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Home > Articles > 2016 archive

Unwritten Rules – large families in ToLATA cases

Samuel Littlejohns, barrister, 1 Hare Court, considers legal, evidential and practical problems that can arise in real property disputes where family members share property based on intentions and cultural understandings which do not easily fall within the classifications of English law.
















Samuel Littlejohns, barrister, 1 Hare Court

When family lawyers consider cohabitees, it is the Trustees of Land and Appointment of Trustees Act 1996 (ToLATA) that they use. In contrast, when different generations of a family look to protect their interests in matrimonial proceedings they try to argue that their contributions were 'hard loans'. But what happens where multiple generations, either through limited resources or cultural expectations, live under the same roof, and all contribute to the purchase of a family home – and then one of them wishes to divorce their spouse?

It is perhaps trite to say that adding a large, financially integrated family to the background of a divorce can make it more legally complex. This becomes all the more true when the family have never turned their minds to how assets are technically held – or when their assumptions about ownership are based on cultural traditions not familiar to English law. So how will the courts analyse the holding and division of property?

The Challenge
Baron J in G v G (Matrimonial Property: Rights of Extended Family) [2015] EWHC 1560 (Admin) made clear that, whatever the cultural background of the parties, it was English law that is applied to property disputes in England and Wales. This leaves the full law of property and equity to determine who owns real property ahead of any distribution under the Matrimonial Causes Act 1973.

English law classifies flows of money within a family as essentially one of three things: a gift, a loan or a beneficial interest in other property. The differences are largely ones of intention, and the search for intentions held many years ago, when families formed and property was exchanged, will be a familiar one to practitioners.

In a multi-cultural Britain however, there are many family structures that share property with intentions and cultural understandings that do not neatly fit into any of English law's classifications.

This leads to a range of theoretical and evidential challenges:

1. Many families have not actually turned their minds to how they technically hold property between themselves. Their focus has been on mutualising the assets. They rely on others within close family bonds to serve each other's interest. The arrangement is based on the assumption that the family will remain together, and may not contemplate what would happen if there were a split. No specific consideration may have been given as to how ownership is divided while the family remains together, let alone were it to split. The common use of a single individual or couple within a family to administer the significant finances of the family, often without consultation with others, may even mean that intentions about how property is to be held are never actually shared or mutual at all.

2. Even where there has been specific thought about how property is to be held, the customary (but fixed) understandings of many families often do not map well onto the categories of gift, loan or beneficial interest. As seen in G v G, there is a significant task to be completed in determining what parties intended by way of loan versus beneficial interest when they understood they were governed by, say, a Hindu United Family structure. An understanding that the family unit itself retains ownership, and each individual member's share remains ambulatory and dependent on their role and integration with the family, does not fit easily with English property law.

3. Should these first two 'theoretical' hurdles be overcome there remains the challenge of proving the relevant intentions in court. Within large families, often dominated by a patriarch, even the most significant investment decisions may not be discussed. Money, and the choice of how to spend it, often remains with an individual. As a result, there may have been very few discussions that can be recollected to demonstrate mutual intentions (if indeed the intentions were mutual). The chances of the thinking behind such decisions being written down to provide contemporaneous evidence are smaller still.

This is not just an issue for structures like the Hindu United Family seen in G v G. The same considerations and challenges apply to the increasing number of families where multiple generations now have to combine resources and return to living under one roof in what they consider to be a 'shared' home, whatever the legal position on ownership might be.

So what can the court look to in order to determine what interest spouses and, separately, their relatives have? And what advice should be given to clients about the compatibility of their own understanding of their family affairs with how a judge will look to analyse it?

These questions often arise at a very early stage in proceedings. They are all the more important when there can be so much more financial gain to demonstrating a beneficial interest as opposed to a loan when property prices have increased. This has to be balanced against the very real costs concerns that the inclusion of additional parties adds.

This article looks first at how the practitioner can address these general concerns within a case, before studying some of the particular pitfalls that can arise in running the relevant arguments.

General considerations
There is, as yet, no reported authority on how the courts should handle the often unspoken, undocumented and, perhaps, unformulated intentions of the parties in such situations.

The leading cases to date deal with the 'quasi-matrimonial' home (in the words of Lord Walker, Stack v Dowden [2007] 2 AC 432 at [31]) and the couple living in it. They do not address the situation where there are further, related cohabitants outside that primary relationship.

In the absence of such authoritative direction, a Family Court hearing ToLATA applications within financial remedies proceedings is going to have to try and fit the unspoken, poorly documented and potentially uncrystallised thoughts of the parties into traditional legal categories. It will be for witnesses and those representing them to make clear which type of ownership best maps onto the understandings that they have of their family finances.

When high value assets (typically the FMH) are being considered, the focal point in a case is likely to be whether there is a constructive, common intention trust, or whether purchase money contributions were simply loaned. This, of course, assumes that it can be proven that a given party has advanced money towards the purchase price in the first place, and did not do so with donative intent.

Whether a party is advancing or resisting a claim, they will need a very tight statement on what was thought and said at the time of any transfer of assets or money, and critically who was involved in any discussions around the transactions.

Any degree of specificity in evidencing actions that demonstrate the understandings on which the parties were operating will be critical. Where so much is likely to have been unwritten, and many conversations are likely to have happened without all members of the family simultaneously present, concrete events that show another party acting on the basis of a given understanding will be of immense value.

The net should not be drawn narrowly in terms of what events and actions might be useful in demonstrating (or contradicting) a common intention. The recent case law on constructive trusts has made clear that the court needs to consider the full range of dealings between the parties. It can therefore look to evidence from all aspects of relationships and from all points in time in deciding whether there was the intention to share. This evidence can go both to whether a beneficial interest exists and in what proportions it exists.

Baroness Hale makes clear (albeit obiter) in Stack v Dowden that a contribution to the purchase price of a home (not held in the name of the contributing party) is likely to establish the intention to share. At [61], she states:

The claimant had first to surmount the hurdle of showing that she had any beneficial interest at all, before showing exactly what that interest was. The first could readily be inferred from the fact that each party had made some kind of financial contribution towards the purchase.

This then takes the case to the 'second stage' of the analysis – the quantification of the interest. This evidence base can be similarly broad. Mostyn J summarised the law post-Jones v Kernott in Bhura v Bhura [2014] EWHC 727 (Fam), and noted that the court will 'will examine the whole course of the parties' conduct in relation to the property' when searching for a tacit understanding between the parties on ownership (at [8[ii)]. Further, the determination of all of the Supreme Court Justices was that, where even such a tacit understanding cannot be found, a fair agreement can be imputed (at [8(vii)]), which must in turn consider all aspects of the case.

Much of the solution to these difficulties is therefore likely to lie in careful use of bank statements to demonstrate flows of money specific to a purchase, and statements that can refer to a wide range of specific events, described in detail, to demonstrate the understandings that were influencing actions.

Loose language used by inexpert parties to refer to how and why money has been given does not need to be determinative of a case (Sekhon v Alissa [1989] 2 FLR 94). Just because a party has previously called a contribution a loan, for example, without knowing the full legal significance of the word does not mean that this is how the court will have to treat the advancement. The search is for the true intention of the parties. This is all the more reason that statements should draw on the greatest number of events possible, from which inferences or imputations can be drawn, to show the reality of what was in the minds of the parties at the relevant times. Just because a party has once called something a loan does not mean that the case for a beneficial interest should be abandoned. Instead, the attempts to evidence intention in a detailed statement should be pursued even more strongly.

Particular pitfalls
In addition to these general issues, there are certain elements of the conveyancing process that present challenges in cases of this nature.

TR1 – a fatal blow?
In Stack v Dowden, Baroness Hale expresses a great hope (at [52]) that recent versions of the TR1 could end a large number of cohabitation ToLATA claims. This was because the option to show on the form how the parties to the transfer planned to hold the property effectively constituted an express declaration of trust.

In cases where family money has all been channelled to a key couple, to administer on behalf of other generations, the family home may well have been purchased in the joint names of the couple. Therefore, it is likely that it will only be the couple's names that appear on the TR1 form. The question becomes: if they have ticked either the box on the form to say that they hold the property as two joint tenants or as two tenants in common, is that fatal to a claim to an interest by any other family member? Has the express declaration ended any chance of their having an interest?

At first glance, it appears it has. The difficulty is that all authorities relating to the effect of a TR1 in equity relate to cases between the two parties that the legal title was transferred to. There are none that consider the situation where the interest is being claimed by an individual who was not a party to the TR1.

In the author's experience, the existing case law can be distinguished on the basis that the determinative effect of the TR1 relies on that document reflecting the intentions of the parties to it. Per Fox LJ in Roy v Roy [1996] 1 FLR 541 (at 546) 'the question is essentially one of intention' in relation to the binding effect of declarations in documents that convey legal title. Further, the presumption that the document reflects the intentions of the signatories is derived from the fact that a conveyancing solicitor would not complete a transaction unless they were satisfied that the documents reflected their instructions.

The same logic cannot apply to individuals who have not been part of the instruction to the conveyancers, and are not a party to the legal transfer of title. They have no opportunity to provide input in to this process, and therefore any purported declaration cannot reflect their intentions as to how the contributions that they settled are held. It is perhaps informative in this context that the prescriptive TR1 tick-boxes only apply to parties to the transfer, and therefore do not appear to be intended for situations where non-legal owners might hold beneficial interest (albeit that there is a free-form box for other patterns of ownership).

If this outcome is not right, then the legal purchasers could unilaterally create a binding document that ended the beneficial interest of others who had contributed to a purchase. This would be so regardless of the contributor's intentions, and without the opportunity for them to provide any input. Family members up and down the country would have no interest in properties where they had very deliberately intended to have one, and given large amounts of money for the same.

The only answer would then be for family members to plead fraud against their legal-owner relatives as trustees from the start of each case, with the associated high burdens of proof, rules of pleading and ethical duties to consider. If that is the implication of a client's position though, the importance of proper and full pleadings at the start of a case should not be underestimated.

What counts as a contribution?
Where a family has been living together and pooling resources for a long time (possibly with one party to a marriage handling money from their parents since they reached adulthood), the situation of a single set of contributions being gathered at the time a property is purchased may not apply. Instead, there may well be a number of contributions saved in the years prior to a purchase, and then a division of payments of mortgage interest, capital repayments and essential utility bills or repair costs between different family members in the years after a purchase.

Trusts law has grappled with this situation in numerous decisions, but in the family context cases are often complicated by the length of time over which there have been shared finances, and the informality with which any records are kept. Allied to this is the general issue that little thought may be given to the technical differences between the way in which one pot of money or another is contributed.

Of great assistance is the case of Risch v McFee [1991] 1 FLR 105. In the same way that Sekhon v Alissa allows the court to look beyond the simple language used by parties, the Court of Appeal in this case made clear that contributions of all forms need to be considered in the round. Within a cohabiting couple, one party had made some direct contributions to the purchase price of the other's flat, and further money had been advanced as a loan (but neither the interest nor the principal had ever been repaid). Even though this second set of monies was found to be a proper loan, it was held that they could be considered as contributions giving rise to a beneficial interest given that there had been other direct assistance with the purchase price.

This gives great leeway to the court when looking at a family's financial history to determine that a high number of internal transfers can generate a beneficial interest. For practitioners, this makes it all the more important to search for evidence of any and all contributions between parties, however minor or varied, to demonstrate the total input that has been made to a property. This is even more critical in the rare cases where resulting trust may still be the most appropriate vehicle for analysis.

Rental properties
The problem becomes one shade greyer when the claim relates not just to family members that are not part of the separating couple, but when it also relates to properties that the parties share but do not live in. This may well be the case where several generations of a family all live under one roof, and then pool spare resources (or the proceeds of previous properties) to create a shared rental income from other houses.

In Stack v Dowden, Lord Hope distinguishes between parties dealing with each other at arm's length, and cohabiting couples (at [3]). In the former situation, His Lordship indicates that a resulting trust is the most appropriate methodology to apply; in the latter, it is constructive trust.

No guidance is given however on cases that may fall between the two: where some of the purchasers are a cohabiting couple and others are close relatives of theirs; where none of the parties are dealing at arm's length, but neither are they in a direct intimate relationship. Likewise, it does not cover properties that are essentially a business asset and not a family home, but which are owned very much in a shared family context.

The essential business nature of these properties means that, in reality, it is likely that they will be handled on a resulting trusts analysis. This does not mean that there is not scope for legal argument on the point though. In terms of an approach to case preparation, the removal of the presumption of equal shares in constructive trusts means that even more attention should be paid to precisely what can be classified as purchase contributions capable of creating an interest, as they will now directly influence the proportion of an interest as well as its existence.

Conclusion
As it stands, there is no case law to clearly direct courts on how they should apply English law analysis to family interests in homes that are pooled within extended families. There is no guidance on how to handle the lack of clarity around intentions that usually follow. The answer for practitioners is thorough case preparation, with a detailed review of all financial contributions, however tenuous they may seem at first. This needs to be paired with a detailed statement to provide as much impartial evidence as possible to indicate unspoken or indirectly communicated intentions, to all of which the court will now have regard.

This is a situation that faces a great number of families. It is a shame that case law is made by those that can afford it, and these are much less likely to be the families that share a home between generations and multiple married couples. It will be of great assistance when a multi-generation, family ToLATA case, based on heavy cultural assumptions, is given full High Court scrutiny.

Until then, draft carefully and beware the TR1 put together without a sufficient investigation of where purchase monies came from.