Understanding the nuances of property rights can be difficult at times, especially when you are planning to get married. Here, we explain exactly what a declaration of trust is in relation to property, and how a marriage can affect it.

Among the many decisions that engaged or newlywed couples face, understanding how marital status affects formal legal documents like declarations of trust may seem quite far down the list. However, if a declaration of trust has already been set up, it is vital that both parties understand how their marriage will affect the legal arrangement. As a legally binding agreement, a declaration of trust may have serious legal implications and affect mortgage repayments, so it is vital to understand how it works.

With the cost of living crisis affecting many people, it has become more common to look for alternative arrangements when it comes to buying property, such as seeking out help from parents or friends and being named as joint owners. It is important to understand what happens to another party's share of a property should you get married, or if the house is put up for sale by a newlywed couple.

If you have any questions we have not answered regarding declaration of trusts and marriage, our expert Wills, Trusts & Probate solicitors are happy to speak to you regarding your query and provide the specialist legal advice and services you need. You can contact us by completing the enquiry form below or by calling 0151 666 9090.

What Is a Declaration of Trust?

A declaration of trust, also known as 'deed of trust,' is a legally binding document that clarifies the ownership arrangements of a property. This is especially important when the legal owners and those who have a beneficial interest in the property are different.

The declaration spells out the proportion of the property that each person owns and how proceeds from sales, rents, or other income should be divided.

Here is a breakdown of the key aspects of this formal legal document:

• Clarification of Ownership: While the legal title of a property might be in one person's name, the beneficial ownership (i.e., who benefits from the property's income or value) might be shared among several people. The declaration of trust makes these beneficial interests explicit and shows the distinction between beneficial and legal ownership.
• Details of Shares: The legal document will lay out the exact proportions in which each party owns the property. This might be an equal split, or one party might own a larger share, depending on their contribution or agreement.
• Protection of Interests: A declaration of trust is especially useful when unmarried couples or friends buy a property together. As a legally binding document, it can protect each party's interest in the event of a dispute, separation, or sale.
• Versatility: This approach is not only for new property purchases. It can also be used to clarify arrangements when one party injects a large amount of money into a property; for example, for renovations or to pay off a portion of the mortgage. In fact, while they are most common in property dealings, a declaration of trust can also be used in other situations where assets are jointly owned and clarity is needed about the proportions of ownership.

For anyone entering into a joint property or asset arrangement, a declaration of trust provides a clear, legal record of the agreement, helping to prevent potential disputes down the line.

What Is the Purpose of a Declaration of Trust?

A declaration of trust is a useful legal tool that offers clarity, security, and transparency in matters relating to shared property or assets. Its key purposes include:

Identifying Beneficial Owners

At its core, a declaration of trust provides a clear distinction between the legal owner(s) of a property and the beneficial owner(s). The latter refers to those who have a right to the property's profits or proceeds when it's sold, even if they're not named on the deeds of property ownership.

Documenting Varied Contributions

When individuals contribute different amounts to the purchase, maintenance, or mortgage of a property under joint ownership, the declaration serves to record these differences. This ensures that if the property is sold or generates income, the returns are divided in accordance with the recorded shares.

Protecting Financial Contributions

Often termed 'The Bank of Mum and Dad', parents or family members might help with the purchase of a property without being legal owners. A declaration of trust can ensure their financial contribution is formally recognised, safeguarding their right to reclaim it in the future.

Shielding Unmarried or Non-Civil Partners

As there's no 'common law spouse' status in the UK, unmarried couples or friends don't have the same automatic rights to property as their counterparts in marriages or civil partnerships. A declaration of trust can provide a protective framework, detailing each party's entitlement in the event of a separation or disagreement and outlining financial arrangements accordingly.

Facilitating Cohabitation

For those not in a formal union but living together, this document can be an essential part of a cohabitation agreement. For joint tenants, these legally binding arrangements set the groundwork for property rights, contributions to household expenses and mortgage repayments, and more.

Preventing Future Disputes

By setting out clear guidelines and ownership structures from the outset, a declaration of trust aims to prevent potential disputes down the line. It offers a reference point in case of disagreements between the parties concerned, ensuring that all parties and owners are treated fairly based on their initial agreement.

What Happens to a Declaration of Trust After Marriage?

The initial point to note is that, first and foremost, getting married does not alter the terms of an existing declaration of trust.

However, discussing the validity of a declaration of trust after a marriage can be legally complex. Once a couple gets married, they enter into a legally binding contract under the Matrimonial Causes Act 1973.

This act provides spouses and civil partners with an array of potential legal grounds they can pursue in the event of a divorce or dissolution of the civil partnership. This means that, while the declaration may be valid, in the event of a divorce or dissolution of a civil partnership, the family courts possess the power to redistribute assets based on various factors, such as each party's needs, their standard of living, and more.

This means that the family court can, if it deems it necessary, override the stipulations set out in the declaration of trust. In this scenario, the declaration of trust would then serve as a guide to the couple's initial intentions, but it would be weighed against other significant considerations.

One of these considerations includes the marital home. If a declaration of trust relates to a couple's marital home, there is a higher likelihood of the court intervening in the interests of fairness, especially if there are children involved. On the other hand, if the declaration concerns an investment property or secondary asset, the courts might be more inclined to uphold its terms.

The Use of Prenuptial Agreements

If the fate of a property or other assets is a potential concern for either party before marriage, you may consider a prenuptial agreement, also known as a “pre-nup”. A pre-nup is a formal agreement made between two individuals before they marry. It sets out the ownership of their belongings and explains how assets and debts will be divided if the marriage were to end. A prenup can encompass a wide range of assets, from property and savings to inheritances and personal possessions.

While it is not the most romantic of topics, it may be prudent to broach these discussions early, especially for those who have children from a past marriage. This ensures ample time to draft, review, and finalise the prenuptial agreement well before the wedding day.

While prenuptial agreements have not been made legally binding by the UK Government yet, they do hold substantial value when it comes to the family courts in the event of a divorce. Percy Hughes & Roberts does not offer advice in relation to the creation of prenuptial agreements at this time.