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Legal aspects of living under the same roof during divorce: the Rise of the “Mid-Nuptial Agreement"

Alison Hawes, Partner, Irwin Mitchell LLP reviews the practical problems and associated legal issues that can arise where parties want to divorce but the principal asset cannot be realised because of a stagnant property market.











Alison Hawes
, Partner, Family Law Team, Irwin Mitchell LLP

Introduction
Family lawyers who have been in practice for many years recognise that the dynamic of each separating and divorcing couple is unique, but that quite often we will be giving the same legal advice, using the same words and phrases and the same letters to explain practice and procedure.

Arguably, the current economic climate has changed that.  Whilst there are not necessarily the significant negative equity issues that there were in the 1980s, there is still a lack of liquidity in terms of property sales.  Additionally, difficulties with both private and business bank borrowing and income pay freezes put a slightly different complexion on the advice which family lawyers are giving to divorcing couples.

It may be that the family home is not selling quickly. Anecdotal evidence has revealed that properties can be on the market for as long as 18 months to 3 years before a sale is achieved.  That may be partly due to a lack of buyers, but there is also the problem of those who would like to buy but who are simply unable to raise the finance. 

In all the circumstances, if couples stay under the same roof before divorcing then it may be sensible to consider the appropriateness of an agreement that regulates the living space and finances.

These agreements, akin to mid-nuptial agreements, could regulate interim financial arrangements, including setting a level of support that one party might pay to the other during an attempt to lead separate lives but under the same roof for practical reasons.  Whilst a properly drafted cohabitation agreement – where both parties have had independent legal advice – is likely to be enforceable in the same way as a private contract; for a married couple, the situation is different. 

Enforcing an agreement about who should use the top shelf of the fridge by way of specific performance is going to be wholly disproportionate.  In reality, if a living together arrangement pre divorce breaks down, then one party is likely to be considering an occupation order in relation to the other or issuing divorce proceedings and taking a chance on being able to resolve the finances without a sale of the family home.

The collaborative process or a form of mediation could be invaluable in helping couples to consider the practical aspects of attempting to live under the same roof before divorcing while waiting for a sale of the property.  Those practical issues might include:

• Extra support and consideration for the children of the family who might take longer to come to terms with parents separating if both continue to live under the same roof. For example, an agreement may need to be brokered about taking turns to be away from the property so that one parent can spend time with the children at the weekends.

• If there is one family car then sharing arrangements need to be considered. Steps should be taken to ensure that outgoings such as insurance, maintenance costs and fuel are not contentious issues. More commonly, it might be that the larger of two family cars needs to be used by the parent who has contact with the children for a particular activity, and the smaller car by the parent who is staying out of the way or at least behind the scenes.

• If the parties want to keep confidential documents at the property such as, for example, solicitors' correspondence then suitable arrangements need to be in place to ensure that such material is kept safe and private. 

• There needs to be clear agreement about friends and relatives who come to stay. This may be no more than a simple exchange of ideas about such issues as whether it is appropriate for mothers-in-law to spend extended periods at the property or, perhaps more elaborate agreements about such issues as vetoing invitations for Christmas.

• If it is going to be some considerable time before the house is sold there are often discussions about whether it is sensible to try to make the property more attractive.  This could consist of simple cosmetic decoration or in more extensive renovations or even an extension.  If so, it would be sensible for there to be clear agreement about how such improvements are to be funded and any effect that the couple intend that might have on their ownership of property.  A contribution to a share in equity can be in money or monies worth: Matrimonial Proceedings and Property Act 1970 s.37.  A simple agreement can specify an increased beneficial interest where one joint owner has made a substantial improvement to the property, although couples will need to be advised that where there are limited resources available then in the event of a dispute the court's discretion will be exercised on the basis of need rather than contribution.  If there is uncertainty about the eventual level of equity in the family home, the temptation may be to negotiate a final agreement in divorce proceedings based on the parties sharing percentages of net value, or a fixed amount.  However, such an approach was criticised in Hope-Smith v Hope-Smith [1989] 2 FLR 56.   In that case delay and fluctuations in the value of the property meant that a fixed lump sum prejudiced the wife and so an order was substituted that she should receive 40% of the net value of the house.  That could be swings and roundabouts but clients need to be carefully advised before accepting either a percentage share or a fixed share deal including testing any formula with lower than expected figures to allow for the possibility that the property market remains stagnant for some time.

Another key point to consider is tax.  If one joint owner moves out of the family home but the property does not sell for 36 months, then there may be capital gains tax payable.  There are concessions for divorcing couples where a disposal after 36 months is part of a final financial settlement, but it may also be sensible to consider a without-prejudice transfer if the 3-year deadline is looming.  The proportionality of obtaining an accountant's advice and preparing complex declarations or transfer subject to charge back needs to be balanced against the likely capital gains tax bill given that any charge is pro-rated.

Divorce
Divorce proceedings based on the "fault" based facts require the Petitioner to confirm the parties' living arrangements before a decree nisi can be pronounced.  In petitions based on adultery, where the parties live together for a period or periods which exceed 6 months, then adultery cannot be relied on as a fact for divorce.  For the purpose of the Rules, "living with each other" means living as part of the same household which effectively means that they must not be sharing a common life together – see Mouncer v Mouncer [1972] 1 All ER 289 which, although a case based on determining whether a couple have been separated for 2 years before one of them consented to a decree being granted, analysed what "living apart" in the same household meant.  Signs of a communal life, including sharing meals or the other day to day incidents of cohabitation may well defeat a petition based either on adultery or unreasonable behaviour. 

If after living separately, a couple decide to issue proceedings based on the fact of 2 years separation with the Respondent's consent, then in all likelihood the period of separation will need to start to run once the parties have stopped living under the same roof.  In Mouncer, the husband and wife were on very bad terms and slept in separate bedrooms.  They continued to take their meals together, albeit that they were cooked by the wife often in the company of one or both of their children.  They shared the cleaning of the house and made no distinction between one part of the house and the other although the wife no longer did any washing for the husband.  The only reason for the husband continuing to live in the house was his wish to live with, and help look after, the children.  The court held that "a rejection of a normal physical relationship coupled with an absence of normal affection" was not sufficient to constitute "living apart".

These issues do not arise if a couple actually divorce but continue to live together in a jointly owned property.  However, most couples would question the desirability of being linked together in the same way as cohabitants, without any clear agreement as to financial provision on the eventual sale of the property.  More common, in these economically straitened times, are couples who are simply forced to live as part of the same household for longer than they ever anticipated once they have made the already difficult decision to part and possibly dissolve their marriages.  The uncertainty can extend to all other areas of financial provision.  It is increasingly common for families that might otherwise have put monies aside for school fees from savings, endowment policies or income to use those funds to create two households out of one. 

Violently fluctuating pension scheme values can also produce distorted figures when practitioners attempt to calculate future benefits for couples in their late 40s or early 50s as part of the overall provision.