Dying without a will
A recent Court of Appeal decision in Kahrmann v Harrison-Morgan 2019, in a case where a wealthy banker died without a will, highlights the vulnerability of unmarried co-habiting partners.
Co-habitation is no guarantee
Wealthy German banker Dr Kahrmann married in 1972 and had two daughters. He later separated from his wife but they did not get a divorce. For some years before his death, he cohabited with his girlfriend and their two sons in one of his two properties in London’s Belgravia area.
He returned to live in Germany but allowed his girlfriend, Ms Harrison-Morgan, and their sons to continue living at the property.
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Dr Kahrmann and his business partner subsequently set up a lucrative business deal to buy the freehold of the two properties in Belgravia. Dr Kahrmann, at this point, only owned the leasehold interest, so the deal was a collective enfranchisement.
The business partners agreed to share the profits between themselves in equal shares. Ms Harrison-Morgan vacated the property to allow the sale to go ahead. Sadly Dr Kahrmann passed away unexpectedly before the deal was completed; he had not made a will.
Initially, his £4.4m share of the profit was split between Ms Harrison-Morgan (£2.2m) and his two daughters (£2.2m).
The claim was brought by Dr Kahrmann’s daughter on behalf of his estate to recover the sale proceeds paid to Ms Harrison-Morgan. The High Court rejected the estate’s claim to the sale proceeds on the basis that the business deal was a profit-sharing agreement.
Finding of a constructive trust
The Court of Appeal found that the profits from the properties were to be held on constructive trust for Dr Kahrmann’s estate. Therefore, the property buyers should not have paid half of the proceeds to Ms Harrison-Morgan, but instead to Dr Kahrmann’s estate.
As Dr Kahrmann and his business partner had an express common intention to share ownership of the freehold for the two properties in equal shares by means of their agreement, the court found that a constructive trust had arisen. This meant that Ms Harrison-Morgan held the monies on trust for the estate and had to pay them back.
What is a constructive trust?
A constructive trust will arise in circumstances where one party holds property or an asset on behalf of another party in which they have a beneficial interest.
In certain circumstances, such as here, a court will imply the construction of a trust-based on the whole circumstances of the case to protect the interest of beneficiaries in that asset.
The importance of making a will
The Court of Appeal’s decision might seem unjust in denying the deceased’s partner of 10 years any entitlement to his estate, but it demonstrates how important it is for unmarried or cohabiting couples to make a will.
Although the facts of this decision are specific to the circumstances surrounding the business deal and the fact that Dr Kahrmann’s estate was domiciled in Germany, the decision demonstrates that the courts can find a constructive trust to give a proprietary basis to trace the proceeds in equity.
Ms Harrison-Morgan has announced that she intends to appeal this decision to the Supreme Court.
If Dr Kahrmann had been domiciled in England or Wales instead of Germany, Ms Harrison-Morgan may have had a stronger claim as a cohabitee with a beneficial interest in the property. Alternatively, she might have been able to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 for provision from his estate.