Follow Sarah and Jack’s journey to learn more about the options available to you if you want to protect your assets…
Sarah has been in a relationship with Jack for a year. Sarah’s parents gave her Â£50,000.00 to help her buy her own property which she purchased two years ago in her sole name. Jack has been living with his parents. Sarah and Jack are ready to take the next step in their relationship and they want to live together. They have agreed that Jack will move into Sarah’s property and he will save up a deposit so that they can eventually sell Sarah’s house and buy a new property together.
Sarah’s parents are worried that Sarah may lose out financially if the relationship turns sour, so they have suggested she gets legal advice from a Family Law solicitor at Cunningtons so she can see what her options are. Sarah explains that she does want to live with Jack but she also wants to make sure he has no claim against her house if the relationship breaks down. Although Jack says he wouldn’t try to make any claim against the property, Sarah is conscious that her parents helped her buy her house and she wants to protect their gift as much as possible.
We advise Sarah that she and Jack could both sign a Cohabitation Agreement which would set out very clearly in black and white that Jack will not accrue an interest in her property, even if he pays rent or contributes towards Sarah’s mortgage and bills. The Cohabitation Agreement can specifically state that if Sarah and Jack ever agree that Jack will have an interest in the property, they will sign a Declaration of Trust to state what their respective interests will be. The Cohabitation Agreement can also set out how they will pay their joint outgoings such as utility bills, credit card payments, car finance etc. Sarah takes our advice and we prepare a Cohabitation Agreement which is signed by her and Jack. This means that if Sarah and Jack did separate and he tried to make a claim against her property, she could produce the Cohabitation Agreement as evidence that he does not have any rights to the property.
Two years later, Jack and Sarah are still happily together and Jack has saved Â£25,000.00 to put towards their next property. Sarah sells her property and receives net equity of Â£75,000.00. They buy a new property together for Â£200,000.00. Sarah puts in her Â£75,000.00 and Jack puts in his Â£25,000.00 as the deposit. Sarah and Jack are advised by their conveyancer that there are a few different options as to how they can hold their new house:-
- Joint Tenants: this means if one of them dies, their share of the house automatically passes to the other. It also means there is a very strong presumption that they intend to hold the property on a 50/50 basis, regardless of who will be paying the mortgage and what they each put into the property.
- Tenants in Common in equal shares: this means that if one of them dies, their share of the house will pass either under their Will or under the rules of intestacy if they don’t have a will. Again it means they hold the property on a 50/50 basis, regardless on anything else.
- Tenants in Common in unequal shares: this means that if one of them dies, their share of the house will pass either under their Will or under the rules of intestacy if they don’t have a will. This means they can specify that they will not hold the property 50/50, but instead will hold the property in a way that recognises the fact that Sarah is putting more money into the property than Jack.
Sarah and Jack decide to go with option 3. Their conveyancer prepares a Declaration of Trust which specifically states that they hold the property 75% to Sarah and 25% to Jack. This means that if they split up, Sarah will receive 75% of the net equity and Jack will receive 25%. Another option would have been to state that Sarah will always get the first Â£75,000.00, Jack will get the next Â£25,000.00 and the balance be divided equally between them.
The Declaration of Trust means that, if Sarah and Jack split up, the net equity will be divided 75/25 to Sarah. Unless Jack could prove that they had entered into a subsequent agreement to the contrary, Sarah’s money would be protected.
5 years later, Jack and Sarah finally decide to take the plunge and get married. Sarah recently read an article about Prenuptial Agreements and wants to find out more about them, so she returns to her Family Law solicitor at Cunningtons.
We advise Sarah that, once she marries Jack, if they later get a divorce then the divorce courts will not automatically be bound by the terms of the Declaration of Trust, and they might decide that Jack should get more than 25% of the house. We explain to Sarah that a Prenuptial Agreement is a formal Agreement entered into by a couple before they get married. Its intention is to set out very clearly what the parties have agreed will happen to their assets in the event of a future separation or divorce. It should deal with the following different types of assets:-
- Assets that each party held in their sole name prior to the marriage;
- Assets held in joint names prior to the marriage;
- Assets each party acquired in their sole name during the marriage;
- Assets acquired by the parties in their joint names during the marriage;
- Assets acquired by way of a gift or inheritance during the marriage.
A Prenuptial Agreement is not automatically binding on the Divorce Courts of England and Wales and nor is it automatically enforceable. Any Divorce Court has the power to depart from a Prenuptial Agreement if it feels that it is necessary to do so. Having said that, Prenuptial Agreements are usually upheld by the Court if:-
- Both parties fully and honestly disclose their assets and means to each other before the Prenuptial Agreement is signed;
- Both parties obtain their own independent legal advice from a solicitor before signing the Prenuptial Agreement;
- The Prenuptial Agreement is signed at least 21 days before the wedding takes place;
- The Prenuptial Agreement is fair and just;
- The Prenuptial Agreement has a review clause so that it can be reviewed regularly;
- The Prenuptial Agreement sets out in very clear terms that both parties understand;
- The Prenuptial Agreement states that you both intend to create legal relations.
Sarah discusses this with Jack and they agree to enter into a Prenuptial Agreement that says if they divorce, they will still hold the house 75/25 to Sarah, and they will each keep assets held in their sole names.
What does this mean for you?
If you intend to get married soon but would like to protect your own assets and protect your financial contributions in the event of a divorce, speak to us about a Prenuptial Agreement.
If you are going to be buying a property with someone and you are putting more money into the property which you would like to protect, talk to us about a Declaration of Trust.