What does co-ownership of property mean?
Co ownership of property is when couples purchase property together in anticipation of marriage or simply to mark an important milestone in their relationship.
It is an exciting time, a significant investment and in the headiness of progressing your relationship, it is always prudent to plan ahead, and make sensible provisions to protect yourself, in the event of an unfortunate breakdown in your relationship and the inevitable sale of the property.
Unlike with marriage where statutory considerations are applied to divide the assets of the marriage, including the matrimonial home to achieve a fair and equitable division of the property, for unmarried couples it is a matter of property law and the question of how title to the property is held.
For cohabitants, there are two types of property ownership and it is very important to understand which type of ownership best suits your situation.
What is the difference between Joint Tenancy and Tenants in Common?
Joint Tenancy
Joint tenancy is where both owners are seen to own the entire property in equal 50:50 shares, irrespective of the financial contribution they have made to the purchase of the property.
This provision may well suit many couples. The disadvantage, however, is that if one partner made a larger contribution to the purchase, or perhaps has discharged more each month to service the mortgage, their greater contribution may not automatically be recognised should the relationship end, or either partner die.
Tenants in Common
Alternatively, a couple (or perhaps 3 or more friends) could purchase a property as Tenants in Common.
This type of co ownership of property allows for partners to enjoy a distinct and usually unequal shares in the property, to reflect their contribution towards the deposit, or in servicing the mortgage.
This provision often suits friends who purchase together or a couple whose preference is to distinguish and record their initial contribution towards the purchase.
What happens to these agreements when you die?
Joint Tenancy – In the event of death the deceased party’s 50% interest in the property passes automatically to the surviving partner. This is the ‘right of survivorship’. Such provision may suit couples who prefer an uncomplicated transfer of ownership in the event of death.
Tenants in Common – If one party were to die, their share in the property will pass in accordance with the terms of their will, or under the Rules of Intestacy. Their proportion would not automatically pass to their partner or the other parties.
Co-ownership in Property Law – What are your options to protect your interests?
Declaration of Trust
A Declaration of Trust is a legally binding document which clarifies the precise financial contribution each party has made to the purchase of the property and, in the event of a sale, how the balance of equity will be divided.
This legal agreement is particularly beneficial in circumstances where the parties have made unequal contributions to the purchase of property and ensures that each party’s individual contribution is protected.
A Declaration of Trust is useful for unmarried couples, or friends who purchase property together and offers reassurance concerning their responsibilities and rights in the event of a sale.
For the Declaration of Trust to be binding, it must meet various criteria. The document must be prepared as a deed; all parties must demonstrate that they have entered into the agreement willingly and with full knowledge of its contents; and, all signatories must have a witness to their signing the document.
There is no such thing as a ‘common law marriage’. Therefore, a Declaration of Trust is a document to offer clarity and protection to an unmarried couple.
If, however, a cohabiting couple with a Declaration of Trust decides to marry, the Declaration of Trust will be superseded by the existing statute in place to clarify and protect the interests of spouses, including how to determine the management of property owned by the married couple.
The court may still consider the Declaration of Trust as an indicator of the spouses’ initial intentions, although the court will be under no obligation to adhere to the terms of the Declaration of Trust.
As such, to maintain the terms of the Declaration of Trust, a couple contemplating marriage should consider replacing the Declaration of Trust with a Prenuptial or Post Nuptial Agreement.
Cohabitation Agreement
A Cohabitation Agreement can be drafted in addition to the Declaration of Trust, or in isolation. Unlike a Declaration of Trust a Cohabitation Agreement is not automatically binding; however, it will demonstrate the intention of the parties at the time of signing.
A Cohabitation Agreement is made between cohabitants to focus upon arrangements for property, finances and children during your cohabitation. The Agreement clarifies who owns what, how finances are managed and what happens to shared assets if you split up or die.
Although you can make an agreement at any point during your relationship, to do so before you move in together would set clear guidelines, particularly in preparation for having children, or obtaining a mortgage.
It is also prudent to update the review the Agreement periodically. Of course, Cohabitation Agreements are also useful between friends, or possibly siblings who wish to purchase property together.
Even if you have lived together for a very long time and have children, if you are not married you are not automatically protected under the law.
Therefore, a Cohabitation Agreement can offer clarity regarding the division of assets and a pension.
Speak to a Legal Expert
Donna Goodsell advises that before making any decisions about agreements to buy property together, such a significant financial commitment, it is crucial to obtain legal advice with a view to drafting an agreement that protects your assets if the relationship comes to an end.
Goodsells Family Law will provide tailored advice for co-owners, concerning the options available for different types of co-ownership of property, to ensure everything is clear and affords legal protection.
Get in touch with the team at Goodsells Family Law and we will help guide you through the legal options available to you when planning to buy a property with someone else.