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All you need to know about Declarations of Trust & Cohabitation Agreements

It has recently been reported that parents are now funding more than a quarter of house purchases as their children struggle to get on the housing ladder. In addition to this, more couples are choosing to cohabit rather than getting married. In view of this, it is now becoming increasingly important to ensure that the right documentation is drawn up to protect property interests.  Such documentation can either be in the form of a cohabitation agreement or declaration of trust. This feature covers the most frequently asked questions we get in relation to declarations of trust and cohabitation agreements.

 Do I need a declaration of trust or a cohabitation agreement?

Declarations of trust usually records the proportions in which property is held and dictates how any proceeds of sale will be divided if the property is sold. Cohabitation agreements, on the other hand, tend to be more comprehensive and usually govern what will happen should the relationship break down. Not only can they deal with the way in which property is to be held, they also cover day-to-day matters such as responsibility for paying the household outgoings and how the costs of repairs or improvements to the property are to be dealt with.

If you are purchasing a property as an investment with a friend or relative, a declaration of trust will be more than sufficient. If, however, you are purchasing a property to reside in with a partner or friend, then you are likely to need something more thorough and comprehensive, so a cohabitation agreement would be more appropriate.

Are declarations of trust and cohabitation agreements binding?

 Provided they are correctly executed and comply with the relevant formalities, declarations of trust will be binding.

The position regarding cohabitation agreements is less straightforward. It is not clear whether they are likely to be upheld and enforced by the Court. This is because they were initially thought to be contrary to public policy in that it undermined the sanctity of marriage. However, now, it seems likely that a cohabitation agreement will be enforceable provided it complies with the principles of contract law and there has been no duress, undue influence, misrepresentation, fraud or mistake. We advise clients that both parties to a cohabitation agreement should receive independent legal advice on the agreement to ensure that they understand the nature of it and also that there should be financial disclosure to protect against it later being held to be unfair.

 I have been with my partner for 15 years. He purchased the property we currently live in. I have heard from people that I have the rights of a ‘common-law wife’. Is this true?

 In England and Wales, there is no such thing as a ‘common-law marriage’. If you aren’t married, then the courts do not have the power to deal with the division of assets. It is, however, possible you may have a claim under the Trusts of Land and Appointment of Trustees Act 1996 (‘TOLATA’) which is explored below in further detail.

If you are cohabiting, it is always advisable to consider entering into a cohabitation agreement or declaration of trust.

Help! I put some money into my partner’s property, but didn’t enter into a declaration of trust or cohabitation agreement. Nothing was recorded in writing. We have now split up and she is insisting that I do not have a share in the property. What can I do?

 It is possible that you may have a claim under the Trusts of Land and Appointment of Trustees Act 1996 (‘TOLATA’). TOLATA is designed to resolve disputes regarding the ownership of land. It is a complicated area of law and the powers of the court are limited to determining whether there is an interest in the property and quantifying that interest.

If you directly contributed to the deposit or mortgage repayments, then it is easier to establish that you have an interest in the property. However, if you did not, it is still possible to claim an interest in the property if it can be shown that there was a common intention that you should have an interest in the property and you relied on this to your detriment. This can be evidenced through any discussions you may have had relating to the ownership of the property.

Pursuing a claim under TOLATA can be expensive. We would therefore recommend that you seek legal advice as to whether you have a claim worth pursuing. If you require any further information, please do not hesitate to contact us.

Can declarations of trust be overturned?

Whilst Declarations of Trust will be upheld by the property/civil law courts, the approach of the family court is quite different.

When faced with a Declaration of Trust a Judge in the family court has the following options:

1. Ignore it

2. Vary it, so as to suit the Judge’s ruling as to fairness

3. Uphold it

A Declaration of Trust does not have the same force of law as, say, a Pre-Nuptial Agreement or a Post-Nuptial Agreement. The family court is not bound to the terms of the Declaration of Trust and can and will adjust the property rights between the parties pursuant to matrimonial law principles. This may mean that the Declaration of Trust, at least in the family court, is simply not worth the paper it is written on.

If the purpose of entering into a Declaration of Trust is to protect a share (100% or otherwise) in a property, then it is prudent to ensure that a nuptial agreement is entered into in order to protect a potential interest in a property.

If you share a property with a (non-romantic) third party and that third party is choosing to marry, then you would be well advised to insist that the third party enters into a nuptial agreement protecting your interest in that property.

I entered into a cohabitation agreement with my partner, but now we are getting married. Will it still be valid once we marry?

You should check the declaration of trust/cohabitation agreement to see whether it contains any provisions which deal with what is to happen upon marriage. If it does contain such provisions, they will not necessarily be conclusive, but are a good starting point when it comes to determining what your intentions were to be on marriage.

Once married, the principles under section 25 of the Matrimonial Causes Act 1973 apply. This area of law deals with how property is to be divided should the marriage break down.  If you entered into a cohabitation agreement/declaration of trust prior to getting married and there are provisions about what should happen upon marriage, then whilst this would be a relevant consideration when deciding how the assets were to be divided, it would not be conclusive.

We would suggest that you enter into a pre-nuptial or post-nuptial agreement embodying the same or similar provisions as the cohabitation agreement if you want to increase the chances of it being upheld should your marriage break down.

For more information on the issues raised in this blog and to learn more about what relationship breakdown advice is available, please do not hesitate to contact one of the team at Rayden Solicitors.

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