Importance of Cohabitation Agreements
Supreme Court Judgment highlights importance of Cohabitation Agreements when unmarried couples buy houses together (10.11.11)
The Supreme Court has just overturned a decision of the Court of Appeal dealing with how the equity in a property owned by an unmarried couple should be divided between them. Mr Kernott and Ms Jones purchased a house together in 1985 and separated in 1993. Thereafter Ms Jones remained in the property paying the mortgage and the household bills. Nearly 20 years later Mr Kernott decided to claim half the value of the property which by then had increased to £245,000.
In 2008 a County Court Judge decided that Ms Jones should receive 90% of the value of the house and awarded 10% to Mr Kernott. That decision was upheld in the High Court in 2009. However the Court of Appeal took the view that the couple had intended to own the property in equal shares and overturned the two previous decisions, awarding Mr Kernott a 50% interest in the property. Luckily for Ms Jones the Supreme Court restored the original County Court Judgment.
The problem in this case, as is common when couples purchase homes together, is that although the couple had decided to purchase the house in joint names they had not had any documents drawn up to indicate what shares they should each have in the property. It would have been possible to have a Declaration of Trust drawn up indicating for example that Ms Jones’ share was 70% and Mr Kernott’s share was 30%. In the absence of any direct evidence the Court had to infer what the couple had intended. The Court took the view that at the time of purchase the couple had intended to have equal shares in the property.
However there was evidence that their intentions had changed following separation as Mr Kernott had ceased to make contributions towards the running of the house and had only made very limited contributions towards the support of their children following separation. Furthermore it was mostly during the period when the couple were living separately that the value of the property had increased.
The legal costs to both parties of attending Hearings in the County Court, High Court, Court of Appeal and Supreme Court of Justice will have been substantial. In addition they have both had the uncertainty of Court proceedings hanging over them for a considerable period of time.
Commenting on the case, Jane Gale of odonnells confirmed that the expense and uncertainty could have easily been avoided if the couple had consulted family solicitors at the time of purchase of the house and also at the time of their separation. At the time of purchase it would have been easy to have a document drawn up setting out their respective interests in the property and also defining expectations with regard to the financial contributions which each would make towards the outgoings. This could be recorded in a Cohabitation Agreement. Further documentation could have been prepared at separation so that there were no problems in the future.
Jane also commented that this is a problem which will not only affect cohabiting couples. Due to economic pressures and changing living patterns, it is not only couples who choose to purchase properties together. It is becoming more common for adult children to purchase properties with one or both parents, or other family members. Often groups of friends will purchase a property together for example whilst at University. This case highlights how very important it is to clearly set out in writing the intentions of all parties as to their respective shares in the property and responsibilities with regard to payment of outgoings and maintenance costs.
The decision in the above case does not provide certainty for the future. It opens the door for detailed, protracted and expensive legal arguments as to what couples intended in the particular circumstances of their cases. The only way to avoid uncertainty and great legal expense is to clearly document intentions at the time of purchase and to review that document regularly to see whether any changes are necessary, due to changed circumstances such as separation, or one party giving up paid employment.