With the cost of living crisis and property prices rising faster than wages, people seem to be more frequently looking for alternative arrangements when buying a house, such as clubbing together with friends or a partner to buy a property as joint owners.
When purchasing a property with other people, a Declaration of Trust may be helpful to ensure that everyone gets what they are entitled to in the case of a sale.
Topics to be answered in this article
What is a Declaration of Trust?
A Declaration of Trust is a legally binding document that records the financial arrangements of each owner, detailing what share of the property they own and what should happen in the event of a sale.
What is the purpose of a Declaration of Trust?
A Declaration of Trust confirms how the sale profits are distributed to ensure that everyone gets the share that they are entitled to. It is a good way of protecting investment in the property if things don’t go as planned, for example, if the owners separate.
It documents the position if one owner contributes more towards the purchase price, mortgage repayments or any renovations. This means that when the property is sold, funds are returned as agreed.
As well as this, it can be a helpful outline of the day-to-day management of property ownership, such as payment of mortgages, bills, renovations and other utilities.
What should be included in a Declaration of trust?
Declarations of Trust are different and will be tailored to suit the owners. However, there are certain details that all Declaration of Trust documents should include:
- The amount each party has contributed to the deposit on the property
- The amount each party will contribute to the mortgage repayments and other outgoings
- The percentage of the property each party will ultimately own
- How much each party will get from the sale of the property
- How the property will be valued before it is put up for sale
Various clauses can be added if necessary to account for different eventualities, and a number of different arrangements can be chosen from to decide how equitable interest will be treated.
Tenants in Common vs Joint Tenants
Tenants in Common own different shares of the property. This ownership will be recorded with the Land Registry. If one owner were to die, their share passes to the beneficiaries stated in their Will, rather than automatically passing to the other owners.
Owning a property as Joint Tenants, however, means that all owners have equal rights to the property as it is assumed that all owners own an equal share.
In the event of death, the property will automatically pass to the surviving owner. On the last death, the property will be inherited per the owner’s Will.
Are declarations of trust still binding in the event of divorce?
In a nutshell, no. Once a couple takes the leap into marriage, they enter a legally binding contract which opens up a whole raft of potential claims for each of them under the Matrimonial Causes Act 1973. Any defined interests under such declarations or agreements they previously held in property they held between them either in their sole name or joint names, are no longer bound to be upheld by the Family Court.
Once the parties marry, all financial interests they each have in assets are thrown into the “matrimonial pot” for division. Everything is “up for grabs”.
Should a married couple divorce, the court will still consider the Declaration of Trust as an indicator of the couple’s intentions. However, they have no legal obligation to honour the terms set out in the document.
Prenuptial Agreements
If this is a concern, the solution is a simple one. If a couple has gone to the extent of instructing Lawyers to prepare a Declaration of Trust agreement, they are already adept at having those difficult conversations about financial protection in the event of separation. The next step would be to prepare a prenuptial agreement prior to marriage. A postnuptial agreement can always be considered after marriage as well.
It is best practice to have the discussion at an early stage to ensure there is plenty of time to draft, amend, and finalise a prenuptial agreement before the wedding.
Prenuptial agreements have not been made legal binding by the government, they are considered as evidence only. However, in the event of divorce, as long as each party has had an opportunity to seek legal advice; both parties are aware of the other’s financial circumstances; and the agreement will meet the needs of both parties at the time of divorce, it will be given significant weight by the Family Court.
It is worth reviewing your financial position if you are married and believe that a previous Declaration of Trust protects you in some way, or if you are intending to marry or enter a civil partnership. A well drafted and advised upon prenuptial agreement can be worth its weight in gold – and then some!
How can Goughs help?
If you need some help or advice on creating a declaration of trust please contact our expert team of family solicitors. Or book a free consultation with us and we can talk you through all your options.
Author Bio
Ross Phillips
I joined Goughs as a trainee solicitor and since qualifying, I have worked my way up from solicitor to associate, senior associate and in 2020 I became a partner. I thrive on obtaining favourable financial settlements for my clients and achieving a fair outcome for parents who may be having difficulties managing childrens’ arrangements with their ex-partners.
Author Bio
Phillip Bolton
I studied at BBP Law School in London following which I completed my legal training and qualified at a London firm. Following my qualification, I moved to a well-regarded regional practice before joining Goughs in May 2013. I joined Goughs as a Solicitor and rapidly progressed to Associate and then Partner in 2016.
