Have you received a financial gift or some inheritance?
Maybe you have been awarded damages or compensation in court or received a financial gain from an out-of-court settlement?
How would you feel if somebody else was able to take a proportion of this for themselves?
Relationship breakdown is not always at the forefront of a person’s mind when they are head-over-heels in love and taking exciting steps to move in with their partner or get married/enter into a civil partnership. However, it is vital to ensure you are fully informed of the law in the unfortunate circumstances that the relationship does go sour and the options available to you to protect your finances to be able to make the right decisions for you.
Cohabitation
Cohabitation is when an unmarried couple or a couple that is not in a civil partnership are living together in the same property. It is not uncommon when people purchase a property together for one person to make a greater financial contribution than the other towards the purchase price, the monthly mortgage repayments or other costs of living. Sometimes couples will have a verbal agreement between them regarding the financial contributions they have made whilst others may never discuss this.
There are two types of ownership of a property: legal ownership and beneficial ownership. The legal ownership relates to the person or people with the right to occupy the property, whereas the beneficial ownership is the person or people with the right to receive an income from the property or a share of the proceeds of sale. Usually the legal owners of the property are also the beneficial owners of the property.
However, the legal ownership does not always accurately reflect the beneficial ownership of the property. A common situation where this may apply is when one of the owners has made a greater financial contribution towards the property than the other and there was a shared intention between them that they would receive their ‘fair share’ back when the house is sold in the future.
When it comes to selling your property, the proceeds of sale will be divided in accordance with the legal ownership set out on the title deeds, unless it can be shown that the beneficial ownership is different to that which is set out on the title deeds. One way you can clearly evidence the beneficial ownership is by entering into a Cohabitation Agreement or Declaration of Trust at the time of purchasing your property. In the absence of either of these documents, you could find yourself in costly legal disputes when attempting to realise your beneficial ownership in the property in the future.
A Cohabitation Agreement is a legally binding contract between two parties, which can set out the terms and conditions of them owning and living in a property together. Those terms and conditions may cover all kinds of scenarios, such as:
- How the mortgage and other household expenses are to paid, by whom and in what proportions;
- What should happen if one owner wants to sell the property and realise their investment and the other does not;
- The arrangements for one party to buy the other’s share;
- How and when the property is to be sold;
- If the parties stop living together, how the house contents and gifts acquired jointly shall be divided between them;
- Whether there will be any financial support between the parties during and after cohabitation ends;
- The living arrangements and financial provision to be made for the parties’ children, if cohabitation ends.
A Declaration of Trust is a simpler document which sets out the beneficial ownership of a property when it differs from that contained in the legal title. The benefit of having a Cohabitation Agreement or a Declaration of Trust is that there is no uncertainty about the beneficial ownership of a property, you avoid the cost of lengthy litigation in disputes over your beneficial shares and you can preserve your much-valued assets.
Marriage and Civil Partnerships
Once you become married or enter into a civil partnership, your assets begin to form a ‘matrimonial pot’. When that marriage or civil partnership breaks down irretrievably and ends in divorce/ dissolution, parties will seek to divide the matrimonial finances between them. The law governing the division of the matrimonial finances is the Matrimonial Causes Act 1973. The starting point in resolving the finances out of a marriage / civil partnership is an equal division of the matrimonial assets. Not all assets will be considered matrimonial and it is possible to ring-fence assets that have been acquired before the marriage / civil partnership. However, if pre-marital assets have been injected into the marriage/civil partnership, perhaps through a purchase of a family home or mingled in other ways that have led them to be enjoyed throughout the marriage / civil partnership, there is a risk that those assets then become matrimonial property and available for distribution.
In order to protect your assets from becoming available for distribution in the unfortunate case of divorce or dissolution, you may wish to consider entering into a Pre or Post Nuptial Agreement. A Pre-Nuptial Agreement is entered into prior to your marriage/civil partnership and a Post-Nuptial Agreement is entered into some time after you take your vows.
Pre/Post Nuptial Agreements provide the benefit of certainty as to how your finances will be divided, transparency as to each parties’ financial position prior to entering into a marriage, can protect a party’s assets from being used to satisfy the other party’s debts, and minimise acrimony upon divorce/dissolution as well as offering a number of other benefits. Most importantly, you are able to ring-fence your assets that you do not wish to be considered as part of the ‘matrimonial pot’ in any future marital breakdown and preserve what is rightfully yours.
Pre/Post Nuptial Agreements are not currently legally binding against the Matrimonial Causes Act 1973. However, provided that:
- The agreement makes reasonable provision for the parties and their children’s needs;
- You enter into this agreements a reasonable time before your ceremony takes place or after your ceremony has already taken place;
- You have a full understanding of your spouse/future spouse’s financial circumstances;
- You take independent legal advice;
- Enter into the agreement at your own free will; and
- Have a full understanding of the implications of entering into the agreement;
they are more likely to be upheld by a court as a “circumstance of the case” under section 25 Matrimonial Causes Act 1973, as per the ruling in the landmark Supreme Court case Radmacher v Granatino [2010] UKSC 42.
What should you to do protect your financial assets in a relationship?
We understand the difficulties and uncertainties facing our family clients whether that be planning for the future to safeguard their damages, going through a separation or disputes in relation to children. It is each of our Family Lawyers’ objectives to make this journey the smoothest and most suitable for you taking into account your own personal circumstances. Whilst you may be at the beginning of the journey, we are already planning how we will get you to where you want to be at the end.
Should you wish to speak with one of our Yorkshire family lawyers to discuss this article or any other family-related issue, please email us at family@isonharrison.co.uk or call on 0113 284 5000 and ask to speak to one of our private family law team members.
