The impact of a Declaration of Trust on asset division

There have been many occasions where clients have enquired whether a Declaration of Trust (DoT) entered into with their spouse many years prior to marrying could, following the unfortunate breakdown of the marriage, be accounted for when determining the division of matrimonial assets. 

Specifically, should the asset for which the DoT was created- most commonly the family home - only form part of the matrimonial pot, limiting the other party’s claim against it? My initial response has always been, “Did you consider/were you ever advised about entering into a prenup?” with the response always, unfortunately, being “No.”

What is a Declaration of Trust (DoT)?

A Declaration of Trust is a document most commonly entered into by couples who are not married or in a civil partnership when buying a property together. It records the parties’ financial arrangements, outlining what share of the property they own and what should happen if the relationship were to come to an unfortunate end.

• A DoT will ordinarily contain provisions such as (but not limited to):
• The amount each party has contributed towards the deposit.
• Who will pay the mortgage and in what shares (e.g., equal or unequal shares), as well as other outgoings such as council tax and utility bills.
• The amount each party will receive upon the sale of the property.
• Whether the parties want the option to buy each other’s shares.

Is a Declaration of Trust legally binding?

Yes, a DoT is legally binding and will most certainly be enforced, particularly where the parties are not married or in a civil partnership. This may not, however, be the case with married couples who are going through divorce or financial proceedings. The Family Courts are not bound by DoTs. The Courts will first have regard to s.25 of the Matrimonial Causes Act 1973 (MCA) when determining the division of matrimonial assets, meaning a DoT can be disregarded altogether. This is particularly true where the parties have been in a long marriage, and children have been born from the same. (The same will also apply in circumstances where only one of the parties is the registered proprietor.) The Family Courts may be more inclined to uphold a DoT if the marriage was short and childless.

Should you enter into a Declaration of Trust?

Absolutely, particularly if you are not married or in a civil partnership; I also strongly encourage all my clients to have a Cohabitation Agreement in conjunction with a DoT.

If you and your partner later decide to marry, consideration should certainly be given to entering into a prenup. It is important to note that the Family Courts will have similar regard to s.25 of the MCA 1973 when determining whether to uphold a prenup. However, we have seen in recent times the recognition and enforcement of prenups by the Family Courts.