20 February 2012

Family law news: Fairness for cohabiting couples?

In November 2011, the Supreme Court delivered its judgment in Jones v Kernott [2011] UKSC 53. The case could be relevant to many of the estimated five million people who live together (outside of marriage or civil partnership) in England and Wales.
The couple met in 1980. A few years later and having had their first child, they purchased a home together which was registered in their joint names. When they separated in 1993, their financial and practical contributions to the family and the home were broadly equal and there was nothing to suggest that there should be any change to their equal shares in the property.

After the separation, Ms Jones and the couple's two children remained living in the home and Ms Jones took over the financial responsibilities for the house and family. Mr Kernott made no practical or financial contributions to the household during the 12 years that followed.

In 1996, Ms Jones agreed to the surrender of a joint endowment policy to enable Mr Kernott to pay the deposit on the acquisition of his own home. The Judge observed that he was able to afford his own home as he was not making any contributions towards the former family home and the support of his children.

In 2006, Mr Kernott sought an encashment and return of his 50% interest in the property. Ms Jones argued that their interests had changed over time. The Judge accepted that contention and, applying the earlier House of Lords decision in Stack v Dowden [2007] UKHL 17, divided the proceeds 90:10 in Ms Jones' favour, having considered what was fair and just between the parties, taking into account the course of dealing between them.

Mr Kernott appealed to the High Court and then to the Court of Appeal. The Court of Appeal declared that the parties owned the property in equal shares, awarding Mr Kernott a 50% interest in the house. However, in this latest judgment, the Supreme Court has unanimously allowed Ms Jones' appeal, reinstating the original judgment awarding her 90%.

Lord Walker and Lady Hale, who provided the leading joint judgment, described the appeal as ‘an opportunity to provide some clarification', but it is questionable whether this judgment has achieved that.

The Guidelines – Clarified

Where a property is purchased in joint names and with a joint mortgage, the presumption will be that the couple owns the asset in equal shares. This presumption can be displaced where there is evidence that the couple's intention was, in fact, different, either when the property was purchased or, as in this case, at a later time. The couple's intention will be evidenced in documents or inferred from their conduct and dealings. In a situation where the conduct of the parties suggests that their interests in the property have altered but without specifying the new proportion of shares, the Court has power to ‘impute' to the parties (i.e. attribute to them an agreement that does not exist). In doing so it must consider the whole course of dealing between them in order to achieve an outcome that is ‘fair'.

Each case will turn on its own facts. Financial contributions are relevant, but there are many other factors which may enable the court to decide what shares were either intended or ‘fair'.

Different rules will apply when a property is purchased in the sole name of one party. Here the starting point will be whether it was intended that the other party should have any beneficial interest in the property at all.

The parties' common intention has once again to be deduced objectively from the parties' conduct. If such intention to share the property can be ascertained but the interests are unclear, then again, the court can ‘impute' its own solution in accordance with what it considers fair, having regard to the whole course of dealing between them. Again, each case turns on its own facts.

The judgment was initially hailed as introducing the concept of fairness to property disputes arising between cohabiting couples. However, this is a gloss.

One major problem is that the judgment gives little guidance for practitioners as to what conduct would amount to evidence of an intention to displace the presumption that a property in joint names is held 50/50. As a result, there are likely to be more contested disputes arising from uncertainty and an incentive to litigate where the evidence to displace the legal presumption of joint ownership may be less than robust.

What is clear is that the case demonstrates the need for clients to receive advice to ensure that, at the outset of any cohabitation arrangement, intentions are made known and expressly recorded and then updated properly as the situation develops, so as to avoid costly protracted litigation arguing about changing intentions and what constitutes a ‘fair' division in each set of circumstances.


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