Trust and Trustees: Cohabitation Marriages - Essay Example

TRUST AND TRUSTEES: COHABITATION MARRIAGES LLB (Hons) Judith Dillingham PART A Introduction Traditionally, marriage has been viewed asthe preferred family portrait, providing ideal emotional and financial stability to family life. In this era of modernity, this perception is no longer valid since most families of today are very different. In today’s society, marriage is no longer considered important and this is prompting many couples to consider cohabitation as the best option rather than marriage.1 Over the past decade the rate of couples who choose to cohabite have increased tremendously. The major challenge with this phenomenon is that many are not aware of the fact that they need to get married to be entitled to financial relief upon termination of the relationship. The assumption that many have is that they are protected under the legal framework of “common law marriage.” Tina and Luke can exemplify this fact since they lived for several years and upon breakdown of the relationship, Luke was in a fix upon the sale of the house since Tina didn’t consider him or the contribution he had made towards the renovation of the place they both considered home. This paper will try to give an in-depth analysis of this case study by exploring the current law that governs relationship breakdown for cohabitees, the rights that Luke has on Tina’s flat and how he can get his share of the property back. Legality of Cohabitation ‘A patchwork of legal rules’ are entailed in the legal rights available to cohabitants upon relationship breakdown.2 This is because the procedure of reclaiming a right over a property in a cohabiting situation is complex, expensive and uncertain to rely on and not applicable to family circumstances.3 This can be highlighted by the disparity that exists with the relief available to married couples under the Matrimonial Causes Act 1973 (MCA)4, which enables the court to deal with the entirety of a couple’s assets and provide for complete discretion when making orders, with the courts ‘largely left to get on with it for themselves.’.5 In Luke and Tina’s situation, the property under contention was registered at the Land Registry in Tina’s sole name. In sole ownership cases, the difficulty arises for the non-legal owner who must traverse their way through strict property law and complex equitable principles under the Trust of Land and Appointment of Trustees Act 1996, which is supposed to establish an equitable interest in the property.6 There are also complications that arise in regard to joint ownership cases and this precedence has been hugely used to determine the cases of cohabitee. The reason as to why this is largely the case is because, the present law perceives cohabiting couples at the completion of their relationship as two unrelated individual.7 There is no comprehensive structure to determine a fair outcome for former partners who cohabited to take into account the financial or any other contribution they might have made in their shared lives. The only way a former cohabitant like Luke can make a claim in regards to property is under the “implied trust.” Nevertheless, one must prove an agreement to share that property or a financial contribution to the value of the property. Therefore, Luke can recover some financial compensation if he can prove in the court of law his financial contribution toward the welfare of the property. Legally, a trustee is obligated by some duties and responsibilities to hold the legal title to the trust property which is referred to as fiduciary obligations. A trustee is required by law to legally and morally own the property on behalf of another person and manage it in a transparent, productive and accountable way. The conduct of the trustee on behalf of another should solely be for the benefit of the beneficiary of the trust. It is therefore essential to evaluate the duties of Luke as a trustee so as to quality his rights in the property. Luke’s duties towards Tina as a trustee come with fiduciary responsibility. He stands a fiduciary role with respect to Tina. Luke was expected to exhibit high standard of responsibility which he has generally exhibited by investing his own money and effort in taking care of the property under Tina’s name. It is thus important to note that he respects his fiduciary responsibility by being attentive to whatever happens to the property and taking necessary measures to ensure that it is well taken care of. Furthermore, he has demonstrated respect for his duty of investment standards by being prudent in whatever he is placing his money in with regards to Tina’s property. His move to renovate the kitchen, the luxurious bathroom and a garage was done in good faith to improve their lives currently and in the future and therefore, it was an appreciation of the value of the property. Establishing Beneficial Interest In order for Luke to establish any claim on the property solely registered on Tina’s name, he has to show that he has beneficial interest in the property, which will then give him the right to occupation and in the sharing of the proceeds from the sale of the property. It is important for Luke to establish that he had the beneficial interest in the property. This will be his defense in reclaiming his share of the property and in taking any action against the flat owned by Tina and Ari. In this context, beneficial interest can be defined as an interest that allows a non- owning cohabiting partner to possess the right of occupation of a property and to a financial share from the proceeds following the sale of a property. In the general case of cohabiting couples, there are three ways in which the beneficial interest can manifest itself; Express trust Resulting or implied trust A constructive trust Express trust Cohabiting couples can make an express declaration on the way they intend to share the property. This can be done by making a written agreement or a trust deed.8 In the case, Goodman v Gallant, it was held that the property will be held as joint tenancy since there was a express declaration of trust entitling the two partners to equal sharing of the property in case of severed ties.9 In this case, the declaration is said to speak for itself, and the sharing fate is therefore, conclusive. However, in the dispute between Luke and Tina, there was no express trust in form of a declaration or a written agreement to specify their sharing ratio, and therefore, the ‘principle of equity’ is applied in order to find evidence for implied trust which is either constructive or resulting. As such, Luke can rely on the doctrine of implied trust to establish his beneficial interest.10 Implied trust Implied trust arises when the court rules that the actions of the non-owning cohabiting partner at the time of their relationship resulted in the establishment of trust between the partners. There are two types of implied trust; constructive or resulting implied trust. Luke can establish his beneficial interest on the flat by relying on constructive trust as opposed to resulting trust because resulting trust is only applicable if Luke had contributed something towards the initial purchase of the property. In the case, Stack v Dowden, it was held that resulting trust gave beneficial share to the partners in a ratio that is proportionate to their initial contribution towards the purchase of the property.11 Following the limitation of this doctrine in giving fairness to the non-owning partner in a cohabiting relationship, Stack gave a declaration that this doctrine was no longer relevant in a domestic context.12 As such, the doctrine of constructive trust was preferred. Doctrine of Constructive trust This doctrine holds that the behavior of a partner during the cohabiting period can make one a trustee for another. As such, it would be unconscionable for the owning partner to deny the other partner his trust regardless of whether the property in solely owned. The most significant form of constructive trust that is applicable to Luke and Tina’s case is the ‘common intention trust’ since this is a domestic home case.13 As such, Luke needs to establish the following three aspects; That there has been a common intention between him and Tina that he would gain beneficial interest in their house, There is evidence of their discussion which expressly led to the rise of the common intention, and, He has always acted to his detriment with regards to the betterment of the property while relying on the intention that both he and Tina jointly possess the beneficial interest in their home. Constructive trust was established in Pettitt v Pettitt by Lord Diplock when he advised for the search of a common intention of the claimant partner.14 The basic principles of constructive trust were then set out in Gissing V Gissing where the non-owning partner was seeking to establish a beneficial interest in the absence of an express trust.15 The reaffirmation of the principle can also be examined on the basis of Lord Bridge’s ruling on Lloyds Bank v Rossett. Luke and Tina may have lacked an express trust in the sharing of their house in case they broke up without ever getting married, but drawing from his conduct, it is imperative to note that he relied on the common intention that they both owned the house and had a future together in the home. This can be illustrated by his contributions towards the betterment of the state of the house. Although he did not contribute towards the payment of the mortgage of the house, he and Tina equally shared all the other outgoings of the house. He also solely undertook the renovation work of the house himself where he could and paid for major renovations where he couldn’t do it himself. For instance, he replaced the old kitchen with a new bespoke hand make kitchen and a luxurious bathroom which was installed on the house at a cumulative cost of £25,000. He also paid for the construction of a double garage with a store room which cost him another £25,000. This clearly shows that Luke acted in a way that altered his financial position and was towards his detriment while relying on his position in the right to possess a beneficial interest in the property.16 It is vital to consider the type of conduct that will justify Luke’s claim on the part of the proceeds from the sale of the property. In order to establish express common intention on the conduct on Luke towards the betterment of the property, an examination of the broader range of activities and developments he undertook in the property will need to be determined in order to justify his inference of a common intention. However, he can prove sufficient detriment based on both his physical contribution through his own efforts as well as through his financial contributions towards the renovation of the house, which consequently, added immense value to the property. Luke can rely on Grant to assess to what extent his conduct contributes to detriment. In Grant, Nourse IJ advised that for a conduct to amount to detriment, it should be an action that an individual could not have undertaken or would never have been expected to embark on with regards to a property if he had no interest in the property.17 He can also rely on the position of Lord Bridge in Rosset who held that any conduct on the joint lives of the partners that resulted in a detriment on one partner amounted to sufficient detriment to claim beneficial interest. In this case, for undertaking to renovate the property by himself, Luke spend his time and effort in bettering the property given the fact that he could have done something better for himself resulting in economic benefits to himself alone. Furthermore, he contributed towards the expenses of the house and all the other outgoings, coupled with the fact that he paid for renovation of the house with amounts totaling to £50,000. When determining the exact types of conduct that are considered detrimental, it is clear that Luke’s contribution to the property was substantial and thereby adequate to establish his claim on the rights towards the proceeds from the sale of the house. Quantification of the Amount After sufficient detriment has been established in order to justify Luke’s claim on beneficial interest, thereby justifying his constructive trust, the next step is to determine his beneficial interest as related to his specific share entitlement on the sale proceeds of the property. This is in essence the most important part of the trust function.18 Since there was no express trust between Luke and Tina, the court will be mandated to carry out the quantification of shares. As such, my advice to Luke is to rely on a series of cases related to this case. The basic principle in Grant as summarized by Lord Browne-Wilkinson V-C states that ‘prima facie, both the interest of the claimant and that of the party intended are equal’. In this case, Luke stands to gain half of the property proceeds as this principle holds that, prima facie, he and Tina had equal rights towards the ownership of the property regardless of whether the property was solely registered by her name. Furthermore, in Gissing v Gissing, Lord Diplock speech states that, if the court cannot rely on the express trust between the parties to the case, then the court will apply the maxim of ‘equality is equity’. In this case, both parties to the case are allocated equal shares with regards to their beneficial interest. As such, Luke would be favored as he will be awarded half of the proceeds from the sale of the house after deductions of the repairmen of the mortgage and paying of the expenses related to the sale of the property. Tina sold the property at £400,000 and she kept £340,000 after deductions of all expenses. Following the above premise, Luke will be entitled to £170,000. This is advantageous to him as his direct financial contribution towards the renovation of the house was £50,000 and the value for his efforts in renovating the house could not be valued at £120,000. Despite his contribution being way below 50%, the court can rule in favor of 50% share allocation. This scenario is consistent with the Midland Bank v Cook case where the court held that even if the wife had not made direct contribution towards the acquisition or development of the property, Mrs. Cook had made adequate indirect contribution in paying for the household bills and raising their children. As such, she was awarded 50% of the total share of the property. This is despite the fact that her real contribution was approximately 6%.19 Application of the doctrine of proprietary estoppel The application of this doctrine can be used by Luke to reclaim his share of the property’s proceeds from Tina, but it takes a different perspective from the doctrine of constructive trust. This doctrine introduces the concept of fairness.20 In order to establish the doctrine of estoppel, Luke must establish the following elements; An assurance or representation made to him by Tina at the time of their cohabitation, That he relied on the assurance made to him and He suffered detriment as a consequence of his reliance on Tina’s assurance.21 This doctrine considers the time when the assurance was made whether expressly or by inference. In this case, Luke has to fulfill the claim that Tina misled him into thinking that he had acquired the beneficial interest in their home after cohabiting for a long time and participating in developing the property. In Luke’s case, this doctrine will then question whether it is acceptable that Tina not to fulfill the assurance made to Luke. Once the assurance has been established, the court will then rely on the maxim of ‘fairness’ to award justice to both parties by awarding the minimum amount to Luke.22 This differs from the award he would receive if the doctrine of constructive trust was applied since the doctrine or proprietary estoppel will award him far less than the alternative. In this case, Luke is only likely to receive his contribution towards the renovation of the house and the efforts he put on the renovation he did himself. This will mean an award of an amount slightly above £50,000. Due to this reason, the quantification of the amount using constructive estoppel is more appropriate in Luke’s case.23 Action to be taken to bring about the sale of Tina and Air’s flat Since it is no longer possible for Tina and Luke to reach an agreement about the compensation he should receive after the sale of their property, Luke can seek the solution of the court which will enable him to lay a claim on the flat Ari and Tina are living in presently.24 This is especially important because Tina has already moved on. Since by establishing a beneficial interest Luke gets long term rights on the property he shared with Tina, this gives his the right on the flat she shares with Ari as they used the proceeds from the sale of the earlier property to acquire the flat. As such, Luke can apply for an order to sell the flat under the trusts of Land and Appointment of Trustees Act 1996. Luke can also apply for the order of selling the property through the Married Womens Property Act 1882 since he and Tina had been cohabiting for more than three years which is the limitation provided by the law. The application for the sale of the flat should be made in the High court or in the county court.25 Once the application has been made, Luke will wait for the deliberation of the court, and this is because the court reserve the discretionary power to extend their broad powers in either ordering an immediate direction to sell the flat or postponing for a later sale. There are several factors that the courts need to consider before allowing Luke the directive to sell the flat. The first consideration is their intention prima facie. With regards to this factor, it is clear that their intention at the time of acquisition of this property was to live together and probably get married and use the house to provide shelter for their children.26 However, this purpose is no longer valid since Tina has already moved on and is living with her new lover. Another reason to consider is the purpose for which the property was held. It is obvious that the purpose of providing a home for the family no longer holds in this case since Tina and Luke are no longer getting married.27 As such, Luke fulfills all the requirements necessary to allow the court to direct the sale of the flat. Since the beneficial interest and the amount to be shared has already been determined at this point, the court cannot make adjustments to that effect. As such, Luke will get the directive to sell Tina and Ari’s flat and recover the quantified amount.28 PART B Law commission in its Consultation Paper, Cohabitation: The Financial Consequences of Relationship Breakdown Law Com No. 307 and the approach taken in New Zealand under the Property (Relationships) Act 1976 (as amended). There has been two proposals for reforms on the law regarding cohabitation; the first was put forward by the Law Commission in 2007 and the second by Lord Lester’s Cohabitation Bill in 2008. The report recommended an introduction of a new scheme of financial remedies for cohabitants upon separation. In the report the Law Commission considered the fact that cohabitants should be given same rights as married couples and civil partners in the event of their separation. Law commission recommended the introduction of a scheme of financial relief on separation based on the contributions made to the relationship by the parties, which implies that it does not consider the financial needs of the parties as in the case of divorce. Law Commission worked on this on the request of Ministry of Justice, and in the year 2007 they came up with a report on cohabitation that was named: The Financial Consequences of Relationship Breakdown, and this publication was set for reforms.29 This report proposed that the court would have the mandate to award lump sum payments, interim payments, property transfers, orders for sale, property settlement, and pension sharing orders, and would be under an obligation to employ a ‘principled discretion’30 when deciding whether an award is appropriate and at what level it should be set. The guiding principle on this reform according to the report was economic impact of the parties’ contributions rather than on ‘need’ since it was believed to be a more accurate justification for relief.31 The scheme was going to be only applicable to eligible cohabitants: hence it considers couples with a child or those that lived together for a ‘minimum duration,’ a period between two and five years was recommended.32 The eligible cohabitant had the obligation to prove that the respondent retained a benefit, or the applicant had an ongoing economic detriment as a result of contributions made to the relationship, which critically need not be financial33. The aim of any reward is to converse the retained benefit and would be considered in light of a number of discretionary factors like the parties’ obligation and financial needs, and the welfare of any children if any. The scheme was proposed to be ‘opt-out’ as opposed to ‘opt-in,’ as this would respect the autonomy of couples that would prefer to make their own financial arrangements and most important to protect the one who is economically vulnerable. The statutory requirement that are required to make alternative arrangement in jurisdictions that had financial remedies between cohabitants on separation. The formality that are required in New Zealand are heavy since the agreement must be signed in writing, the parties must possess independent advice, and a lawyer should be present to witness the signing of both party. Property (Relationships) Act 1976 also works on an ‘opt- out’ system, if the cohabiting couple didn’t have an agreement they are supposed to be covered by the equal sharing rules. The only way they can avoid some or all of the rules is by making their own rules. The agreement should include: the property that is intended to be owned together, and in what quantity (shares); the property that is to remain separate property of each party; the gift owned by a particular party from the other party or from a third party; and whether the property should be classed separate property since it will be used or has been used jointly.34 In regard to sharing the economic disadvantage it was recommended that the court should not place the applicant, ‘for the foreseeable future, in an economically stronger position than the respondent.’35 This component was referred to as the “economic equality ceiling” in the scheme. In the New Zealand legislation economic equality is implicit, but Property (Relationships) Act 1976 (New Zealand), s 15. In s 15 cases, suggested that the equal sharing of ‘relationship property’ may be adjusted where there remains an economic disparity between the parties, having regard to their income and living standards, which has been generated by the division of functions during their relationship. The reforms are very different from the laws governing divorce in many aspects, in case of break up the cohabitants were not expected to meet each other’s future needs by means of maintenance payments and there would be no principle that the parties should share their asset equally.36 Law Commission presumed that the principles that they set would provide a sound sis on which to dress the hardship and other economic unfairness that might arise when a cohabiting relationship ends. The scheme was supposed to respond in a comprehensive manner regarding termination of cohabiting relationship than the current law. The children involved in a cohabiting relationship were also assured protection and decent standard of living through the scheme developed by the Law Commission. Bibliography Anne B, Simon D, and Grace J, ‘Research: Why don’t they marry? Cohabitation’, Commitment and DIY marriage (2005) CFLQ 383 Atkins S, Equity and Trusts, Routledge. 2013. Barr W, Pearce R and Stevens J, The Law Of Trusts and Equitable Obligations (OUP Oxford; 5 edition 2010) Clarke S and Greer S, Land Law Directions, OUP Oxford; 3 edition. 2012. Da Costa E. and Garrood B. ‘Procedural Aspects of Cohabitation Claims’ (2003) Family Law, 270 Hale B, (Baroness), Rt Hon, ‘Unmarried couples in family law’ (2004) Family Law, 419-426 Law Commission, ‘Cohabitation: The financial Consequences of Relationship Breakdown’ (Law Com No 307 Law Commission, ‘Sharing Homes: A Discussion Paper’ (2002) Law Com No 278, TSO, Norwich Law Commission, ‘Cohabitation: The Financial Consequences of Relationship Breakdown – A Consultation Paper’ (Consultation Paper No 179) (2006), TSO, Norwich Law Society, ‘Cohabitation: The case for clear law: Proposals for reform’ (2002) Law Society, London Probert R., ‘Cohabitation, Contributions and Sacrifices’ (2006) Family Law 1060-1064 Stuart B, ‘Money, Marriage and Cohabitation’ (2006) Family Law 641. Smart C and Stevens P, Cohabitation breakdown (2000) Joseph Rowntree Foundation/Family Policy Studies Centre, London Wong S, ‘Trusting in Trust(s): The Family Home and Human Rights’ (2003) 11 Feminist Legal Studies 119 Read More