Cohabiting couples – make sure it’s clear who owns what if you split, including investment property

Having property and land in an exotic location may seem like a faraway dream to most of us but a recent dispute involving a cohabiting couple who jointly owned several investment properties on a luxurious British Crown colony could have legal ramifications much closer to home.

The case, which culminated when the Judicial Committee of the Privy Council handed down its judgement in June, brings some clarity to the issue of deciding who owns what when a cohabiting relationship ends.

Background

Terry Marr, a banker, and Bryant Collie, a building contractor, began a relationship in 1991, during which they acquired several investment properties in their joint names with no express declaration of trust.

A declaration of trust for tenants in common can record each person's contribution and therefore the proportions of the property they own.

A deed of trust can also record contributions to mortgage payments and maintenance. Creating this declaration of trust when purchasing is important when the property is sold as it ensures that each homeowner gets a fair portion of what they put into the property.

Mr Marr and Mr Collie also bought a pickup truck and a motor boat, registered or licenced in both their names, but crucially, the cash element of the purchase prices - as well as most of the mortgage payments on the investment properties - were paid by Mr Marr.

Mr Collie argued that it was always intended that he would renovate the properties or build on the plots of land acquired and that the assets were intended to be equally owned from the outset.

But when the relationship ended in 2008, Mr Marr issued legal proceedings claiming he held the beneficial ownership of the property, land, truck and boat.

Is it yours or mine?

And this is where it gets complicated - particularly for cohabitees.

Basically, under the law, the ownership of the property has two parts - the legal ownership and the beneficial ownership. If the deeds say two people jointly own the property, they are both legal owners but the beneficial ownership determines who should have the benefit of the property. So it is quite possible for a property to be legally owned by two people but for only one of them to be the beneficial owner.

And this is what Mr Marr argued, based on a rule devised by courts over the years known as a 'resulting trust'. In short, this means that the property is presumed to be owned by the parties in accordance with the contributions that each made to its purchase. And obviously Mr Marr had put in much more financially than his former partner.

But yet another court-devised rule is one called a 'constructive trust' which looks at what the couple intended when they bought the property - and what the plans were for how the property should be divided in the event of a split

If the legal ownership is in both names, the starting point is that the beneficial interest is equal - Mr Collie's argument as to why he should get an equal share, something he claimed had been agreed from the outset.

What happened?

The first hearing favoured Mr Marr, the appeal abroad went Mr Collie's way - concluding that at the time Mr Marr had intended to share equally with his former partner the beneficial interest in the investment properties, truck and boat.

However, Mr Marr's appeal to the Privy Council accepted his evidence that the reason he had the properties conveyed in joint names was on the basis that Mr Collie would make an equal contribution to their development, a contribution that never fully materialised.

The significance of this case for cohabitees

The Privy Council ruling on this case could possibly be taken into consideration when deciding cases in England and Wales. Some would argue that the law surrounding this area is in desperate need of clarification as to the approach the courts should take when looking at property owned by cohabiting couples purchased for investment, rather than domestic, purposes when their relationship breaks down.

It emphasises the need for couples who invest in any property - whether to live together or for investment purposes - to seek independent legal advice and to make sure their intentions are clearly set out prior to making an investment.

There are sensible steps cohabiting couples can take to protect themselves legally and financially including taking out a cohabitation agreement, setting up a declaration of trust and making and regularly reviewing Wills.

Lucia Mills at Wards Solicitors specialises in cohabitation disputes and cohabitation law