Splitting up? Six things to know about dividing a jointly-owned home

·6-min read
 (Getty Images/iStockphoto)
(Getty Images/iStockphoto)

Splitting up with your partner is never easy, but it if you own a property together it can add a whole new level of pain.

Common questions when co-owners split up include who gets a higher percentage of the equity when you sell and how much would it cost for one party to buy the other out?

So, what do you need to do to make a difficult process a little bit easier to bear?

Who gets what?

When you buy a property with another person, you can hold it in two ways: as joint tenants, or as tenants in common with the split of the equity in the property recorded on the transfer, or preferably in a declaration of trust, also known as a trust deed.

“Joint tenants” is the traditional way, where each party gets 50 per cent of the sale equity no matter who pays the majority of the deposit or mortgage. If the property is held this way, you both receive half of the equity on sale no matter what.

How important are declarations of trust?

“Tenants in common”, the second way of holding a property, allows for a detailed breakdown of who gets what in the event of a sale of the property. It can include how much each party will be entitled to if you sell, depending on who paid what towards the deposit and how much mortgage they pay each month.

It also allows you to bequeath your share of the property to whoever you want in the event of your death.

Without wanting to overstate it too much, if you purchase a property as tenants in common, this trust deed is one of the most important documents you will have and is up there with your will.

While this may be an uncomfortable conversation to have with your partner when you buy a property, it will make things a lot easier down the line if you split up.

Are declarations of trust binding?

They are binding and offer contemporaneous evidence of what was agreed at the time of the purchase of a property. They can be stored with the title deeds or kept electronically by the parties until they are needed.

If the matter was ever disputed in court, a judge would use your declaration of trust as evidence of what was agreed.

What are potential pitfalls?

One major issue is if you elect to hold the property as tenants in common but the ownership of your share in the property is not recorded properly.

This can happen if your solicitor ticks the box on the transfer form, which HM Land Registry uses to transfer the title of the property to you, to state a tenants in common arrangement, but then fails to express the share arrangement either by not including it on the transfer form or not entering into a declaration of trust.

Believe it or not, this is a fairly regular occurrence, and it leaves owners in the difficult situation of not having their interest in their property properly set out for the future.

Insist that your solicitor deals with this in detail for you and make sure that you check everything carefully. If the declaration of trust isn’t drawn up properly then it can turn into a horror show when couples split up.

What do I need to look out for?

A declaration of trust needs to have sufficient detail to cover all payments made on completion and also in the future, but also be simple enough for its contents to be easily applied to any sale price agreed in the future, so you know who will be getting what.

It’s essential that you consider the best way of protecting the money you invest, so ensure that your initial investment is noted accurately. Also consider who is paying what share of the mortgage and have that written into the declaration of trust. If you pay more, then you should get a greater share of the equity.

It’s also worth mentioning that the trust deed should include the process for carrying out a valuation, should one party wish to buy out the other. There needs to be an agreement in place should estate agents give higher or lower valuations than each other.

Further, what happens with any profit that you make on the sale of the property in a strong market in years to come? Provision needs to put in place in percentage terms for how that profit would be split between co-owners.

The declaration of trust should outline exactly who gets what percentage of the equity in the property, or how much one party will have to pay to buy the other party out.

It is best not to include other items such as furniture, cars or pets in a trust deed and instead focus on the property itself.

Can trust deeds be changed?

With the best will in the world, we can’t foresee what may happen in a few years’ time, so it may be necessary to change a declaration of trust down the line.

For example, if one party loses their job and is unable to make their specified mortgage payments, you could change the trust deed.

Likewise, if one party comes into money because of a work bonus or probate and decides to pay off a large sum of the mortgage, then it would be advisable to make an amendment to the trust deed reflecting that.

If you don’t amend the declaration of trust in these kinds of circumstances, then it may cause a dispute if you split up later on.

Is there any way to avoid court?

Just as people should not be without a will, so co-owners holding property as tenants in common should not be without a declaration of trust or a transfer setting out who owns what. It is the single best way of protecting your investment when you co-own a property.

In the worst case scenario, disputes between co-owners can end up in court if there is no trust deed or if the declaration of trust is badly drafted.

If you find that your declaration of trust hasn’t been drawn up properly by your solicitor or that the solicitor hasn’t ticked the right box relating to ownership on the transfer form, you will need to find any documents that show what you agreed to pay when you bought the property.

Check your bank statements to show how much of the mortgage you paid, and after gathering all the evidence you can, arrange a meeting with your ex-partner and try to reach an agreement who gets what percentage of the equity on sale.

If you fail to reach an amicable agreement and there is an unresolvable dispute, you will need to get lawyers involved and potentially go to court. This can be an extremely expensive process and should be avoided if at all possible.

These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

If you have a question for Simon Nosworthy or Homes & Property, tweet @homesproperty or email homesproperty@standard.co.uk.

Questions cannot be answered individually, but we will try to feature them here.

Simon Nosworthy is head of residential conveyancing at Osbornes Law.