Posted on Aug 29, 2012 in Family Law by Amanda Wilson
On 4 July 2012, the Supreme Court, in the case of Gow v Grant ruled that cohabiting couples should be able to make financial claims against one another on the basis of fairness.
Despite over 150,000 couples currently cohabiting in Scotland, it is believed that most of them are unaware of their legal rights in the event that their relationship breaks down. Whilst some clients in that situation assume that since they are living together as if they are husband and wife, then they automatically have the rights of a common law husband and wife, others believe the opposite to be true namely, that since they are not married, then there is no risk of any financial claims being made upon separation. However, from a legal perspective, neither is correct.
The position for cohabitants in Scotland is quite different from their counter parts south of the border. The Family Law (Scotland) Act 2006 was introduced in Scotland in May 2006 which sought to enhance the position of cohabitants if relationships subsequently broke down. This is particularly so where there may be children of that relationship. Many lawyers have however considered that the legislation as presently worded is not clear enough in exactly what a party in that situation may be entitled to financially. Despite the legislation having now been in force for over 6 years, there have been relatively few reported cases through the Scottish Courts. This is largely due to the uncertainty which stems from the legislation and of course the cost implication of seeing such a Court case to its conclusion.
Generally, the legislation provides that when a cohabiting couple separate, there is scope for them to make a financial claim for a capital sum against one another. Such a capital sum can be applied for where it is felt that one party has suffered an “economic disadvantage” whereas the other has gained a corresponding “economic advantage”. In addition, where there are children of the relationship under the age of 16 at the point of the parties separation and where one party will be left to care for those children, then that party can seek an additional capital sum to redress that financial imbalance.
In the case of Gow v Grant the facts were not unusual. The couple had met in 2001 and then began living together in Mrs Gow’s property in December 2002. At that same time, they became engaged. Before they met, they each owned their own property and both were working. In 2003 Mr Grant encouraged Mrs Gow to sell her house. She sold the property for £50,000 and the proceeds were used to pay for the parties’ living expenses and also to repay some debt in Mrs Gow’s name. The parties also bought two timeshare weeks in joint names for approximately £7,000, with Mrs Gow paying £1,500 towards the first week and the whole price for the second week.
The relationship ended in 2008. In 2009, Mrs Gow raised court proceedings at Edinburgh Sheriff Court seeking payment of a capital sum from Mr Grant on the basis she had suffered an economic disadvantage by selling her house and moving in to Mr Grant’s home. By the time the matter was decided in Court in 200,9 the value of Mrs Gow’s previous property had increased to £88,000. The Sheriff who first heard the case felt that the difference between the original sale price of the house and its current value represented an economic disadvantage to Mrs Gow and that the difference ought to be taken into account when assessing whether a capital sum should be payable to Mrs Gow.
The Sheriff therefore awarded her a capital sum of £39,500 to remedy that economic disadvantage she had suffered during the cohabitation.
Mr Grant appealed the Sheriff’s decision to the Inner House at the Court of Session in Scotland. The Court of Session overturned the Sheriff’s decision resulting in a decision which was considered by most family lawyers to severely restrict cohabitants’ rights to make a financial claim in the event of their separation. Importantly, the Court of Session interpreted the legislation to mean that there needed to be evidence that the transaction (i.e. sale of the property) was entered into in the interests of the Defender (Mr Grant), which the Inner House considered the case was lacking and as such, overturned the Sheriff’s decision.
Mrs Gow then appealed that decision to the Supreme Court. The Supreme Court ruled that the original legislation from 2006 ought to be interpreted more broadly than that. In particular the Supreme Court has suggested in its ruling that the Courts, in deciding such cases ought to consider where the couple were when they came into the cohabitation and where they subsequently were at the end of the cohabitation period. Ultimately, the legislation was in place to achieve fairness and where one party has suffered such an economic disadvantage, for that to be remedied by payment of a capital sum. Importantly it does not seek to impose the same financial responsibilities of marriage upon cohabiting couples but rather seeks to remedy any resulting financial imbalance which stems from their relationship. Therefore, where the guidance principle is one of fairness between the parties, then it is the effect of the transaction (i.e. sale of the property) which is crucial rather than the parties’ intentions at the time of the transaction.
Accordingly, the Supreme Court overturned the Inner House decision and reinstated the award of a capital sum to Mrs Gow of £39,500. This is considered by most family lawyers in Scotland to be a welcome decision which strengthens the rights of those couples living in Scotland.
Unfortunately, there is no such corresponding legislation currently in place south of the border and the comments from the Supreme Court Judgment tend to suggest that a similar provision now ought to be introduced in England and Wales with a great number of cohabiting couples live there.
Although each couple’s own relationship history will most likely differ significantly from the next, it is possible for couples to try and safeguard their position and provide clarity as to what will happen in the event that the relationships does breakdown. That is commonly dealt with by means of a cohabitation agreement which can also be incorporated into a pre nuptial agreement making provision not only what will happen in the event of the couple’s separation but also what will ultimately happen to any property acquired in the event that they subsequently married.
Amanda Wilson is a specialist Family Law Solicitor. If you have questions about Co-habitation and Co-habitation rights please contact Amanda on email@example.com or call 01382 229111.