Protect your assets… from your partner

By Jonathan Goldberg, September 21, 2010

Leah from Netanya writes: I'm very worried for my niece in London. She is a brilliant and vivacious girl, but frankly rather scatter-brained. She is now 51, and was divorced a few years ago after a long marriage. She has teenage boys. On the recent death of her father, who was my elder brother, she inherited a truly enormous fortune. This includes numerous residential and commercial properties which require management, renovation and upkeep. She has taken up with a man who is 16 years younger, and they live together. Leaving aside the age gap and the fact my dear brother is probably turning in his grave, he seems a decent enough young man, so far as I can tell from short acquaintance. She has come to rely on him heavily in managing the properties. He has given up his job in insurance to work with her full-time. He lives in her house and she supports him. This is on an informal and unwritten basis. He seems very devoted to her, and I have seen that he helps her greatly with the architects, builders etc whom she employs in the business. She says she does not intend to remarry, but I worry this is naïve. If their relationship breaks up, may he not have all sorts of financial claims upon her even if they remain unmarried?

Leah, love is a wonderful thing, but I think you do well here to be worried for her. Experience suggests that their relationship could end in tears, and that the young man concerned might then indeed make financial claims upon her. If so, he would not want nowadays for solicitors to press his case, possibly on a "no win, no fee" basis.

If she did decide to marry him in future, her obvious course would be to insist on a pre-nuptial deed. The way this works in essence is that both parties make full financial disclosure to each other, and then dictate what will happen to the assets in the event of a future break-up of their marriage. Generally speaking, the courts now honour such agreements to the letter, even though technically the jurisdiction of the English court to redistribute property on a divorce can never be ousted.

However, where the parties merely cohabit and are unmarried, as currently with your niece, different considerations apply. The English courts have no law of "palimony" as, for example, in California. The so-called "common law marriage" is in law a complete myth, despite the fact it is so well rooted in popular culture.

Unlike formal marriage, each party ought in theory to emerge from a mere cohabitation break-up of whatever length with whatever he or she has put in, no more and no less. However the devil lies, as ever, in the detail, and what we lawyers call "equitable accounting".

Suppose that the boyfriend has not introduced any capital into her home or the business, but he can plausibly argue that he has expended time and labour which enhanced the value and profitability of one or both. He could then claim to be recompensed by your niece on the break-up, either by asserting some oral agreement between them which might be hard for her to disprove, or on the theory that both parties intended implicitly that his efforts should be rewarded. Assessing what his efforts were worth becomes a difficult and contentious exercise of the kind lawyers love, with a hefty costs bill which probably she alone would bear at the end of the day.

The lay person usually imagines that keeping domestic agreements tacit, leads to trust and peace in the home. There is no greater fallacy in my experience where money is concerned, especially big money. Silence leads to confusion, and confusion breeds litigation. The best way to avoid trouble is always to spell things out in writing beforehand.

Your niece will be well advised to insist now on a cohabitation deed. This will provide precisely for how all assets are to be distributed and contributions defined, in the event of a break-up with her young man. This will provide for certainty as to her sole ownership of each asset involved, and as to the income or share (if any) which he will be deemed to have earned by his labours. It can contain a binding confidentiality clause. Things like income, outgoings, who pays the household and holiday bills, repairs and improvements, whether there are to be sole or joint bank accounts, should all be covered. Each side should take independent legal advice, and the agreement should so recite. Go back to love after that, is my advice to her.

The above is not formal legal advice and is given without liability. Jonathan Goldberg QC, of Ely Place Chambers, is a leading London barrister

Last updated: 10:41am, September 21 2010