Who owns a property? And are the title deeds alone enough evidence of ownership? Partner and Head of our Family team Susie Barter explains how relationships can impact property ownership.
Title deeds to a property provide evidence of property ownership. Joint owners can elect to hold the property as 'joint tenants', where they each own the whole of the property. They can also be 'tenants in common' where they each have an individual and distinct share in the property, often recorded on the Title deeds to reflect the initial financial contributions to a property.
Legal and equitable ownership
Not everyone is aware that underlying the legal ownership of a property is the concept of equitable ownership. Equitable ownership considers the underlying financial interests in a property – and who should benefit from them. One example is a parent holding a property on behalf of a child who, by law, cannot be the registered owner of the property. Another common example is an adult child inheriting a property that a surviving parent is entitled to occupy for the remainder of their life.
Declaration of Trust
Where the title deeds do not reflect the intended financial interests in the property, a Declaration of Trust will record the percentage interest of each beneficial owner of the property (which might be based on financial contributions or by way of gift) and can specify when and how the sale of the property would be conducted and how the proceeds of sale must be divided.
So far so good...
However, throw a relationship into the mix and property ownership rights can start to unravel.
Marriage and Civil Partnerships
With marriage comes the possibility of divorce/dissolution – and the power for the court to make orders which interfere with ownership rights.
- The Married Women's Property Act gives couples the right to register their right to stay in the family home, regardless of the legal and equitable ownership of the property – impacting the legal owner's ability to sell or mortgage the property.
- The Matrimonial Causes Act 1973, gives the court power to order the sale or transfer of property and dictate the division of proceeds of sale.
- The Children's Act 1989 and Matrimonial proceedings Act 1984 gives the court power to settle a property for the benefit of children and after a foreign divorce.
In many cases, the operation of the law makes sense. But when property is owned before the marriage, or by virtue of inheritance or gift, unintended consequences can occur.
Pre-nuptial and Post-nuptial agreements
Couples planning to marry who want to protect property interests can agree and record how they want their property to be divided in the event of a divorce in a pre-nuptial agreement.This might ensure that they keep a property they owned before the marriage, or that a property will be divided according to financial contributions, or always divided equally – the details are up to the individuals, but the principle is that THEY decide and THEIR agreement must be given primary consideration on divorce.
The same can apply to a couple who are already married – a post-nuptial agreement can similarly record how property should be divided on divorce; it might be used to ring fence an inheritance or protect a spouse from a risky business venture or ensure children will always be provided for.
It will often make sense to consider whether a property purchase could benefit from this extra protection.
Unmarried Couples
There is a mistaken belief that unmarried couples who live together for some time have a 'common law marriage' which gives them the same legal rights as married couples. This is not true.
On separation, if the couple agree that the Title Deeds or and/or Declaration of Trust reflect their ownership of the property, all is well. But if either thought they would share the property differently by virtue of living it, or that living in it together could NOT impact their ownership of it, they may be disappointed.
The rather cumbersome and limited provisions of the Trusts of Land and Appointment of Trustees Act can be used to persuade a court to alter the ownership of the property. It requires an individual to prove that they have financially contributed to the property in some way – direct or indirect – in reliance of an agreement that they would thereby become an equitable owner in the property. These proceedings are not straightforward and are often expensive – an unwelcome prospect at an already difficult time.
Neither the partner who owns the property – nor the partner living in it as their home – may not understand the implications of their co-habitation.
Cohabitation Agreement.
These difficulties and uncertainties can be circumvented with a Cohabitation Agreement. This document can address not only contributions and ownership of the property, but also additional issues such as the division of household expenses and financial arrangements in case the relationship ends. This can protect the interests of both parties by bringing clarity and avoiding misunderstands and potential disputes – sidestepping the prospect of potentially expensive litigation. They can 'futureproof' property ownership in a way that both individuals clearly understand.
Originally published 18 December 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.