Buying a house jointly may cause amnesia – but there is a cure
It’s a conundrum. More and more unmarried couples who split up immediately contract a bout of early onset amnesia, rendering them completely unable to recall the different sums of monies invested by each of them on their joint purchase of a property many years before.
Symptoms include a bewildering lack of clarity as to:
- Who contributed what sums of money
- The effect of a gift of monies from one of the partner’s parents
- Relative contributions towards monthly mortgage repayments
- Both parties recalling completely opposing accounts of the percentage share of the property they thought their respective initial contributions had guaranteed.
While the owners are seemingly forever entwined in an impenetrable mist of misunderstanding, both are prevented from extracting their monies tied up in the property. Their lives, it seems, are on hold while the symptoms continue.
Joint ownership disputes
OK… so it’s not really amnesia. It’s a dispute that could have been avoided by recording the terms of joint ownership in a property clearly at the point of purchase.
Many Property Lawyers would prefer to invent a dramatic analogy if it would help unmarried couples give the issue more careful consideration. This could be the preventative cure to a number of problems faced by an increasing number of joint owners later stuck with a property that at least one of them does not live in and cannot be sold without a Court Order.
Joint tenants vs tenants in common
Currently, the vast majority of couples quickly opt to record their joint ownership as ‘joint tenants’ rather than ‘tenants in common.’ By doing so, while they are both still alive, the legal presumption is that they each own the property on a 50/50 basis regardless of the contributions given by each. If either dies, the survivor is entitled to the entire property regardless of any contrary instruction in a Will.
While the path is clear for either owner to convert the status of their joint ownership from a ‘joint tenancy’ to ‘tenants in common’ at any time,this is typically done when the relationship has already broken down. This sensitive juncture makes agreeing on lots of more minor issues hard to come by, let alone consensus on relative percentage ownership that could result in thousands of pounds being ‘won’ or ‘lost’ as their positions polarise.
Why do couples choose the riskier option at the point of purchase?
I have asked myself this question many times. In my experience I believe there are a number of ‘drivers’ in making a poorly considered decision. These include:
- Cost and delay – Most couples want to focus on completing their purchase with minimum fuss and cost. They perceive recording their joint ownership as ‘joint tenants’ as the quickest and least costly option in the short term. Comforted by the knowledge that they can later change their minds, they may mean to set about reconsidering the terms of their joint ownership in greater detail when they have more time to fully consider their options on this specific issue. If this is the case, couples very rarely follow up on this good intention.
- Relationship critique – Some couples may equate declaring respective shares in property ownership with the cynicism of a celebrity insisting on a pre-nuptial agreement prior to marriage; as if it were an exercise of forensic accounting without acknowledging their firmly held belief that the strength of their relationship should over-ride any discussion about relative initial contributions in a property purchase.
Perhaps the narrative of the discussion needs to change to avoid costly regrets.
How to discuss joint ownership
Framing consideration in and around what would happen IF a partner died or IF the relationship had broken down may result in couples not considering the issue at all. Intuitively, it is natural for a couple to shy away from contemplating these negative outcomes. As if doing so triggers the ‘self-fulfilling prophecy’ maxim.
Surely there would be more authentic discussion if couples reflected on their wishes based on the assumption that their partner already had died or the relationship already had broken down. What would they want in those circumstances? Here are two examples:
- If both are happy with the surviving partner to own the entire property on death of the first, or if on contemplating relationship breakdown both are happy to walk away with no more than 50% of sale proceeds; even if one has contributed significantly more than the other towards the initial purchase, or the mortgage monthly repayments, or improvements to the property.
- If neither person wants to protect the monies tied in the property for the benefit of someone else; say for children from a previous relationship or relatives who gifted monies to them to help them purchase on the understanding that the gift would only be used to preserve their stake in the property.
If all of these issues are considered and both buyers of a property are happy with the presumptions associated with ‘joint tenancy’ ownership, then they are both unlikely to suffer from a bout of amnesia in the long term.
Legal options to protect your finances
If, however, either partner is uncomfortable with the outcomes implied by ‘joint tenancy’ ownership after playing them out assuming death or relationship breakdown, then your lawyer should be able to give you plenty of options. These include in order of highest complexity and cost to the lowest:
- Cohabitation Agreement – to cover not only relative percentages but also contributions towards mortgage, forcing a sale to release equity and factoring in the effect of paying for improvements (and also to cover all assets owned during the course of the relationship).
- Declaration of Trust– Ditto, but only covering the property.
- Simple Declaration in the Transfer Deed – to cover relative percentages of ownership based on relative initial contributions.
- Conditional Simple Declaration in the Transfer Deed – It is possible to record a simple declaration in the Transfer Deed that a couple wish to hold as ‘joint tenants’ but in the event that either party wants to convert to ‘tenants in common’ then they wish to hold in the proportions that they originally contributed and then stating these.
The most basic objective is to record in writing the relative contributions made by each partner and therefore the relative percentages that each should receive on a subsequent property sale.
How much are the legal costs?
It costs a little extra for a lawyer to take instructions and draft one of the options above, but it need not cause any delay to the conveyancing process as long as the issue is considered early enough in the process. Cost is a subjective issue. If careful consideration of the above results in a legal document costing anything between £100 to £400 plus VAT and this helps prevent the kind of amnesia that will result in a lengthy legal dispute over an asset worth over at least £175,000… most would see this as good value for money.
The crux of the issue is that around half of all relationships end up in breakdown. Couples should consider ‘joint ownership’ of property with a little forward thinking rather than framing the discussion around a resolute defence of a perceived criticism of their relationship.
By framing the issue around the assumption that the relationship has already broken down, more couples may start to see the value of setting in place an agreement at the point of purchase when it is a lot easier to achieve consensus on key facts. This may well prove to be very helpful to both partners in the long term. Especially if the decision also has other advantages… like avoiding the Inheritance Tax Trap.
For more information about how a cohabiting couple can protect their assets, read this blog about the myth of the ‘common law marriage’.
NB – This article considers joint ownership in the context of unmarried couples contributing differing amounts towards their purchase of a property. Different background circumstances may well result in different considerations emerging. This article should not be construed as specific advice which can only be given on a case by case basis with full knowledge of all of the specific background facts of the parties, their circumstances, the property and the nature of the funding.