More and more couples are living together and acquiring a home before marrying and a recent decision by Sheriff Sheehan in "F v R" at Edinburgh Sheriff Court examined how this can impact upon financial arrangements when divorcing.
This decision is particularly interesting because it shows the type of evidence that the court finds relevant where there is a dispute about how a house acquired before marriage should be treated.
Facts of the case - timeline
- 1996 – F & R meet when they share a flat in Edinburgh. At this stage they are just friends;
- 1997 – R moves away from Edinburgh for work;
- 2000 – R buys a flat using his savings and a gift from his father. He wants to rent the flat out and looks at potential flats with F who would be a flatmate;
- 2000/2001 – F stays in R's flat as a flatmate for a summer and then later another period of around 9 or 10 months. F & R continued to be friends and tenant/landlord;
- 2007 – F & R develop a romance which is described as "volatile". The relationship is "on and off";
- 2009 – F & R resume their relationship and get engaged. R decides to sell his flat and F & R decide to buy a new house as a couple; they look at properties together and talk about pooling their resources;
- 2010 – F & R's relationship is still "on and off". They separate in June 2010. R sells his flat in July 2010. F & R attend relationship counselling which is not successful. During this time, R buys a new house in his sole name with a purchase price of approximately £880,000;
- 2011 – By January 2011 F and R are seeing one another again and by August 2011 their relationship became that of a committed couple;
- 2013 – F & R get married;
- 2016 – F & R have a child;
- 2017 – F & R separate and apply for divorce.
The purchase of the house
As we can see from the timeline, F & R had a lengthy relationship which as characterised by periods of separation and reconciliation. In 2010, during a period of separation, R was still looking at homes to buy. F was very much involved in viewing various houses and deciding which house would be best to buy. R funded the purchase price from his savings and a gift from his parents. He also paid down the mortgage while the couple were living there. The monthly mortgage repayments were 'interest only' and did not bring down the capital balance outstanding to the bank.
R and F were clear that it was R alone who was buying the house, but F wanted to know that she would have security in living there. There was an email from F in 2010 that confirmed her knowledge that R was buying the house alone and that she had no financial claim on it.
F did ask about a co-habitation agreement or entering into a pre-nuptial agreement but R did not think either of those were appropriate because they were not living together and he did not feel at that point that they were likely to marry.
How was the house treated by the Court?
F & R had different arguments about how the Court should treat the value of R's house for the purposes of financial provision upon divorce.
A key issue was whether or not the value of the house could be considered 'matrimonial property'.
Matrimonial property means all property acquired by a married couple after their marriage and before the date when they separate. An exception to this rule is the value of a house which is 'acquired for use as a family home'.
F argued that due to the fact that she and R had married, had a child and lived in R's house as a family, its value should be included. R opposed this, pointing out that the relationship was 'on and off' and was very much 'off' when the house was purchased.
Sheriff Sheehan decided that the house did not constitute matrimonial property. The circumstances of this case were reasonably clear because there was no intention that the house should be purchased as a family home and the on/off relationship between F and R was most definitely off.
The Sheriff considered R's intention at the time of purchase. The hopes and wishes of F and what happened after the purchase were not relevant in making the decision. When the house was purchased, the parties were "not a couple" and R was not "contemplating any form of family life on 30 December 2010 when he acquired the house and furthermore that the pursuer (F) understood that".
The Sheriff therefore excluded the entire value of the house from the value of the pot of matrimonial property. F could not share in its value.
The Sheriff helpfully explained that even if she was wrong in deciding that the house was not matrimonial property and that F could share in its value, then the fact that R had purchased the house with non-matrimonial assets (his savings and a gift from his father), supplemented by a mortgage would constitute what is known as "special circumstances". If a court finds that special circumstances apply then they can choose to divide the matrimonial property unevenly in one party's favour.
In this case, R was the one who paid the mortgage and who made capital contributions during the period of the marriage to bring the mortgage down while F made no capital contribution. F did make a payment each month to R which he used to pay some of the monthly bills.
The sheriff also found that F was supported substantially by R. The sheriff also took into account that R had spent a lot of money on renovating the house which increased its value by an almost equivalent amount which F did not contribute to. The Sheriff also took into account the relatively short length of the marriage – four years.
The Sheriff stated that if she had held that the house was matrimonial property she would have taken into account the money used by R towards the purchase price, the mortgage payments he had made, the renovation to the property, the short marriage and the lack of any financial contribution to the house by F and the position regarding title which they both understood. Although the Sheriff did not set out exactly how she would have calculated those special circumstances it seems likely that a significant proportion of the value of the house would have been attributed to R.
What does this mean in practice?
This is an interesting decision because it shows the type of evidence that a Sheriff finds relevant where there is a dispute about how a house acquired before marriage should be treated.
It is important to remember that the legal test in deciding whether a house purchased before marriage becomes matrimonial property is not whether it was purchased in "contemplation of marriage". The question is whether it was purchased for use as a family home.
Separately, there is comfort in the Sheriff's position that even if she had been persuaded that F and R had acquired their home with the intention of it being a family home that she would not have completely ignored the significant contributions made by R under what would be called "special circumstances".What helped the Sheriff in this case was clear evidence by way of email trails and correspondence about the state of F & R's relationship at the time of purchase and F's clear understanding that the house was not being acquired for use as a family home at the time it was purchased.
Not all couples will have this type of evidence to hand, and the best advice is to clarify intent when buying a house. A written agreement is always the most reliable statement of intent. Good legal advice is key. A large measure of R's protection came from the 'paper trail' of correspondence and solicitors' letters which showed what was in each party's mind at the time the house was bought. If R had not had such protection an asset worth around £880,000 would have gone into the pot of matrimonial property for division.
The only way to be sure about how a home which you purchase when you are in a relationship but before you marry will be treated is to think about a co-habitation agreement or a pre-nuptial agreement. This type of agreement is, to all intents and purposes, an insurance policy for what can be one of the most significant investments that you will make in your life.
Get in touch
If you would like help or advice with any issue raised in this article – cohabitation agreements, pre-nuptial agreements or working out what you might be entitled to upon divorce, please contact our team for a confidential chat.