Here we consider basic principles that apply to the division of capital assets of a family in the event of relationship breakdown. We do not consider in any detail the law relating to ongoing income payments (“maintenance”) or the separate standalone claims that can be made for children.
Unmarried Couples
The concept of “common law” marriage is not recognised in England and Wales, and cohabitees cannot make the same claims against property as divorcing couples. However, cohabitees can claim an interest in property using trust law and the powers afforded to the courts by the Trusts of Land and Appointments of Trustees Act 1996 (commonly referred to as TOLATA).
Trust law recognises two layers of property ownership: the legal title (registered at HM Land Registry) and the beneficial interest. Legal owners can sell, transfer and mortgage a property. Beneficial owners have the right to live in a property, receive rent and share in the sale proceeds.
Often the two interests mirror each other but, where they do not, a trust is created and the trustees hold the legal title on behalf of the beneficial owners and must account to the beneficial owners for the value in the property. Trusts are commonly used for estate planning, asset protection and investment structures, and carefully drafted trust documents record exactly how the property is owned and must be managed.
TOLATA claims recognise that trusts can also be created without any formal documents. Reliance by a party on an agreement or joint intention to change the beneficial ownership of the property is enough. When there is a dispute, often at the end of a relationship, the court will have to consider detailed evidence about the purchase and later cohabitation in the property. This will usually include copies of communications between the parties and evidence of financial contributions made by the non-owning partner towards the mortgage or home improvements but may also extend to payments towards other joint expenses, accounts of conversations and descriptions of the sharing of domestic responsibilities. What is clear is that the legal title is the beginning rather than the end of the story in these claims.
Facts and intentions are often hotly disputed, leaving the court to decide, on the balance of probabilities, what was agreed. Inevitably one party is left bitterly disappointed and considerably out of pocket.
To avoid this uncertainty it is better to agree before you move in together how you wish to share a property (if at all), record your intentions in writing and update your agreement if necessary. A formal living together agreement can be very useful to achieve clarity and avoid misunderstandings.
Getting married
Marriage changes the legal landscape entirely. The Matrimonial Causes Act 1973 gives the court power to make financial orders on divorce. Put very simply, the court can redistribute assets and income to achieve fairness between spouses. The concept of fairness has evolved and will continue to evolve. The seminal case of White v White in 2000 introduced the concept of the sharing of assets and recognised non-financial contributions to the marriage, such as running the household and caring for children, as equal to those of the breadwinner. Before then, a non-earning or financially weaker spouse often had their claims limited to meeting their “reasonable needs”, often the provision of a house and income.
The concept of sharing assets was not universally popular and exceptions and distinctions have been carved out in later court decisions. A key distinction is that between matrimonial and non-matrimonial property (property in this context includes cash, shares, chattels etc). Whilst not defined in statute it is now a very well established principle in case law. Non-matrimonial property might be property owned before the parties started living together or wealth generated after separation. It certainly includes inherited wealth. Non-matrimonial property is not, in theory, subject to the sharing principle.
Where the law in England & Wales differs from many jurisdictions is that the “ring-fencing” of non-matrimonial property is only achieved if the “reasonable needs” of the parties have already been met. Akin to the pre-White v White decisions, the assessment of needs will start with ensuring (if possible) that everybody has somewhere to live and income to live. What is reasonable will be decided with each particular families’ living standards in mind – it is an entirely subjective concept. For many families it is not possible to entirely replicate pre-divorce living standards because there simply is not enough money to do so. Non-matrimonial property might well be subsumed in this exercise and assets that were originally non-matrimonial in nature can be “matrimonialised” during the course of the marriage. For example, a property bought before a couple lived together but later used as the family home during marriage will often lose its “non-matrimonial” status entirely and become fully subject to the sharing principle. Only funds not needed to meet “needs” can be preserved for one party leaving the ring-fencing of assets the preserve of wealthy families.
The recent case of Standish v Standish confirmed the judicial distinction between matrimonial and non-matrimonial property and considered in more detail when property might become “matrimonialised”. The Supreme Court decided that the transfer of pre-owned property (in this case an investment portfolio) into the wife’s name as part of an inheritance-planning strategy did not change its non-matrimonial status — the intention was that the property would ultimately benefit the children and it had not been used by the wife. Similar to the legal principles adopted in TOLATA cases, the intention of the parties to share non-matrimonial property and their subsequent treatment of it as joint property was identified as a determining factor in “matrimonialisation”. This of course helps to explain why using a property as a family home will cause it to lose its non-matrimonial status.
Prenuptial agreements are often born out of the desire to keep non-matrimonial assets out of a divorce, and can be very effective, but an agreement that fails to provide for the basic needs of both parties is likely to fail — a direct result of the power of the court to make orders to achieve fairness, regardless of what is alleged to have been agreed by the parties.
Given the complex nature of the law it is advisable for individuals and families moving to England & Wales to take advice to understand their own individual positions and whether it would be advantageous to them to record agreements that reflect how they wish individual and joint assets to be treated in the unhappy event of separation.
The information contained in this article is general guidance only. The application and impact of laws can vary widely depending on the specific facts involved. The information in this article is provided with the understanding that the authors and presenters are not giving legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional legal, tax or other competent advisers. Before making any decision or taking any action, you should consult a Child & Child professional.
