What happens when property ownership goes wrong?

Published: 14/02/2018

February is definitely the month of love.

Valentine’s Day sees many couples decide to take some big first steps together - making the relationship ‘official’, getting engaged, getting married, moving in together.

But what happens if things go wrong? If you’ve bought a house together, and things later take a turn for the worse, it can be a literal nightmare to sort, especially if you have not been given or taken solid legal advice at the time of purchasing your property.

Let’s face it, loved up couples aren’t always thinking in the most pragmatic manner or that one day they may split up!

Here is a fictional example.

Two love birds buy their first house together

Alice and Phillip are head over heels in love. They’ve been together for four years now, and on Valentine’s Day, they decide to give each other the gift of commitment and buy their very first house together! Alice and Phil don’t believe in marriage, thinking of themselves as a ‘modern’ couple.

The pair take all the usual steps - Research areas they’d like to live, review their financial situation and set a budget, spend months house hunting until they’ve found the perfect place, negotiate a price and mortgage they can afford, and set the wheels in motion to buy their #DreamHome. By the end of the year, they are settled in the house, choosing paint colours and taking weekend trips to IKEA. Things couldn’t be more ideal.

Things go wrong, very wrong

After a few years however, Alice and Phillip begin to drift apart. They are fighting constantly and soon the relationship turns bitter. The pair decide to go their separate ways. Phillip suggests they sell the property and split the earnings 50/50, as that’s only fair, right?

Maybe not. But that’s the legal starting point.

The problem is - at the time of purchasing the house, Alice was working full-time with a good salary while Phillip was a freelancer, so making less money than her. As their savings and income varied, the house was not purchased by way of equal [50/50] contributions from them both. Alice and Phil had contributed 60/40. Now that the relationship has failed, Alice wants 60% of the proceeds once the house is sold. Phillip does not agree.

As no legal agreement about this situation was ever drawn up, and they now can’t agree, Phillip and Alice must enter a potentially lengthy, stressful and most likely costly and possibly litigious process to resolve it .

What they should have done

As the contribution to the property was unequal (60/40), Alice and Phillip would have benefited from a Declaration of Trust (DoT).

What is a DoT? It is a legally-binding document clearly outlining what each co-owner owns, how the value of the property will be divided should you ever split up or sell up, and so forth. It records what each owner has contributed to the property, including the initial deposit, it can also cover arrangements regarding mortgage repayments and/or any financial upkeep of the property. This is particularly useful if one person has contributed more money than the other, as is often the case. It is also necessary where only one person owns the property but another person has contributed to the purchase of the property, but may not be able to be a party to the mortgage or be named on the legal title to the property, however, still wants to protect their interests (e.g. if one party has a poor credit rating, so their partner decides to become the ‘legal’ owner to avoid any problems securing a good mortgage rate). It can also  cover the rights of the parties to buy each other out and to protect against further borrowing against the property.

In the case of Phillip and Alice, a DoT would have set out their unequal contributions {60/40] and then on sale what they will each receive [60/40] from the net proceeds.

As Phillip and Alice were very much in love at the time of purchasing their house, and never expected their relationship to end or money to matter, they failed to get a DoT drawn up.

There are many other instances in which co-property owners could require a DoT.

How do I get a Declaration of Trust?

You will need to get in touch with a solicitor who is experienced in this area, who will talk you through the steps, and get your DoT drawn up for you.

At GWlegal, you will be looked after personally by Linda Cummins, a solicitor with almost 20 years’ experience.

Content correct at time of publication.