The Law of Implied Trusts of the Home

The paper answers the question by firstly considering the decision reached in Stack v Dowden and it further considers how this decision was arrived at by the House of Lords. Additionally further consideration is also given on the distinction between the traditional law of resulting and constructive trusts in relation to the development of trusts dealing with the family home in the literature and in the case law. The final focus of the paper is on the impact of Stack v Dowden in this area of law and the paper explores this by examining the subsequent case law and the academic arguments surrounding the expansion of Stack v Dowden principles into cases where the family home has only one legal owner. The significant of the decision, the extent to which it represents a new way of dealing family homes and its subsequent interpretation are all considered throughout the paper and in the final conclusion.

Implied trusts; family home; cohabitation; relationship breakdown; division of assets

The law of implied trusts of the home can be identified as being one of the most important areas of law that straddles the gap between equity, trusts and property law. [1] It has proven to be of particular importance over the past four decades in dealing with situations where cohabitating couples have moved in together or have acquired a home. As cohabitating has increased over the past five decades and in particular over the last two decades, the courts have resorted to developing existing legal frameworks for relationship breakdowns when dealing with the family home. [2] It has been uncommon for cohabitating parties to have their intentions expressed legally regarding their family home which fails to comply with the section 53(1)(b) of the Law of Property Act 1925 (LPA) for the division of their property and in particular the family home. [3] Instead the courts have been forced to use the existing laws of trust and equity and have resorted to using their discretionary powers within section 53(2) of the LPA 1925. Whilst the law on trusts has been extensively used in cases of spouses and civil partnerships for both of these situations the law provides a statutory framework within which the courts can apply to divide martial assets. The particular problem has arisen where applications have made by cohabitees seeking to make a claim for a beneficial interest in their family home when a relationship breaks down.

When the courts are dealing with cohabitating couples they will firstly examine whether there is an express agreement between the parties as to the beneficial interests in their family property. When dealing with land and property, this express declaration must be evidenced in writing in order to comply with LPA 1925 s 53(1)(b). As with most cohabitating couples this will not be expressly written and therefore the courts will have to examine their relationship and dealings to determine whether or not an implied trust can be established. The focus of this paper will be on the courts approach in Stack v Dowden [4] in establishing implied trusts as the way in which courts can determine whether cohabitating couples have an interest in the family home and in particular this paper will ask three questions:

(1) why the decision is of importance?

(2) the extent to which it provided a new approach, and

(3) how it has been interpreted in subsequent case law.

The first half of the paper will concentrate on the decision in Stack v Dowden so as to allow a full appreciation of the importance of the decision. The second half of the paper will concentrate on the effect the decision in Stack v Dowden has had on the law and the subsequent case law. The conclusion will then draw the various arguments throughout the paper together to answer the question tasked. Typically there are two situations where the courts may have to determine whether a cohabitating couple will have an interest in their family home. Either the property will be legally in one of the party’s name or it will be in both with each party contributing differently to the acquisition of the property. The law deals with both of these situations separately and this paper will discuss the law’s development in each area separately.

Property Registered in Both names:

When a property is legally conveyed into both of the cohabitating couple names, both will have a legal and beneficial ownership of the property. [5] The only issue which the court will have to determine is the actual size of the beneficial ownership claimed by the parties. In Pettitt v Pettitt [6] Lord Upjohn concluded that where the express deed was conclusive about both the legal title then equity would follow the law and both parties would be presumed to hold the legal and equitable title in equal shares. However, as this the beneficial ownership is only a presumption it may be rebutted with sufficient evidence to the contrary showing a different intention. It here were Stack v Dowden primarily comes into operation, in that it established that where no express declaration of trust the judgement laid down a number of principles to work out the beneficial interest held between cohabitating couples. Stack v Dowden confirmed the approach in Pettitt v Pettitt that equity would follow the law and assume that the beneficial was held in equal shares between the couple. [7] Baroness Hale concluded that the courts would have to investigate the whole course of conduct between the parties in order to determine whether the presumption could be rebutted and it would be a very unusual circumstance for this to happen. The fact that both parties may have contributed to the acquisition of the property unequally would not in itself be sufficient to rebut the presumption. The relevant factors to be considered from the couple’s whole course of dealings which the case confirmed may be relevant to decide the quantification of the beneficial included: why the house was legally in both names, the nature of the relationship, whether they had children for whom they were responsible to provide a home, how the purchase was financed and how the couple discharged the outgoings and expenses on the property. [8]

In Stack v Dowden the majority of the House of Lords appeared to be influenced not only by the fact that Ms Dowden had contributed more than her partner but rather their finances had remained entirely separate throughout their relationship. The court considered that as they had spent nearly 20 years living together in addition to having children but still retained separate finances outside of their relationship was sufficient to justify a 65/35 split in favour of Ms Dowden. Although many academics argue on the basis of fresh academic research that many cohabitating couples do not share their finances similar to married couples. [9]

The Impact of Stack v Dowden

It is important to note that some critics of Stack v Dowden has been not with the result of the judgement but rather the way in which the majority gave effect to the division of the beneficial interest. It can be argued that by adopting the reasoning of the majority it straddles the fine line between inferring the intention of the parties to the court actually imputing a settlement in what might be considered unfair circumstances. [10] The finding of the intention of the parties can be considered more legitimate than the courts superimposing a position by imputing intentions. [11] Although using the legal framework to determine the sensitive nature of the division of the family home may be considered harsh but as Lord Neuberger in Stack v Dowden noted that to use the ‘whole of the course of the couple’s dealings’ to determine the beneficial interest can be somewhat vague. [12] Lord Neuberger had argued that using the resulting trust reasoning could be more legitimate in finding the true intention of the parties. [13] This would allow the courts to adopt a ‘family assets’ approach in examining whether a couple could be held to have acquired a resulting trust. It is interesting to note that the decisions after Stack v Dowden where in Fowler v Barron [14] a man who had paid the deposit for the property, the entire mortgage and all the outgoings could not rebut the presumption that the beneficial interests were held jointly with his partner. In Adekunle v Ritchie [15] a mother and son who had acquired a property together could rebut the presumption on the basis of the mother being able to adduce sufficient evidence that the primary purpose of acquiring the house was for a home for her which should no clear intention of equal shares in the beneficial ownership.

Some commentators such as Etherton have welcomed the approach in Stack v Dowden as a clear and consistent move to satisfy ‘social justice’ in recognising the traditional role of women within society. [16] In specific the traditional roles within relationships between men and women, in most but not all cases, women would take on the role of raising the children which resulted in her either taking less responsibilities within the world of work or had resulted in her quitting work altogether. If the law operated to apply strictly many women in these circumstances would not be compensated adequately for their role within society and their role within their relationship when they suffered a financial detriment. Stack v Dowden carries the potential for the courts to ‘right the wrong’ and protect people in a vulnerable financial situation as a result of a relationship breakdown. However, it can be argued that there are three potential flaws to adopting the position of allowing the beneficial interest presumption. [17] Firstly the court did not lay down proper guidance on the circumstances within which they will allow the presumption to be rebutted which carries an inherent ‘recipe for injustice’. [18] Secondly the decision represents an unprincipled focus in law in determining how to establish sufficient evidence to rebut the presumption. [19] Additionally, it offers no sufficient explanation or reasoning why the resulting trust doctrine can apply to implied trusts of the home. [20]

Wee argues, similar to Lord Neuberger, that the approach in Stack v Dowden provides the inherent danger for the courts to stray to imputing the intention of the parties as opposed to ascertaining it on the facts. [21] This creates a framework which carries the real potential of creating one arbitrary authority after another depending firstly on the facts and secondly the court’s interpretation of the evidence in support of the rebuttal of the presumption. [22] It was also acknowledged by the Law Commission that the decision in Stack v Dowden does not represent that end story for the framework of dividing cohabitating family homes but rather advocated the need for a statutory framework. [23] Whilst the Law Commission recommended that Stack v Dowden does not represent a sufficiently comprehensive solution to how best to divide assets upon the demise of cohabitating couple, it did not bring forward firm proposals for reform.

The second way in which the courts have to deal with cohabitating couples is where the property is acquired legally in one name but the other party to the couple seeks to make a claim to the beneficial interest. This also can arise where a third party is seeking to make a claim on the beneficial ownership on the non-legal owner for example for a debt. The way in which this aspect of the law operates is not for the discussion of this paper as it is geared toward the Stack v Dowden decision. However, it is important to note that the way in which Stack v Dowden has been used within this area of how the courts determine whether a beneficial interest exists when only one party is the legal owner of the family home. Whilst Stack v Dowden is specific to those cases where the family home is in both couple’s name, it has been applied in Abbott v Abbott [24] in the Privy Council to an inferred common intention trust when only one party has their name on the legal title to the property. Additionally, in Webster v Webster [25] it was also applied by the County Court. In James v Thomas [26] it was held obiter to allow the Stack v Dowden principles apply in circumstances where only one party has their name on the title to the family home. This is an important expansion; it must be considered that in line with Gissing v Gissing [27] the presumption when only one name was the legal owner then the courts applied the similar approach of allowing the law to follow equity in assuming the sole legal owner was also the sole beneficial owner. By the courts allowing the application of the Stack v Dowden principles once a claimant could establish that they had an interest, the courts would use the ‘whole course of dealings’ to establish their shared intentions as to the size of that beneficial interest.

It can be argued that as a result of the majority in the House of Lords in Stack v Dowden, a new trust peculiar and specific to family homes dealing with cohabitating couples have emerged from the decision. This can be argued on the basis of Stack v Dowden and the decisions which follow it in abandoning the traditional principles of resulting and constructive trusts and establishing a new set of principles for determining the beneficial interest which bend the rules by taking into account many more factors in comparison to commercial cases. [28]

Conclusion:

This paper set out to investigate three core questions, firstly concerning the importance of the decision, secondly the extent to which it provided a new approach and thirdly to establish how it has been interpreted in subsequent case law. In considering the first part of the question it is evident from the discussion of the academic literature and the case law that the significance of Stack v Dowden is that it places implied trusts of the home within a new footing in law. It arguably creates a new trust that has originated in the judicial attempts to find a framework to deal with the family home as asset in the aftermath of a demise in cohabitating relationship. The judiciary were faced with a unique and specific problem created by the absence of statutory guidance which grew out of contemporary society’s living arrangements. It is significant because to a large extent the new approach in Stack v Dowden abandons the traditional law of trusts by considering many more factors across the ‘whole course of dealings’ as opposed to just the party’s original intentions. Additionally it can also be considered important from the perspective of creating equality for women and men within relationships when they become the weaker party financially as a result of that relationship.

The extent to which it provided a new approach to dealing with the family home is that it considered more factors than the old approach of considering the party’s initial intentions, whereas Stack v Dowden clearly establishes factors from across the ‘whole course of dealings’ the couple have which may appear to have the potential to provide greater fairness for the division of the family home in the event of a relationship demise within cohabitating relationships. The particular lack of statutory guidance can be considered a compounding factor for those academics against the wider approach for the decision in Stack v Dowden. It is also important to point out the effect of the decision in subsequent case law. In particular two specific results can be pointed out; firstly the approach can be considered to produce harsh results for the legal property owner such as the decision in Fowler v Barron discussed above. Secondly, the decision in James v Thomas cements the new approach of considering the ‘whole course of dealings’ across the wider spectrum of cohabitating cases to include those that only have the family home in one legal name. In final conclusion the decision in Stack v Dowden provides one way in dealing with the division of the family home for cohabitating couples in the demise of a relation until statutory reform is brought about.