Despite the rapidly increasing number of cohabiting couples in the UK and the Law Commission’s attempts to reform the laws on cohabitation, there is currently no legislation in place that governs the financial consequences of the breakdown of a relationship. On 9 November 2011, the Supreme Court announced the keenly awaited judgment of Kernott v Jones, which entitled Mr Kernott to 10% of the beneficial interest in the couple’s jointly owned property. The Supreme Justices found that, upon consideration of a variety of factors, it is possible to rebut the presumption that joint tenants hold their beneficial shares in equal proportions and inferred that the couple’s intentions had changed over time. The overall aim of this approach was to produce a fairer decision in light of the circumstances.
Although this decision marks a positive change in the law, its implications provide a stark warning to all cohabiting couples.
Facts of the caseMs Jones and Mr Kernott lived together and had two children
It is important to note that in 1985 when Ms Jones and Mr Kernott first purchased the property, they did so without expressly establishing how the beneficial interests in the property should be split.
The DecisionThe Supreme Court unanimously decided that Mr Kernott was to be awarded 10% of the equity in the property. This decision went against the presumption that, in the absence of an express statement setting out how the beneficial interest is to be divided, joint tenants own the beneficial interest equally (50:50).
The decision process involved revisiting the case of Stack v Dowden which first recognised that when a couple purchase a family home in joint names, the original presumption that they will also own the beneficial interests jointly can be rebutted. In Kernott v Jones it was clear to all five Supreme Justices that other factors had to be considered when reaching a decision and that although the couple may have had the same intentions as to how the beneficial interest was to be divided at the time they bought the property, their intentions changed once the relationship dissolved and Mr Kernott left the property.
The Court decided that common intention was to be deduced objectively from their conduct. As this is very difficult to establish, individual circumstances must be considered. The Court said that the following factors could be taken into account when trying to establish the parties’ intentions:-
The Court concluded that the couple’s common intention as to the beneficial share of the property had changed and that Mr Kernott owned only 10% of the beneficial interest after he and Ms Jones separated. Although the couple did not expressly communicate this intention to each other, the decision suggests that the Court has the power and flexibility to infer a common intention to parties who did not actually have one at the time, in order to reach a fairer decision. Ms Jones was awarded the majority share of this interest for a number of reasons, one of them being that she continued to maintain the mortgage payments for many years after Mr Kernott had left the property.
AdviceThe case of Kernott v Jones represents a common scenario where there is no clear evidence of an agreement between the cohabiting couple as to the beneficial shares they each own in the property. Although this decision goes some way towards strengthening the rights of unmarried couples, it still cannot be compared to those of married couples, where the powers of a divorce court include the ability to transfer assets between parties and impose maintenance obligations.
For unmarried couples that wish to live together, the best way to avoid a situation similar to Mr Kernott and Ms Jones if the relationship breaks down is to declare the beneficial interests in writing at the time of purchasing the property. This can be done by way of a simple Declaration of Trust document prepared by your solicitor, which should then avoid (or at least minimise) an expensive and time consuming legal battle.
However, if a relationship has already broken down, it is important for the couple to produce an official record of their intentions involving their jointly owned assets. Assuming that the person who leaves the home still wishes to preserve their interest in the property, they should make it clear (in writing) to the person who remains in the property that they will eventually want full payment of their rightful share in the property. Equally, the person who remains in the home should do the same if they believe that the other party has agreed to surrender or reduce their interest in the property.
It is therefore advisable for couples to establish at the outset a written cohabitation agreement which deals with the financial consequences following a potential breakdown in the relationship. However undesirable this may be, it may prove vital in saving much time, money and effort on resolving the property and financial issues if the relationship dissolves at some point in the future.
If you require any further information about the issues raised in this article please contact Michael Collins (email@example.com), Head of Property, or any other member of Goodman Derrick LLP’s Real Estate team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice
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