Breaking up is hard to do

Deborah Levy and Danny Glasner assess the legal issues to be addressed before buying a property

For many of us, purchasing a property is usually the single largest investment we make.It can be an exciting and stressful experience as we might wonder: "Is it the right property" and "Are we paying the right price?"

Other equally important issues are often given little attention, such as: Should it be purchased jointly? Should I purchase in my sole name? If so, what beneficial interest will my partner or future partner have in the property?

Whilst a property may legally be registered in the name of one or more people, it is often the case that the beneficial interest can belong to people whose names do not appear on the title deeds.

For example, when the right to buy council properties was all the rage, it was very common for the property to be purchased in the name of one person (usually a parent) with the purchase funds being paid or, the mortgage being taken out in the name of one or more of the children.

Trust Deeds were frequently drawn up on behalf of the parent and children to record who actually the beneficial owner of the property was.

Sometimes the Trust Deed would record that the property was held by the parent for the benefit of the children. Another common occurrence is where an adult child purchased a property for his or her accomodation while at university with the funds being provided by the parents.

A Trust Deed would then record the proportions in which the parent and/or the children owned the property. Aside from the issue of ownership, there are tax implications, in particular Capital Gains Tax.

It is our experience that when people are buying a property together they often ignore or wholly overlook what might happen if a dispute arises as to their respective interests and the size of those interests.

To a very significant extent such disputes can be avoided if, when purchasing the property, the parties define either in the purchasing document (the Transfer Deed) or in a Deed of Trust what their respective shares are to be.

When arelationship comes to an end the remedies available to resolve a dispute over ownership of the property depends on whether or not the parties married, registered a civil partnership or were simply cohabiting.

Marriage and Divorce

The law governing division of property following the breakdown of a marriage is tobe found in section 25 of the Matrimonial Causes Act 1973.

Under this section the Court is given very wide powers, including the power to transfer a property from one party to another, irrespective of whose name the property is in.

When exercising its powers, the Court's primary consideration will be given to any minor children of the family to ensure that their future housing needs together with their primary carer are met.

This may mean that one party may be awarded a substantially greater share than the other. That said the Court will strive to ensure that both parents are awarded sufficient funds to enable them to each meet their housing needs, if that is possible.

What Can Be Done?

Trust Deeds and Agreements will more readily suit cohabiting couples of the opposite sex and people who buy properties within family arrangements.

In the case of marriage, and now same sex relationships (civil partnership), there has been a huge increase in the idea of entering into a Pre-Nuptial Agreement.

Whilst it is still uncertain whether Pre-Nups are going to bind the Courts, increasingly judges have been prepared to give greater weight and recognition to such agreements.

Our view is that they will become increasingly more popular and the Courts will have to recognise that if men and women of full age, education and understanding, acting with competent legal advice, wish to enter into a Pre-Nuptial Agreement, the Court will be entitled to assume that they know and appreciate what they are doing and should be bound by their agreement.

The trend towards recognition of Pre-Nuptial Agreements has already begun. We sight two recently reported cases.

Case One

Before the wedding, a husband's assets were said to be worth about £25 million and his future wife's worth was about £1 million. Prior to the marriage the wife became pregnant.

The wife's father insisted that there should be a Pre-Nuptial Agreement and both the husband and the wife sought and obtained independent legal advice.

Unfortunately the marriage came to an end and when it reached Court, the Judges substantially upheld the terms of the Pre-Nuptial Agreement.

Case Two

In this case the Court was not prepared to uphold the Pre-Nuptial Agreement in its entirety, but did acknowledge that by virtue of its existence the wife should receive a more modest sum than might otherwise have been the case if no such agreement had been made.

Civil Partnerships

English law has come a long way since the days of Oscar Wilde. Homosexuality was outlawed in this country until 1967, but we now have the Civil Partnership Act 2004 which gives the same rights and remedies to single sex relationships (if they are registered) on the termination of such a relationship as married couples.

There is no reason in law to stop parties who enter into Civil Partnership Agreements along the same lines as Pre-Nuptial Agreements.

Cohabiting Couples

The only protection currently afforded to cohabiting couples is to be found in the Trusts of Land and Appointment of Trustees Act 1996 and in certain sections and schedules to the Children Act 1989.

It is no exaggeration to say that the law relating to pursuing a share in a property, which was at one time the home of one or both parties, is complicated, convoluted and uncertain.

A great deal of that uncertainty can be removed if, when first purchasing the property, the parties who intend to live in it obtain independent lagal advice about a Deed of Trust or Cohabitation Agreement to properly define their respective shares.

Our advice when purchasing a property jointly or when someone else will be living there with you, is to spend time considering how that property is to be beneficially owned and then record that in writing.

It will potentially save a great deal of stress and anxiety further down the line.