There can be few mortgage intermediaries who would be shocked at having an unmarried couple asking to raise a mortgage. The number of people who live together but who remain unmarried (co-habiting) has increased dramatically in recent years. Many of these couples buy a property together, or one partner moves into a home already owned by their partner, but there is always the danger of the relationship breaking up, which for unmarried couples can lead to serious financial problems concerning the ownership of their own.
Unfortunately, in the case of a relationship breakdown there is currently no ‘co-habitation’ law dealing with unmarried couples and their financial arrangements. Contrary to what many people believe, there is no such thing as a common law spouse. The law only deals with co-habitation on a case-by-case basis, and relies on property and trust law.
The Law Society, the professional body for solicitors, published a paper on co-habitation and proposals for reform in 1998. It states: ‘Problems caused to co-habitants on relationship breakdown arise, first, because there has been inadequate consideration on how a property should be owned in the first place and, second, because of courts’ limited powers on the breakdown of the relationship to rectify these omissions.’
Given that specific issues not addressed when buying a property can cause problems later on, what are the legal issues buying couples need to be made aware of?
Setting up home
One of the most common scenarios for the mortgage intermediary would be an unmarried couple looking to buy a property to live in together. If a couple buy a home together, they will hold the title of the property as joint tenants. However, if they take account the possibility of a break up, they might decide to hold a beneficial interest in the property ‘ that is, the property plus any equity ‘ as beneficial joint tenants or as beneficial tenants in common.
If they became beneficial joint tenants, then they will each be entitled to half the profits on sale of the property. In the absence of any other arrangement the law will assume that a couple are beneficial joint tenants. If they opted, instead, to become beneficial tenants in common, they would need to see a solicitor and take out a deed of trust. This is a document, prepared by a solicitor, that would formally state how the property would be split, 60%:40%, 70%:30% and so on. Its purpose is to reflect the contribution they have made, or will make, to the purchase of the property or mortgage. Therefore, if a couple buy together but one pays the deposit, for example, then the deed of trust protects that deposit from any future break up. So what should a mortgage intermediary advise?
Edward Goldsmith, senior partner at Goldsmiths Williams Solicitors, says: ‘What people are best doing is entering into an agreement so there is no dispute between them. If two people are going to contribute towards, and live in, a property then the advice must be to become tenants in common, and have a deed of trust which says exactly what is going to happen when the property is sold, which leaves no ambiguities.’
Problems can occur if one partner keeps the property after a break-up, as John Dawson, secretary and general manager at The Skipton Building Society, explains: ‘Where it can become a problem for a lender is when a couple split up and the person without a substantial income stays in the property, while the other loses all interest in repaying the mortgage.
‘We want people to be reminded of that, in legal terms, their liability is joint and several ‘ in other words, we can claim against both or either of them. The message to get is that you cannot walk away from responsibilities with regards to the mortgage just because you no longer live in a property.’
With unemployment being reasonably low at the moment, Dawson cited this scenario as one of the more common concerns for lenders. With these complications occurring in even the most simple mortgage case, it is obviously wise to advise clients to talk to their solicitor and clarify the situation.
If the property deeds are in only one of the partners’ names, only they will be entitled to any legal or beneficial interest in the property.
So, for example, if someone invites their partner to move in, then that partner would not acquire any rights to the property. There is, of course, a hitch. The legal owner must not lead their partner to assume they have an interest in the property and must not accept major contributions above bill paying or rent from their partner.
If a partner is able to prove regular contributions to the mortgage, or that they have made substantial improvements to the property, which have increased its value, they may be able to convince a court that they should be given a share of equity in the property following the breakdown of the relationship. The problem is that this could be a lengthy and expensive business if the other partner contests the matter.
Goldsmith says: ‘The courts will try and be sympathetic to people. If they have a situation where someone is hard done by, then they will look to find something that that person is entitled to, but they will have to work within the case law, which is property law, not family law, as unmarried couples don’t have any rights against each other.’
Tying the knot
The situation is different if a co-habiting couple marry but with only one partner’s name on the deeds. Goldsmith explains: ‘Married couples start getting rights on marrying. If someone has a house in their own name, and they marry someone, then depending on the duration of the marriage, the new partner would become entitled to some part of the property. If you were only married a week, for example, then the courts would say the spouse was not entitled to anything, but the rights to the property grow over time.”
It may also be wise for the couple to consider what would happen in the event of the death of one of the partners. When it comes to the Law of Succession, as the who-gets-what-after-death law is called, then the decision of whether to hold the home as beneficial joint tenants or tenants-in-common once more comes into play.
If the couple were beneficial joint tenants then on the death of one of them his or her share in the property would automatically pass to the surviving partner. If the property is held as tenants-in-common then each owner is free to decide, by making out a will, how their share of the property should be dealt with in the event of their death.
It all seems quite straightforward so far, but if the partner should die with no will (intestate) then the deceased person’s share would be dealt with under the intestacy rules.
Unmarried partners do not qualify for anything under these rules and the other half of their home would be given to their partners’ immediate family, who could then demand its sale.
As far as the mortgage payments are concerned for the lender the situation is nowhere near as complicated; the surviving partner is now responsible for the payment of the entire mortgage.
Dawson explains: ‘It does not really affect the lender as the legal estate passes automatically to the survivor come what may. You can’t be a tenant in common other than behind the deed of trust, so it is a serious concern between the couple, but not really for the lenders. As far as we are concerned, the survivor is the borrower.’
Co-habiting can be complex if the relationship breaks down. On the plus side, there is little work needed from the intermediary beyond perhaps an explanation and advising clients to see their solicitor to discuss the matter. However, if the intermediary is able to offer some sage advice on the subject, it can only help to strengthen the long term relationship with the client ‘ perhaps opening up further sales opportunities.
Property disputes between unmarried couples are handled on a case-by-case basis.
If one partner has more equity in the property, it can be protected by a deed of trust.
A partner whose name is not on the deeds can gain rights to the property on marriage.