Under English law, property is jointly owned in one of two ways, as:
- Joint tenants; or
- Alternatively as Tenants in Common.
If the property is owned as joint tenants, then on the death of one party, the survivor will automatically inherit the share which belongs to the deceased.
If the property is owned as tenants in common, then the deceased’s share will instead pass to their estate and will be inherited by the beneficiaries of the estate, not the surviving co-owner (unless of course it is the intention of their will that their co-owner should inherit). This type of ownership is useful for inheritance and capital gains tax purposes.
Property ownership and separation
This technical difference is of particular relevance when a couple are separating (whether they are married or not) as ordinarily, they will own the property as joint tenants but perhaps won’t want their ex to automatically inherit the property should they die before they resolve any financial issues between them.
Either party may therefore sever the joint tenancy if they wish and that is done by one of them serving a notice on the other that is then registered with the Land Registry. From that point on, they will continue together to own the property jointly, but as tenants in common.
It should be noted that severance does not then influence any final decision as to how the property is dealt with by the Court. It is simply a protection mechanism and does not necessarily mean that the equity in the property should be divided 50/50.
In addition to the service of a notice under Section 36 (2) of the Land Property Act 1925, severance of a joint tenancy can also be affected in the following ways:
- A certain type of act by either party
- By mutual agreement
- A course of dealing
The 2011 case of Davis v Smith provides a reminder as to how important it is to consider this issue of property ownership and separation.
Davis v Smith
The circumstances of the case were that the divorce process was on-going and a notice of severance was never served by either party. Michael and Margaret Smith lived in a former council property until divorce proceedings began and at that point, the husband left their home. The couple were in negotiations via solicitors and they both planned to serve notice of severance, but neither actually did so. Mrs Smith then died.
The practical effect if the joint tenancy had not been severed was that Mr Smith would have inherited his late wife’s interest in their home despite their separation and the divorce proceedings. He therefore argued it had not. The executors of Mrs Smith’s estate argued that it had in order that her share in the property would fall to be divided as part of her estate.
In this case, the Court of Appeal ultimately arrived at the conclusion that the joint tenancy had been severed on the basis of the course of dealings of the parties and upheld the decision that Mrs Smith’s interest in the property did not pass to her husband but instead passed to her estate.
The Court relied on three main factors:
- That the parties had stated in correspondence and in a meeting in June 2009 that the house should be sold and the proceeds divided and there was to be inferred a common intention that there would be a sale and an equal division of the proceeds of sale (albeit with the possibility of a balancing payment to take account of the unequal division of the proceeds of the policy);
- That each party had been advised that the expected outcome was an equal division of the assets;
- The parties had cashed in an endowment policy and distributed it unequally on a clear understanding that there would be a balancing payment to Mrs Smith from the proceeds of sale of the property.
Comment
It is therefore the case that to be certain of your situation you should consider severing the joint tenancy by notice, which is a quick and simple procedure and in any event, you should make a will just in case the tenancy is inadvertently severed.
To leave it all open to argument is risky. That said, even if a death does occur and the joint tenancy is found to have been severed, an application can still be made in appropriate circumstances under the Inheritance (Provision for Family and Dependents) Act 1975.
How Nelsons can help
If you need advice on divorce and financial matters, please contact one of our specialist family law solicitors in Derby, Leicester or Nottingham who will be happy to discuss your circumstances in more detail and give you information about the services that we can provide. Please call 0800 024 1976 or contact us via our online form.
