The Supreme Court – Britain's highest court – has this week given an important ruling on how homes purchased by unmarried couples should be divided if their relationship subsequently breaks down.
The judgement, in Jones v Kernott, emphasises the importance of taking steps at an early stage to set out interests in a property to avoid legal disputes at a later stage.
Jones v Kernott involves a couple who purchased a family home which was legally registered in their joint names. Both Ms Jones and Mr Kernott met the mortgage and upkeep payments for the property. After their relationship broke down, Mr Kernott moved out into another property but Ms Jones and their children continued to live in the family home. Some years later, having contributed nothing to the mortgage for the family home in the meantime, Mr Kernott claimed that he was entitled to benefit from the proceeds of its sale.
In English law a property can be legally registered in joint names, but that does not necessarily mean that those legal joint owners are entitled to benefit from the sale proceeds or other income, such as rent, from the property. The shares will depend on each owner's "beneficial interest" which can be entirely different to their legal interest as joint registered owner.
The Supreme Court decided that although Mr Kernott was a joint legal owner of the family home, he was only entitled to 10% of the sale proceeds. The Court has set out the tests for determining the rights of unmarried couples to share jointly owned property, which might not always lead to the result the couple expected.
Commenting on the ruling, Charlotte Searle, an associate in Penningtons Solicitors LLP's private client team, who is a member of the Association of Contentious Trusts and Probate Specialists, says: The starting point in this ruling is a presumption that unmarried couples who are joint legal owners of a property are jointly entitled to benefit from it. However, where there is evidence that the couple had a different intention, their entitlement will be determined in accordance with this common intention."
A common intention can be inferred by courts, even where it has not been expressed by the couple. Courts can look at factors such as discussions at the time of the purchase; the reason and purpose behind the property purchase; the reason why it was placed into joint legal names; the nature of the couple's relationship and whether they have children; how the purchase was financed (both at the time of purchase and later); and how the expenses and outgoings of the property are paid, including the mortgage.
Even if it is not possible for the courts to infer what the common intention of the couple was, perhaps because there is insufficient evidence available, they will decide the shares in accordance with what they consider 'fair'. The financial contributions which the couple have made to the property are relevant, but are not necessarily the determining factor.
Charlotte continues: "The real risk for unmarried couples who purchase a property in joint names is that, unless they take steps to establish how much of the property they are each entitled to, a court will have to decide that for them if the relationship breaks down. The decision by a court as to what is 'fair' could be very different to what the couple themselves consider to be correct.
"Couples can put in place a document which sets out how the benefit in their property is to be shared, to avoid later uncertainties. The cost of taking this step is likely to be far less than the cost of a subsequent legal dispute. Even if you took legal advice when a property was jointly purchased, if your circumstances have changed, you should consider obtaining updated legal advice to ensure that your interest remains protected."