Fixed Rules for Property Division - Essay Example

Report on law Commission Paper (no: 179) Introduction: In general trust law is felt to be applicable in a cohabiting relationship only when children under eighteen years of age are involved. Trust law is difficult to use in a cohabiting relationship due to difficulties in determining the intent of the parties and the absence of legal entitlements that are conferred through a marriage. Moreover, should the law be geared towards ensuring the protection of the weaker party or should there be precedence given to the autonomy of the parties in making arrangements outside the marital relationship? The Law Commission’s report on cohabitation is welcome since it recognizes the legal validity of the cohabitation relationship, however, some drawbacks need to be addressed. Fixed rules for property division: The Co-habitation report1 at para 6.45 provisionally rejects the view that any new scheme devised for cohabitants should adhere to the fixed rule for property division. However, this provision will result in a failure of the law to address the rights of the cohabitees to a division of the family property. The Report proposes that no fixed rules for property division should be laid out, rather the principles governing distribution of property should be left to the discretion of the Courts and tailored on the basis of contributions made by individual cohabitees to the property. The case of White v White is significant because it identifies fairness as the implicit objective of Section 25 of the Matrimonial Act2 and establishes the criterion of a 50% division of matrimonial assets. Moreover, EU law also supports such equitable division on fixed principles. In the case of Vicary v Vicary3 the wife had made no financial contribution but was deemed to have contributed to her husband’s success and received compensation. However, in the case of Burns v Burns4 such consideration was not allowed since the woman was a cohabitee rather than a wife, which resulted in a lack of equity to the cohabitee and her non financial contribution. On this basis therefore, if property divisions and express trusts are to be determined solely on the basis of financial contribution or property titles, it will undermine the interests of the cohabitee in a higher paying job who may not hold legal title to property but may give up the job to look after the property or children. For example, if one of the parties was in a lower paying job and her/his contribution to the partnership is assessed on the basis of the previous career rather than on par with the financial contributions of the other party, it will create disparities in the partnership which will also reflect adversely on children. Such a policy could therefore result in providing an economic advantage to the financially stronger party to continue to shun the legal rights that would accrue to a co-habitee who is raising children and making a non financial contribution in a partnership. Thus it would be inequitable to the interests of those parties whose names are not listed on property titles but who are nevertheless making non financial contributions, such as caring for property or for children. On this basis, some fixed rules on division of assets may also have to be applied in the case of cohabiting couples, since most of them appear to feel that they are in a relationship similar to marriage through the application of common law.5 For example, under Danish law, while cohabitees have no obligation to support each other financially, nevertheless when cohabitation is terminated, the cohabitee in a weaker financial position due to the other partner owning most of the assets is entitled to compensation so she/he is not left in an unreasonable financial position.6 Indirect financial contributions of cohabitees were also recognized by Danish courts.7 Furthermore, Danish law allows for registration of co-habitation partnerships which are then treated on par with marriage. Inclusion of cohabiting couples without children in the proposed new schemes: When a co-habiting couple purchase a house together, a solicitor needs to draw up a declaration of trust indicating the respective shares, which should be executed in writing will has been made. The trust needs to specify whether the parties hold the estate in trust with beneficial interests, as joint tenants, as tenants in common with equal shares, or whether one member of the cohabiting couple – the owner -has conferred a right to occupy to the other partner as a contractual license.7a But in such a case, Courts can order the transfer of such residency once the cohabitation relationship has ceased. Difficulties may also arise when such arrangements have not been formally executed in writing, or when legal property vests in one partner while another partner has made financial contributions, thereby indicating that an implied or resulting trust could be validly upheld. However, indirect payments that are made by one cohabiting partner, such as payment of bills other than direct mortgage payments or contributions to the purchase price may not constitute a resulting trust. In such cases, a common intention constructive trust may need to be applied to determine interests of both parties on termination of the cohabitation relationship. However, as the Law Commission report points out, Courts have been criticized for not providing fair outcomes to cohabitees. Therefore, the need for reform has been identified. While the co-habitation report provides support for the position that cohabiting couples with children should be eligible to claim relief and interests in property through implied trusts or proprietary estoppel, the same is not the case for those couples who have no children. At para 5.114, the report questions whether reform would also be justified in the case of cohabitees without children, especially those cohabitees who are economically independent. Financial contributions or other indirect contributions that may have been made by one partner of a cohabiting couple who does not have legal title vested in the property must be recognized as being eligible for relief through the formation of a resulting, constructive or implied trust. The Law Commission’s proposal to introduce a new scheme of financial relief for cohabiting couples through provision of beneficial interests in property where intent is not certain is a laudable effort. Reform measures can ensure that the cohabiting partner’s indirect contributions to property are also recognized under the law. However, such relief schemes for cohabiting couples must also include those without children, so that they are also entitled to certain legal rights and interests in property upon termination of the cohabitation relationship. In the event that the parties specifically do not wish to allow such legal rights to their cohabiting partners, then such intent should be clearly spelt out in writing through the formulation of an express trust in which the respective entitlements for each partner are clearly set out. In this respect, the opt out provision offered by the Law Commission may be relevant because it allows cohabitees to specifically opt out of the provisions for financial relief that are proposed to be provided under the new scheme for cohabitees. In such an instance, the specific intent of the parties will be clear and therefore, the question of inequity arising out of ambiguity in intent can be dispelled. However, on a general basis, since most couples enter into a cohabitation agreement on the basis of common law provisions that mandate equitable distribution and equal sharing of assets in a partnership, it would be manifestly unfair for a cohabitee to discover after the termination of the relationship that all his or her indirect contributions to the property may not give rise to a resulting or constructive trust, either through the existence of an implied trust or through proprietary estoppel. The specific need for legal entitlements to property in a cohabiting relationship may be noted from the law in Denmark where the legislation does not allow a cohabite any right of inheritance. However this is creating legal problems especially where the couple have children, since the property has to be administered by a bank until the children come of age to receive the proceeds of the trust from the deceased partner’s estate. This is also the case when a cohabitation relationship is terminated and may be especially hard on the children. Reforms in legislation are also being considered in Denmark.9 Express trust as opt-out: An express declaration of trust helps to bring some certainty to property allocations and divisions that are to be made upon termination of the cohabitation relationship or death of one of the cohabitees. However, where no express trust exists, the surviving partner may be forced to reply upon implied trusts or proprietary estoppel in making a claim on the estate. One of the most difficult problems in a cohabiting relationship has been the determination of beneficial entitlements in property. As stated by Ward LJ in the case of Carlton v Goodman10 it is vital that cohabiting couples agree upon how beneficial interest is to be held and record it in writing.11 However, oral declarations will be equally valid since they are akin to a contractual arrangement12 and it is necessary that any reform of the law should ensure that oral declarations of trust are also given weight in the case of cohabiting couples. Since cohabitation is being increasingly accepted, the disposition of beneficial interests on trust must also be made in a manner that will be equitable to both parties. The Law Commission Report under Para 10.146 also questions whether the Courts should have the power to override opt-out provisions where express trusts are concerned, in the interest of providing financial relief to the surviving partner. This appears to be a good policy to undertake, because through the constitution of such an opt-out policy on an express trust, there could be inequities generated such as undue pressure from the economically stronger partner or the ignorance of the weaker partner, which could render it a contract entered into under duress or undue influence. The Courts would need to determine the individual circumstances of each case in making a fair financial allocation of the proceeds of a trust. There should not be a general opt out provision allowed for cohabitants to opt out of their right to claim financial provision under the 1975 Act12a. There must be provision in the law to allow Courts to override opt outs on express trusts where necessary, in the event that circumstances appear to suggest that there has been any element of duress or undue influence in arriving at such an arrangement. It should be possible for Courts to uphold such opt out agreements as valid only when they are in writing, duly witnessed and where each of the parties has had the opportunity to avail of independent legal advice in the matter. Moreover, each of the parties must be able to fully understand the binding nature of the agreement and the eschewing of remedy through the courts. Moreover, there should also be provision made in the express trust for children that may arise out of the partnership and exactly how proceeds are to be distributed in the event of death or other unforeseen events. If such requirements are laid down under the law and they are not adhered to fully, then the Courts should be allowed to intervene in the interest of equity. Financial relief between spouses on divorce: On the basis of the above, the Law Commission’s provisional rejection under para 6.329 of Part II of the Matrimonial Causes Act of 1973 on divorce of spouses in so far as extending it to cohabitants on separation is concerned, should also be rejected. While there is a need to preserve the autonomy of parties to a cohabitation agreement, the question of separation is a different one because most cohabitees are not aware of their rights under their law and are liable to enter into a partnership on the basis that common law rules of marriage will apply. In the case of divorce, Courts have largely used the discretion provided to them to determine allocation of assets on the basis of need of the parties to be satisfied from finite resources.13 While need cannot be the governing factor in a cohabitation agreement, it is vital that distribution of financial assets are made on an equitable basis, respecting both the financial inputs provided by the economically stronger partner without ignoring the non financial contribution of the other partner. Conclusion: On the basis of the above, it may be stated that while legal entitlement may not be as clear cut in a cohabitation agreement as they are in a marital relationship, many of the same issues occur in both types of relationships. Since it is largely women who are the primary caretakers and providers of non financial components of a partnership, their interests cannot be ignored. Unless some of the marital provisions on divorce and inheritance of property are also enforced in cohabitation relationships, inequity will be generated, because such a relationship will provide further incentive for economically stronger cohabiting partners to derive the benefits of support from their partner without making financial provision as would be legally required in a marriage, thereby providing an undue advantage to one party at the expense of the other. Therefore in conclusion, the Law Commission’s proposal to introduce a fresh scheme for financial relief for cohabitees is to be welcomed, however care must be taken to ensure that the rights of the weaker partners are preserved in allocating financial relief on disposition of property. Moreover, couples without children must also be included within the scope of relief to be provided under the new schemes for cohabitees. Bibliography * British Household Panel Survey data for 1998, IN J Ermisch, 2000. “Personal Relationships and Marriage Expectations.” University of Essex * Law Commission Paper: Cohabitation: The Financial Consequences of Relationship Breakdown (No 179) * National Report: Denmark” at page 19, 3:4 [online] available at: http://ec.europa.eu/justice_home/doc_centre/civil/studies/doc/regimes/denmark_report_en.pdf Cases: * Burns v Burns (1984) 1 All ER 244 * Carlton v Goodman (2002) EWCA Civ 545 * Cordle v. Cordle [2001] EWCA Civ 1791 * Ghaidan v Godin Mendoza (2004) UKHL 30 * Rowe v Prance (1999) 2 FLR 787 * Vicary v Vicary (1992) 2 FLR 271 * White v White (2000) 2 FLR 983 per Lord Nicholls Read More