Property, marriage and financial safeguarding – a complicated state of affairs

You may remember our last scenario, ‘When the in laws become the out laws’. Harry and Wendy had two children Janet and John, and they are now entering into relationships and moving on with their lives.

Setting the scene:

Janet has met Paula. They decide to buy a property together and get married in six months’ time.

Harry and Wendy are delighted but concerned over how quickly things are moving, and that Paula may benefit from inheritance from the family should the marriage break down in future.

John has met Claire, a single mum recently divorced. John agrees to move in with Claire to help with the bills as her ex-husband is being difficult about maintenance payments for the daughter.

Harry and Wendy are also delighted but concerned John’s career is no longer a priority. They worry that John may invest in Claire’s house by funding improvements without any regard to what may happen if their relationship breaks down.

The property purchase

Janet and Paula were delighted that they had found a property within their price range and agreed a purchase price of £230,000. Janet and Paula approached a mortgage company who agreed to lend them the money that they required to purchase the property.

Janet was able to draw down funds on her LISA (a government funding scheme) which amounted to their 10% deposit of £25,000. Paula had £35,000 – a legacy left to her from her late grandmother’s estate.

The couple instructed a valuation by the mortgage company and a full structural survey of the 80-year-old property. The report highlighted Japanese knotweed being present in the garden of the property and noted it as ‘requiring urgent attention’. Janet and Paula had not heard of this before and therefore brought it to the attention of their solicitor.

As the property was being sold by the executors of the estate of the owner, the executors were unable to advise whether the owner had known about the existence of Japanese knotweed and if any steps had been taken to eradicate it. A specialist then advised that Japanese knotweed must be stopped from spreading off the property; whilst the property owner does not have a legal obligation to remove it from their land – unless it is causing a nuisance – they can still be prosecuted for causing it to spread into the wild. If Japanese knotweed spreads from one property to another, the relevant law is that of private nuisance.

A private nuisance is an act or omission which is an interference with, disturbance of or annoyance to a person in the exercise or enjoyment of his ownership or occupation of land.  The property was situated close to other properties and the couple did not want to be responsible for the spread of this and risk a dispute with their potential neighbours. Their solicitor advised that the mortgage company would insist upon implementing a management plan/eradication programme before considering lending funds on the property.

Janet and Paula took further advice as to how much it would cost to have the Japanese knotweed removed from a specialist removal firm. They were advised that an eradication programme would be necessary, costing around £10,000 and would be guaranteed for removal for a 10-year period.  After consulting with their solicitor, they approached the estate agent and agreed a reduction in purchase price for the cost of the programme and asked their solicitor to write to their mortgage company for approval. The mortgage company noted the reduction in purchase price and agreed to lend funds with the agreement that the programme was in place immediately.

The property was legally theirs, and the purchase of the property moved forward on this basis.

John’s employment situation

As a result of his new relationship with Claire, John’s work focus has waned and his sales performance has fallen below target for the last six months. His employer requests a disciplinary meeting which may lead to the termination of his employment.

Simultaneously, they send him a letter headed ‘without prejudice’ which makes a proposal for the termination of his employment, whereby they would pay him in lieu of his three months’ contractual notice period, with an additional one month’s pay tax-free, as compensation for loss of employment. The condition is that he signs a settlement agreement which means he will not be able to pursue any claim against the company arising from his employment. They also offer to contribute £300 plus VAT towards the legal fees he will incur in seeking independent legal advice on the settlement agreement.

John seeks advice from employment lawyers who suggest that, although poor performance at work can give an employer lawful ground to take disciplinary action, in this case the company seems to be taking a harsh line by suggesting that termination of employment is a potential outcome of the performance management process. They advise that performance or capability issues should normally be handled by giving no more than a formal warning in the first instance, and that this should be accompanied by appropriate support and, if necessary, training, to help an under-performing employee reach the necessary performance standards. Whilst the outcome of the process is unclear, the fact that the employer is already offering an exit package is quite a clear hint. This situation therefore gives John the opportunity to negotiate a better exit package than what is offered. They advise that a fair and lawful disciplinary process would probably take at least three to six months to complete, before a fair dismissal could be achieved, unless the employer wishes to risk an unfair dismissal claim.

They also advise that the employer has been wrongly calculating John’s holiday pay since the beginning of his employment. Since he earns regular sales commission on top of his basic salary, the law states that the first 20 days of his entitlement to annual holiday and pay should consider his regular commission, not just basic salary. Therefore, he has an unlawful deduction from wages claim that can be backdated for two years, on top of any compensation for a potential unfair dismissal if the company does dismiss him.

John instructs his lawyer to negotiate with the company over an improved exit package; this results in a significantly increased package, to include:

• Three months’ contractual notice pay
• an ex-gratia tax free payment of four months’ salary
• compensation for the two years’ holiday pay shortfall
• an increased contribution to his legal fees of £750 plus VAT
• an agreed employment reference

This package enables John to take a couple of months off work to concentrate on helping Claire through her difficulties with her ex-husband, before starting afresh in a new sales role with renewed focus and enthusiasm.

Harry’s will

Harry and Sally plan to live together in his house; having previously been bitten by the financial cost of divorce, Harry wants to tighten his will to ensure that what he owns reaches Janet and John on his death. He also wants to ensure Wendy does not inherit anything else from him, and is considering bringing Sally into his will, though uncertain on the legalities.

Harry’s existing will remains valid, but Wendy is treated as having died on the date of the decree absolute. Harry feels assured about this. Nevertheless, as he is still paying maintenance to Wendy until her pensions become payable, Wendy may be able to bring a claim against his estate if Harry has not made provision under his will or otherwise. This could be avoided by Harry taking out a term assurance policy to cover the amount of maintenance and the time left until Wendy’s pensions become payable.

A new will is being drafted to include a life interest trust of his house for Sally, meaning that Sally can continue living at their home (owned in the sole name of Harry) until she dies. On Sally’s death, the property reverts to Harry’s will, benefitting Janet and John. The will trust is drafted so that Sally can move house during her lifetime if she wishes and therefore has flexibility built in. This arrangement could cause implications for Sally’s estate if her estate is likely to be subject to inheritance tax, however Harry feels that this is unlikely as Sally has very few assets in her own right and therefore is happy to proceed. In view of Sally’s limited finances, Harry updates his pension nominations to include shares to Sally, Janet and John, enabling Sally to continue living in his house and to pay all of the liabilities relating to the property.

Janet and John’s family financial safeguarding options

Janet has a modest but comfortable saving pot and a good job with prospects. Paula is similarly placed but without the backing of a wealthy family. Janet’s parents have indicated they are keen to gift Janet a decent sum of money to enable Janet and Paula to extend their new home and to refurbish it, but expect Janet to safeguard this gift, and any subsequent gifts of note from them in the future, from Paula, should they split. Harry urges Janet to seek advice on pre-nuptial agreements; Wendy is sceptical as they are not legally binding in England and Wales.

Janet receives advice and no longer feels that such an agreement would automatically offend Paula’s sensibilities. She is suitably reassured that any agreement must be fair in any event if it is to have a reasonable prospect of being upheld in the event of the end of the marriage.

Paula is pragmatic in her response to Janet’s suggestion that:

• Her (Janet’s) lawyer will prepare an initial draft and Paula should get it looked at by her own lawyer. Her lawyer will have to give Paula, and also certify that she has done so, advice on the nature of and implications of the agreement
• They will both give full current financial disclosure – to include on Janet’s part an acknowledgement and best estimate of her inheritance expectations
• The agreement will be properly negotiated and ensure that Paula’s reasonable needs, as well as her own, will be provided for in the event of a divorce, together with any children they may have in the future
• It should be signed off as long before the wedding as possible – certainly no less than 28 days before

Janet stresses that the main thrust of the agreement – aside from the fact they will each retain what they bring into the marriage and what they may inherit during – is that if an asset is not covered within the definition of either pre or post marital property contained in the agreement, it will be shared equally between them in the event of a divorce.

Paula understands that any property, including savings built up during the marriage from anything other than their pre and post separate property and any income built up from their earned income during the marriage, will constitute as joint property and will be shared equally. Janet shares the advice she has received namely that an attempt to exclude the sharing principle in so far as it relates to marital acquest and jointly earned income may render the agreement unfair and therefore unenforceable.

They both resolve to keep their conveyancing solicitor in the loop and to make wills in contemplation of their marriage which deal with their wishes in their current happy state, safe in the knowledge that this will not undermine any pre-nuptial agreement.

Meanwhile John is not so sensible. He pours scorn on the suggestion that he and Claire consider a cohabitation agreement to keep their finances together tidy and controlled. Claire starts consulting architects and builders, and John opens his bank account. John is only interested in the ‘here and now’. Janet and Paula roll their eyes and wait to say, “we told you so”.