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Cohabiting with a partner: protecting assets

Date:12 SEP 2019

Press reports of Boris Johnson and his partner arguing days before moving into No. 10 together has raised questions about the longevity of their cohabitation. However, with the number of cohabiting couples continuing to increase, how can lawyers advise those those who choose to move in together protect their assets in the case of a breakup? 

Carrie Symonds is the first 'unmarried' PM partner to reside at Downing Street – confirmation, if we needed it, that couples choosing to simply cohabit (rather than marry before living together) is becoming the norm.  Marriage is no longer the main priority for every couple, with many considering living together, commitment enough. As well as cohabiting being deemed as more socially acceptable than ever before, it has practical appeal too. For many, allowing the financial responsibility of owning and running a household to be shared can make a lot of sense, until a relationship breakdown.  

Contribution complications 

Although seemingly practical in many respects, complexities can arise depending on how a property is owned. If a couple own a home in joint names, and both contributed equally to the deposit and are named and so liable on the mortgage, then the risk is minimal. On separation, it is likely that the equity in the property will be divided equally.  So far, so straightforward, but 'real life' couples rarely make entirely equal financial contributions. It’s often easy to spot the 'spender' and the 'saver' in life! If one party earns more, or the other has saved more and can contribute a larger sum to the deposit or purchase, then issues upon separation are likely to occur in the future. 

The individual who has contributed the most to the home may believe that they will receive more if there is a breakdown in the relationship. Whereas, their partner could be operating on the basis that it is a joint venture, even if they have put in less capital. Circumstances can also change over time, leading to further complexity. For example, jobs can be lost or inheritance can be gained during a lifetime, altering how much money can be contributed towards a property over a given period. As a result, the difference in interest can change dramatically. Rarely do people maintain an 'equal' system when it comes to cohabiting. 

Barnes v Phillips 

A case heard in 2015, Barnes v Phillips, highlights just this. It concerned a disagreement between former cohabitees over the proportions in which they held a property in London. The property had been bought in joint names in 1996, however, in 2005, after remortgaging the property to pay off Barnes’ personal debts, the couple separated and Barnes vacated the property. Although Barnes continued to make contributions towards the mortgage for two and a half years, by 2008, Phillips was paying it alone, as well as having almost sole financial responsibility for the two children of the family. 
At the time of the remortgage, it was judged that the parties beneficial interests in the property were 75:25, with the majority being Phillips’. However, by the date of the trial, this had become 85:15 and was ruled to be the correct proportion. This case demonstrates the Court was content to find an agreement (by conduct) to vary the beneficial interests each party held. 

Cohabitation legislation 

Legislation for cohabiting couples does not help the situation, as it draws from multiple areas of law, including Schedule 1 of The Children Act 1989 (if the couple have children to consider) and the Trusts of Land and Appointment of Trustees Act 1996. The latter being the main piece of legislation relied upon today for couples without children. For married couples, although divorce is always going to be a stressful time, the legislation to resolve financial issues stems from one place, is largely prescriptive and leaves less room for interpretation.  

This lack of one single regime makes the process far more complex and unpredictable for separating cohabitees. For example, if someone owns a house and moves their partner in, the partner can then gain an interest in that property depending on certain criteria, such as if mortgage contributions have been made or home renovations have been carried out. Just because a house is in one person’s name, that does not mean that the house is theirs alone if someone else has begun to contribute. Conversely, even if someone has financially contributed after moving in with their partner, and perhaps thinks they have embarked on a “joint venture” that does not necessarily mean they will be judged to have beneficial interest as so much depends on conversations the couples have had, and the extent of contributions. 

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Capehorn v Harris 

An example of a dispute arising due to confusion surrounding properties owned in one name is the Capehorn v Harris case. Capehorn and Harris had lived together for 20 years. Harris solely owned a business in which Capehorn worked. However, when Harris was declared bankrupt, Capehorn took over Harris’s business and employed Harris in what had become her business. Capehorn invested in the business, even though it was still owned in Harris’ name. 

Capehorn then purchased Sunnyside Farm in 1993 and 19 Beaumont Road in 2002, both in her sole name. The deposit for the farm was funded from the business, and 19 Beaumont Road’s mortgage was secured against the farm. Capehorn and Harris did not have any agreement about the two properties and whether Harris would have any beneficial interest. 

Harris then set up a limited company in his sole name. In 2007, Capehorn transferred her business to Harris’s company, in return for £750 per week funded by Harris’s business. Harris’s case was that he assumed that part of the £750 would go towards the mortgage repayments for Sunnyside Farm, but Capehorn maintained that this was not the case and that Harris had no beneficial interest in either of her two properties. 

Due to various assumptions and a lack of any formal agreements, a number of complications arose on separation. Although both felt they had a level of beneficial interest in the other’s properties, because of certain contributions, it was still judged that Capehorn was the sole legal and beneficial owner of her two properties and Harris was the sole legal and beneficial owner of the shares in his company. 

This demonstrates the importance of having clear conversations and creating written agreements to ensure both parties are on the same page throughout. 

‘Living together’ agreements 

The Trusts of Land and Appointment of Trustees Act 1996 is what is referred to when a cohabiting couple choose to separate. Its main role is to help calculate the extent of a person’s beneficial interest in the home, which is the percentage of ownership, the time period of ownership, the right of survivorship, and the rights to transfer or restrict the sale of the property. 

To avoid as much conflict as possible in the case of a relationship breakdown, couples who are planning to move in together should enter into a ‘living together’ agreement at the outset of their cohabitation and keep it under review as circumstances change. This is a contract between the two people, which sets out what they both have separately and what they consider to be joint assets. The parties must then discuss what would happen with the joint assets if they were to break up, including everything from who owns an item of furniture, to who will take the dog. Once everything has been agreed upon, the contract can be signed by both parties. Living together agreements are particularly useful when a person moves into a property that the other party owns in their name or if someone has made a larger capital contribution. 

It is worth bearing in mind that these agreements are not fixed as soon as they are signed. As with many legal agreements, such as a Will, documents should be amended when circumstances change. Significant life milestones are often the most common time to review legally binding documents, such as the arrival of children, inheritance windfalls or the addition of business interests. In fact, if changes to a person’s life and estate are not considered in their entirety, it could cause conflict and confusion later down the line. 

Communication is key 

When selling a home after a breakup, to ensure a fair amount of the sale proceeds are received by each partner, a conversation must be had in advance of the selling process over how to split the money. This conversation must be had no matter whether a property is in a joint name or one name. 

If the home is in joint names, it is possible that one person will want to challenge whether it is in fact owned equally. Should one person have contributed more to the mortgage or towards renovations, then they may feel that they have gained a larger interest in the property overall. A common argument concerns the beneficial interest in the house of each person, as legal ownership is not the same as beneficial ownership. In situations such as this, living together agreements can be used to solve the dispute in a simple and less traumatic manner. The decisions made should reflect the original agreement, even if they do not reflect the title deed. 

As Boris and Carrie have demonstrated, cohabiting is becoming a normal part of many people’s lives, making having an awareness of the potential complexities even more important, especially with the mix and match style of cohabitation legislation. Gaining professional advice and creating a living together agreement is a sensible decision for any unmarried couple planning to move in together. The breakdown of a relationship is already a stressful time, so having an agreement that neatly sets out how assets are to be shared is an ideal way to reduce the chance of further disputes.