Property Rights to Married Couples

This paper aims to examine how beneficial ownership of the family home is ascertained, specifically through the application of equitable devices to cases in order to determine if financial contributions are still accorded more significance than other factors. In so doing, it begins by discussing the growing trend of cohabitation over the past years. As the trends have grown, so has the variation of cases being addressed by the courts; each of which are carefully examined in order to establish how the courts have quantified interests on the family homes. While Parliament has refused to address the recommendations put forward by the Law Commission, it is pleasing to see that the courts have made some headway in modernising the law in order to ensure all family homes are treated consistently. Hopefully the days of interest in family homes being quantified seemingly on financial contributions are over.

Background

Assigning property rights to married couples or cohabitating unmarried couples once their relationships have broken down has historically been an issue. This stems from the fact that statute does not cover all the specific situations where property rights might need to be determined for married couples, and for cohabitating unmarried couples, the courts have no powers. In particular where there is an absence of legal joint ownership in the family home, the only recourse is to establish equitable interest under property law, trust principles or equity assumptions.

Surveys have shown that more and more couples are cohabitating rather than entering a formal relationship. Based on the Social Trends, the most pronounced shift in cohabitating patterns is seen in the comparison of individuals born during the period of 1966 and 1970 with those born between 1971 and 1975 who were cohabitating between the years of 25 and 29: comparatively 18% to 26%.

Given the continued increases in housing costs it is even more important that cohabitants or formal partners actively pursue registering their legal ownership/share in the family home in order to avoid future issues.

In the event of any dispute, the first question in any case should be if there has been an express declaration. According to LPA 1925, an express declaration of trust must be in writing. Any such declaration will be conclusive stand, absent fraud or mistake.

In the event that there is no express declaration, in order to claim a beneficial interest, the courts uses resulting trusts, constructive trusts and proprietary estoppel. As per the LPA 1925, s. 53 (2), a resulting trust, implied or constructive trust in respect of land does not need to be in writing.

Resulting trusts tend to arise where one party has expended money on another’s property. There is a general presumption in these circumstances that such expenditure is not intended as a gift but instead places an equitable obligation on the legal owner of the property to return the appropriate sum. In cases where a contribution has been made to the purchase cost of a property, this expended sum will equate to a proportion of the equitable interest in the property. For example if $50,000 was contributed towards the purchase of a house which cost $100,000, the purchaser attained 50% of the property.

Prior to the two early cases of Pettit v Pettit and Gissing v Gissing, the law presumed that where there was no agreement between both spouses to share the beneficial interest of the property, the non contributing spouses’ interest in the property was only recognized when a direct payment was made towards the purchase price of the property. The reasoning for that was that from the contribution arose a presumption of common intention of the parties that the legal owner would hold the property on trust for both beneficiaries. This presumption in the resulting trust situation, as with any presumption could be rebutted by providing evidence to the court that a contribution was indeed intended as a gift or a loan or even that contributions made to mortgage payments were in lieu of rent.

It is from this historical background that all cases involving the issue of beneficial ownership were based. In order to understand how the common law developed it is therefore important that we review these cases in detail.

In the case of Pettitt v Pettitt, a W(wife) purchased a house in her name only and upon divorce H(husband) claimed a beneficial interest as he had laid out the garden and did a substantial amount of redecoration. This claim was rejected by Lord Reid as “family property” was a concept unknown to the law, and in the absence of any agreement a spouse who does work or spends money on the property of the other, acquires no claim. Furthermore, the “improvements” were the sort of work that a husband might well be expected to do.

When compared to Gissing v Gissing, the facts are very similar as we have H(husband) having purchased the property in his name and upon divorce, W(wife) claimed an interest based on a substantial furniture purchase and the laying of a lawn. In this case, Lord Diplock distinguished between express agreement and inferred intention.

Lord Diplock stated: “Any claim to a beneficial interest in land by a person, whether spouse or stranger, in whom the legal estate in the land is not vested must be based on the proposition that the person in whom the legal estate is vested holds it as trustee on trust to give effect to the beneficial interest of the claimant as cestui que trust. The legal principle is applicable to the claim are those of the English law of trusts and in particular, in the kind of dispute between spouses that comes before the courts, the law relating to the creation and operation of resulting, implied or constructive trusts’.

The beneficial interests of the parties were determined on the basis of their inferred intentions at the time of acquisition of the property, and not by their subsequent conduct. In the absence of an express agreement, only conduct relevant to the acquisition of the property would generally be relevant; however subsequent conduct could be considered as evidence of intention at the time of purchase.

In both of the above cases to some extent the House of Lords held that indirect contributions such as “domestic activities” were not sufficient to create a beneficial interest without an agreement between both parties. It is therefore conclusive that financial contribution was significant in quantifying interest in these two situations.

With the history of indirect contributions being ignored, the courts started looking for beneficial interest based on “fairness” and “justice” and over the years the courts seemed to develope a willingness to recognise constructive trusts instead of the resulting trusts in family home disputes. What this then allowed, was that courts were more abled to consider cases in line with the social context of the times. During these times, most women were home makers and as such since they did not have any direct contribution towards the purchase on the basis of a resulting trust they were unsuccessful in claiming a beneficial interest.

In the common intention constructive trusts application, someone who did not necessarily contribute towards the purchase price, was not at such a grave detriment as in the resulting trust. Once the parties had a common intention to share the beneficial interest and this common intention was inferred by the courts so that the law operated to prevent fraud or other unconscionable conduct, beneficial interest was possible .

In two later cases, Eves v Eves and Grant v Edwards, these were found to be in line with the constructive trust analysis as common intention was expressed, and the conduct in these cases that the court looked for was action from the parties that would not have been “but for” the belief that they had an interest in the home. Surprisingly in these two typical family situations, domestic labour was considered by the courts to that of “fairness” and “justice”. Such domestic labour, which was considered as an indirect contribution was sufficient to establish beneficial interest based on common intention and inferred by reliance on conduct.

According to Browne-Wilkinson VC:

“If the legal estate in the joint home is vested in only one of the parties (‘the legal owner’) the other party (‘the claimant’), in order to establish a beneficial interest, has to establish a constructive trust by showing that it would be inequitable for the legal owner to claim sole beneficial ownership. This requires two matters to be demonstrate: (a) that there was a common intention that both should have a beneficial interest; (b) that the claimant has acted to his or her detriment on the basis of the common intention.”

With the case of Lloyds Bank v Rosset, there is further development of the law it seems. It should be noted that the previous two cases were with the Court of Appeals, while this case was decided by the House of Lords, who seem to do away with Lord Denning’s attempt in the Court of Appeals to create the new construction trust.

In this case, H(husband) bought a house with an overdraft, using the house as security. Some 18 months later H left his W(wife) and defaulted on the repayments resulting in the bank seeking possession. W claimed a beneficial interest however the House of Lords held on the facts that W was not entitled to such an interest.

Lord Bridge’s first fundamental question was whether prior to purchase (or exceptionally at some later date) if there had been any agreement or understanding between the parties that the property was to be shared beneficially and which the claimant would have acted to her detriment. In the absence of an express agreement, Lord Bridge further commented that it was at best extremely doubtful whether anything short of a direct contribution to the purchase price would justify the court drawing an inference of such an intention.

In another Appeals Court case, Midland Bank v Cooke, Mr C was the sole legal owner. Mrs C’s interest was assessed at 6.47%, based on a notional one-half of a £1,100 wedding gift, which was applied to the purchase of the matrimonial home for £8,500. The Court of Appeal allowed Mrs C’s appeal, unanimously fixed her beneficial interest at a half on the basis that when determining the proportions of the beneficial interest in the absence of express evidence of intention is to survey the whole dealings.

Waite L.J. said that: “the judge’s duty is to undertake a survey of the whole course of dealing between the parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages”.

It is rather difficult to ascertain hat trust mechanism the court utilize to come to the conclusion that Ms. Cooke was entitled to half of the beneficial interest of the property when the resulting trust was refused. Even if the resulting trust analysis was applied Ms. Cooke could only have obtained 6.47% interest therefore the only conclusion is that in this case the courts applied the “family assets” approach by undertaking a survey of the entire course and financial contribution could not have been the basis for the beneficial interest.

The quantification of beneficial interest based on the whole context, the “whole course of dealing …” continues in Oxley v Hiscock where there is an “unconscionability” approach. Chadwick LJ stated that: “Where there is no evidence of any discussion between them as to the amount of the share which each was to have … it must now be accepted that (at least in this court and below) the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property. And, in that context, the “whole course of dealing …” includes the arrangements which they make from time to time in order to meet the outgoings (for example mortgage contributions, council tax and utilities, repairs, insurance and housekeeping) which have to be met if they are to live in the property as their home”.

An explanation of the issue of fair share by Chadwick LJ, was on the basis on “a classic pooling of resources”. Mr. Hiscock who contributed £60,700 directly to the purchase price of £127,000 and Ms Oxley contributed £36,300 resulted in a percentage breakdown of 59.6:40.4%. It was decided that a ruling of equal shares “gave insufficient weight” to the larger contribution to the purchase price.

The Court of Appeal therefore provided an answer similar to that which a resulting trust would have produced, however stated that the basis of “fair” was in the light of the whole course of dealing in relation to the property and not the basis of a resulting trust.

This ruling is very significant in leading up to Stack v Dowden as the courts in this case no longer used just the 2 prong acid test from Lloyds Bank Plc v Rosset, but the courts looked much further, at the whole course of dealings as established in Abbott. Even in looking at all the various different factors such as effect of joint legal ownership, weight given to unequal contributions, whole course of dealing, fairness and intention, the actual outcome by the Appeals Court still reflected on the contribution to the purchase price.

Much significance also needs to be taken of Chadwick LJ declaration that once it is recognised that the courts are trying to impute a common intention after taking every material circumstance into consideration so as to be fair to each party, and accordingly a proprietary estoppel will led to the same result as a constructive trust.

To sum up the aforementioned cases, I must agree that based on the results of the cases, the end results did indeed indicate that most of the decisions were made on the financial contributions even though when looking at the facts of each case, the judges might have tried to apply a more holistic approach in determining beneficial share. I think the outcomes were mostly due to a flawed system of determining beneficial ownership.

Fortunately, however much has changed with the developments of Stack v Dowden, in regards to beneficial interest. The starting point is that if there is no express declaration of trust, the beneficial interest will follow the legal interest regardless of sole or joint ownership. If one party claims that the beneficial ownership is held differently, then they must prove it and the burden of which will be heavy. As Baroness Hale, stated, only in an exceptional case will the court allow equity to depart from the law and as such “context is everything”, as unequal financial contributions alone will not be enough to depart from the law.

The impact of this new presumption in favour of joint beneficial ownership, means that whoever is in a relationship and are not in a position to contribute equally due to reduced income, will no longer be penalized as was previously the case in financial contributions. Moving forward this presumption will also help reduce future cases.

So where does that leave the law? Do we have to wait and see how future cases are determined? Well, since Stack v Dowden, there has been the case of Fowler v Barron which was interpreted on the ruling in Stack. Fowler further confirms that “the parties could be equal owners even though their financial contributions to the purchase cost had been unequal”. In this case, the property was registered in joint names and even though the respondent provided most of the financial contribution, the property was still spilt 50% to each as in Stack.

Conclusion

With recent efforts of the Law Commission, co-habitants should be more aware of their legal rights and how to utilise legal arrangements to ensure that they do register ownership/title to the family home while their relationship is still intact. Such arrangements include a completed inter vivos gift, cohabitation contracts, or registered civil partnerships. Hopefully all individuals will ensure that they do register their share in the family home, and only in the event of such failure would the courts need to assign shares.

Even if the courts are required to assign beneficial interest, with the development of the common law and specifically the decisions in Stack v Dowden and Fowler, hopefully, we are indeed past the stage of financial contributions being accorded more significance.

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