and, although the mortgage was in joint names, he made the mortgage repayments and met the fixed costs on the property. When the couple separated he argued that the property was only in joint names so that it would pass to the woman in the event of his premature death. Unfortunately, he had not communicated this ‘intention’ to the woman and the court concluded that the correct interpretation to be drawn from their conduct was that the property would be shared equally. It mattered not that the man had misunderstood the effect of the original purchase document.
Cash and assets
Keep separate bank accounts. You may wish to open a joint account for mortgage and household bills, into which each of you pays an agreed sum every month. Make sure your salary, any gifts of cash and sums you inherit are paid into an account in your sole name.
Cars cannot be registered in joint names. Furthermore, registration as the ‘keeper’ is not of itself proof you own the vehicle. Conversely, where a vehicle is registered in someone else’s name, it may be hard to show you own it or provided the funds to purchase it. Think carefully before agreeing to register the Porsche in your partner’s name.
Beware of putting investments in your partner’s name for tax reasons. You may later have difficulty proving the investments still ‘belong’ to you, and struggle to rebut the presumption that they were a gift to your partner.
Joint debts may seem attractive, but you are likely to be ‘joint and severally liable’. Creditors can choose to pursue either of you for the full amount owing. Check the terms of any joint mortgage, credit card or hire purchase agreement, lest you end up having to pay for your partner’s purchases.
Key point: Record everything in writing and make joint intentions as clear and unassailable as possible. The Law Commission’s report on Cohabitation and the Financial Consequences of Relationship Breakdown, published in the summer of 2007, is not moving towards the statute books in the immediate future. The importance of cohabitants and co-owners regulating their affairs by suitable declarations of trust cannot therefore be overstated.