Declaration of Trust: Who needs one?

When relationships breakdown it can leave you in emotional turmoil, but lots of people also face the agony of losing their homes because they have not put the right paperwork in place. But, what to do in the event of splitting up is not the most romantic conversation to have over dinner, so many people find themselves in exactly that situation.

That’s where a Declaration of Trust comes in to play. This is a legal document which sets out how property is held between two joint owners and specifies how the split of any proceeds of sale is to go in the event of selling a property.

In the event of a relationship breakdown, your Declaration of Trust will mean that you avoid having to rely on the court for a decision as to who owns what share of a property. They may well have a different idea of who is rewarded and it could lead to a smaller proportion awarded to you, even if you have jointly contributed from the outset.

Case: Barnes v Philips

Surely in a court of law, what’s fair is fair? Yes, but what is “fair” doesn’t necessarily mean “equal” and without the presence of a Declaration of Trust the proceeds from the sale of a property are not always split 50:50.

Take the case of the couple Barnes v Philips. After their relationship broke down, the judge awarded the split of property 85:15, even though what was put in to the property financially at the beginning was an equal share of savings. The Judge’s decision was appealed on the basis that it wasn’t fairly split, but it was thrown out by the Court of Appeal, who backed the Judge’s decision instantly.

Why did this happen? Well, the court has to ascertain the express intention of the parties as to the shares in the property. As one half of the couple remained in the home with the children, she was awarded the 85% due to the benefit of the children. This decision could have major implications for millions of unmarried couple who live together in the UK today.

What you should look out for

If you own your home jointly with your partner and the relationship breaks down then you will have certain rights, but there are a few things you should look out for:

  • Joint owner or joint mortgage? There is a difference. One you will be a legal owner and the other simply a named person responsible for paying the mortgage. It’s important to check which category you fall in to!
  • Beneficial interests – whilst you may jointly own your home with your partner, you may have different financial shares in the property. In the event of a relationship breakdown, solicitors may need to establish the beneficial interest or ownership of the property which can be indicated through a joint tenancy or tenancy in common ownership.
  • Tenants in common vs joint tenants – if you are joint tenants with your partner then each person’s interest in the property is not quantified, so you both own the property equally. This is more common for married couples. However, if you are tenants in common your shares in the property are fixed and separate. If you are a joint tenant and the relationship breaks down, you might want to consider ending the joint tenancy agreement and becoming tenants in common instead. If you choose this route, you will need to consult a solicitor who can help you decide if this is the right course of action for your circumstances.

Where does the Declaration of Trust come in?

This is a legal agreement between the joint owners of a property and it may contain several pieces of information that will become relevant in the event of a relationship breakdown. Your Declaration of Trust will outline the distinct beneficial shares in the property and how it is owned by two co-owners as well as what happens if one of the owners dies or wants to move out.

Declarations of Trust are particularly useful to couples who purchase property but remain unmarried because in the eyes of the law you are still treated as two individuals. The document ensures that each individual, particularly if one has paid in more than the other, has protected their investment. Generally the rules become slightly different after you’ve tied the knot, at which time you may wish to revisit all of your assets and financial arrangements.

Having a Declaration of Trust can also be useful if two people decide to purchase a property but are not in a relationship, for example if friends choose to buy together or if parents put up a lump sum of money for their children to get on the housing ladder.

As you can see, property ownership can have unforeseen complications and implications and it is best that you get it right from the start. Make sure that if you purchase property with a partner that you have drawn up a Declaration of Trust outlining how much you each own – and don’t leave it to the courts to decide!

If you would like some help or more information, you can contact one of the team at Verisona Law who would be very happy to help.

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