An ever increasing number of couples are choosing to cohabit rather than marry. This often leads to difficulties if they subsequently separate as the legal position regarding cohabitation is very different to marriage.
This article briefly outlines the law in this area, drawing on lessons that can be taken from two recent seminal cases in the respective jurisdictions of England & Wales and of Scotland, which - as will be shown - approach the issue in different ways. It will then set out the key considerations for couples to bear in mind before cohabiting.
Kernott v Jones (2011)
This English case provides guidance from the Supreme Court in establishing the ownership of property purchased by unmarried couples. Here, the parties purchased a property in 1985 in joint names, making no declaration as to their respective beneficial interests. In 1993 Mr Kernott moved out and thereafter made little financial contribution. Ms Jones took on sole responsibility for the mortgage, bills and upkeep of the property and over the years its value increased significantly. In 2006 Mr Kernott claimed a beneficial share.
The Supreme Court ruled in favour of Ms Jones and granted Mr Kernott only a 10% share in the property. Although the parties' intentions when they purchased it were to hold the property equally, that intention had changed over time. The court, considering the approach of both parties, ruled that the initial presumption of equal ownership had been displaced.
Thus, the parties' common intentions as to the ownership of a property can be established from their conduct. However, where there is no evidence as to intentions the court can impute them (even where it appears such intentions never existed), having regard to the whole course of dealing between them.
Gow v Grant (2012)
This Scottish case, also decided by the Supreme Court, concerned partners who each owned separate properties prior to living together. During the cohabitation, Mrs Gow sold her property and the sale proceeds were put towards joint living expenses, repaying debts and purchasing two timeshares (to which Mr Grant also contributed). The parties separated in 2008.
Mrs Gow subsequently commenced proceedings, arguing she had been economically disadvantaged because she had sold her house and moved in with Mr Grant. By 2009, the value of her original house had nearly doubled. On appeal to the Supreme Court, Mrs Gow was awarded the difference between the price obtained from the sale of the property and its current value.
Lady Hale was a Judge in both cases. In Gow v Grant, she called for reform of cohabitation law in England & Wales. In Scotland, since 2006, it has been possible to apply to court for limited financial orders where cohabitants separate. Therefore in Scotland, unlike England & Wales, there is a legal framework in place which affords a degree of protection to cohabitants and their children.
Advice to unmarried couples
No-one wants to embark on costly, lengthy and uncertain litigation. There are steps which can be taken prior to cohabiting which help minimise the risks.
It is important to remember that a jointly owned property gives rise to a presumption that it is owned equally unless the contrary is proven. So, the onus is on the person wishing to show that the intention was to hold the property in a different manner. Couples purchasing a property need to be clear at the outset about their intentions. A simple form of declaration of trust is now compulsory in all conveyances in England and Wales. This could help to prevent cases like Kernott v Jones from arising in the future. A comprehensive declaration of trust, drafted at the time of purchase, provides more certainty.
A Cohabitation/Living Together Agreement drafted by an experienced family lawyer is invaluable. The Agreement can be used to confirm how property is held and responsibility for payment of outlays. It can provide for what should happen if the relationship breaks down. Usefully it can define those assets which parties owned prior to cohabitation, and provide for these to be ringfenced. It can provide that neither party will claim against the other on separation. It may also include confidentiality clauses as well as provision for the parties to enter into a prenuptial agreement if they marry.
Although it is not possible to oust the jurisdiction of the court in England & Wales, the existence of an Agreement provides clear evidence of parties' intentions and is likely to be given substantial weight by the court. In Scotland, the Agreement will be considered binding unless challenged under contract law. An Agreement should always be kept under review, and if circumstances change (such as the birth of a child or a significant and unexpected influx of money) it should be revisited.
Effective tax planning is also prudent. Having a good accountant, who has experience of family law considerations, can be invaluable. Finally, it is wise to make a Will. This is especially so in Scotland where, in the absence of a Will, the surviving cohabitant can apply to court for an award.
Putting in place effective fall-back provisions at the outset of cohabitation minimises uncertainty, cost and the risk of protracted litigation. Thinking about the future and reviewing arrangements regularly provides peace of mind. These two cases, decided in two very different jurisdictions, illustrate the pitfalls of failing to do so
This article first appeared in Wealth Briefing on 5 October 2012.