Who owns a family home on separation?

Often one of the main concerns for anyone going through a relationship breakdown will be the family home. Does one of the couple get to keep the property or will it have to be sold? If it is sold, who will get what from the sale proceeds? A couple can agree on whatever they want to agree, but what happens in the event of a dispute?

What happens if a couple is married or in a civil partnership?

Where a couple has been married or in a civil partnership, the answer will usually depend on the overall circumstances. A spouse or civil partner can apply to the Family Court in the event of a dispute and the Family Court has quite wide-ranging powers. It can transfer ownership of a property between parties (meaning whose name is on the legal title may be irrelevant). It can order a sale of the property if appropriate and it can decide how the proceeds of sale are to be divided.

When deciding the appropriate outcome, the Family Court will use its discretion and take into account all of the checklist of factors set out in Section 25 of the Matrimonial Causes Act 1973.

What if they were in a cohabiting relationship?

The position is very different for any couple who has not been married or in a civil partnership. If they cannot agree on what is to happen to their family home, either has to apply to the Chancery Court rather than the Family Court.

The Chancery Court can determine who owns the property and, where there is more than one owner, it can clarify each party’s respective shares. It can also order a sale of the property if appropriate. However, the Chancery Court cannot transfer ownership of the property between parties and it cannot simply use its discretion to achieve what is objectively a fair outcome, in the way that the Family Court can.

Types of property ownership

There are two types of property ownership: legal and beneficial ownership. A beneficial owner is a person who is entitled to the value of the property, as opposed to the legal owner whose name is on the legal title. When the Chancery Court decides who owns the property, the starting point is always to check whose name is on the legal title and it is presumed that the legal owner(s) will also be the beneficial owner(s) but this is not always the case.

Where there is only one legal owner, the non-legal owner claiming an interest can prove that they are a beneficial owner if they can establish that the legal owner holds the property on trust for them. This will often be with reference to an express declaration of trust. However, in the absence of an express trust deed, a non-legal owner can prove that there is a “common intention constructive trust” if they can establish that both parties intended the non-legal owner would be beneficially entitled to the property (i.e. the property is held on trust for their benefit) and that the non-legal owner relied on that joint intention to their detriment.

Where both of a couple are joint legal owners of the family home, the starting presumption is that they are equal beneficial owners. If either wishes to establish that they are entitled to a greater than 50% share, the onus is on that party to prove their case.

In most cases, an express declaration of trust will be conclusive and will determine the outcome. Ideally, when the couple bought the property or transferred it into their joint names, they will have specified clearly in writing whether they intended to be “joint beneficial tenants”, which means joint owners of the equity with the property automatically passing to the other in the event of first death; or “tenants in common”, meaning they each own their own shares of the equity.

Tenants in common can own the property in equal shares or unequal shares and this should also be agreed and recorded properly in writing for the avoidance of any doubt.

The case of Stack v Dowden

The court in the case of Stack v Dowden, which dates back to 2007, confirmed that such an express declaration will be conclusive unless varied by “subsequent agreement” or “proprietary estoppel”. 

Proprietary estoppel is a remedy available to a claimant in circumstances where they can establish that the respondent had made clear assurances about the extent of the claimant’s interest in a specific property, which the claimant has then relied on to their detriment, meaning that it would be unfair if the respondent were allowed to renege on the promises made.

A claimant could prove proprietary estoppel if, for example, they could show that the respondent made clear assurances that they would be entitled to the property, and they spent all of their life savings on the property, in the expectation and understanding that it was theirs. If the court could conclude that a proprietary estoppel claim has been established, it can grant the claimant a share in the property or some other remedy to compensate the claimant for the loss they would otherwise suffer if the promise were not adhered to.

The court in Stack v Dowden did not clarify what was meant by “subsequent agreement” and specifically whether this required a formal trust deed to vary the original declaration of trust or whether a constructive trust (which is founded on a verbal agreement or common intention and detrimental reliance by the claimant) would be sufficient.

This question has now been addressed by the court in the case of Nilsson v Cynberg which confirms that a common intention constructive trust is sufficient to vary the terms of an previous express declaration. No formal requirements are necessary if either a constructive trust or proprietary estoppel can be established. 

This judgment will now help joint owners who want to be able to rely on conversations they have had with the other owner and steps taken by each of them as well as any detriment suffered, in order to justify a departure from the starting position of how the property was owned at the time it was transferred into their joint names. This may lead to more uncertainty as to the outcome and more litigation in this area in the future.

Clients need to understand how property is owned when they are planning to live with a partner and they should agree with their partner on what they both want their specific financial arrangements to be.

They may want to share some assets between them and to ringfence others. It is essential to keep any agreements reached under review and that all agreements are properly recorded in a cohabitation agreement. This ensures the best outcome for clients because it avoids misunderstandings and costly property disputes in the long run.

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