35 THE AMERICAN LAW INSTITUTE Continuing Legal Education Real Estate Co-Owned by Unmarried Couples: Handling Contemporary Legal Issues April 14, 2015 Telephone Seminar/Audio Webcast Unmarried Couples and Property Ownership By Patricia A. Cain Santa Clara University School of Law Santa Clara, California 36 Real Estate Co-owned by Unmarried Couples: Handling Contemporary Legal Issues Prepared by: Patricia A. Cain, Professor of Law, Santa Clara University, April 2015 I. INTRODUCTION: WHO ARE UNMARRIED COUPLES? Unmarried couples may include committed couples who are spousal equivalents, whether opposite sex or same sex. According to 2014, Census data, there are almost 8 million opposite sex unmarried couples who are living together. The Census figures for unmarried same-sex couples are less reliable, but the estimate is that there are just over 500,000 such couples. For purposes of federal law, Registered Domestic Partners (RDPs) and Civil Union Partners (CUPs) are treated as unmarried couples, even though they are virtually treated as married at the state level. This difference in treatment can cause some complexity regarding tax issues. Couples choose not to marry for a variety of reasons. Some couples are philosophically opposed to marriage and, although their commitment to each other is as deep as many married couples, they choose not to marry as a matter of conscience. Other couples choose not to marry because they don't wish to be governed by the state's marriage contract which includes obligations of support and property sharing. And, some couples opt to cohabit rather than marry in order to avoid the so-called marriage tax penalty. Still other couples choose to cohabit as a trial run for later marriage. II. Who owns the Real Estate? A. Title in One Partner Only/ Legal Theories that Support Ownership Claims by Other Partner: 1. Express Written Contract E.g., Relationship Contracts, Living Together Contracts, or Buy-Sell Agreements with respect to purchased property. After Marvin v Marvin, 557 P.2d 106 (Calif. 1976), most states are willing to enforce such contracts even though before 1976 courts might not have enforced cohabitation contracts because they were viewed as being against public policy. To the extent the contract is founded on promises of sex, the contract will not be enforced. But any such provision in an express contract can generally be severed thereby saving the rest of the contract. See Whorton v. Dillingham, 202 Cal.App.3d 447 (1988). 2. Express Oral Contract See Ireland v. Flanagan, 627 P.2d 496 (Ore. Ct. App. 1981)(upholding oral agreement between lesbians to share property despite fact that property was held in sole name of one partner); Morone v. Morone, 413 N.E.2d 1154 (N.Y. 1980)(refusing to recognized claim based on implied contract, but approving claims based on express oral contract); Kinkenon v. Hue, 301 N.W.2d 77 (Neb. 1981)(oral contract enforced); Dominguez v. Cruz, 617 P.2d 1322 (N.M. Ct.App.1980)(valid oral contract). 3. Implied Contract 1 37 A contract can sometimes be implied from mere fact of cohabitation and pooling of assets, even though there is no joint ownership of property. See Marvin v Marvin, 557 P.2d 106 (Calif. 1976)(first case to approve a claim based on implied contract; the plaintiff, however, failed to prove the existence of any contract upon remand). See also Cook v. Cook, 691 P.2d 664 (Ariz. 1984); Glasgo v. Glasgo, 410 N.E.2d 1325 (Ind. Ct. App. 1980); Wilcox v. Trautz, 693 N.E.2d 141 (Mass. 1998); Hay v. Hay, 678 P.2d 672 (Nev. 1984); Kozlowski v. Kozlowski, 403 A.2d 902 (N.J. 1979); Knauer v. Knauer, 470 A.2d 553 (Pa. Super. Ct. 1983); Matter of Estate of Steffes, 290 N.W.2d 697 (Wisc. 1980);. Boland v. Catalano, 521 A.2d 142 (Conn. 1987)(heterosexual cohabitants; property claims of plaintiff recognized despite fact that realty was in separate name of defendant and couple maintained separate accounts). 4. Partnership Implied partnerships are no different from implied contracts to share ownership rights and gains from property. See, e.g., Carroll v. Lee, 712 P.2d 923 (Ariz. 1986)(heterosexual cohabitants; court held on the basis of joint ownership of property and cohabitation that the parties had an "implied partnership or joint enterprise agreement.") 5. Unjust Enrichment. "Unlike claims for breach of an express or implied in fact contract, a claim of unjust enrichment does not arise out of an agreement entered into by the parties. Rather, an action for recovery based upon unjust enrichment is grounded on the moral principle that one who has received a benefit has a duty to make restitution where retaining such a benefit would be unjust. ... Because no express or implied in fact agreement exists between the parties, recovery based upon unjust enrichment is sometimes referred to as "quasi contract," or contract "implied in law" rather than "implied in fact." Quasi contracts are obligations created by law to prevent injustice." Watts v. Watts, 405 N.W.2d 303, 313 (Wis. 1987) (heterosexual cohabitants; opinion by Abrahamson clearly explaining various theories of recovery); Kinnison v. Kinnison, 627 P.2d 594 (Wyo.1981) 6. Quantum Meruit Quantum meruit is an alternative claim to implied contract. It is a restitutionary remedy measured by the reasonable value of services rendered. It requires proof of benefit to defendant and loss to plaintiff and a judicial finding that it would be unjust to allow the defendant to retain the benefit. It is not based on an express or implied agreement for payment for services. Kinnison v. Kinnison, 627 P.2d 594 (Wyo.1981). See, e.g., Poe v. Levy, 411 So.2d 253 (Fla. App. 1982)(court refused to recognize quantum meruit claim based solely on heterosexual cohabitant's allegation that there was an agreement to pay for the services; facts alleged suggested contract claim). 7. Constructive Trust 2 38 A constructive trust is an equitable device created by law to prevent unjust enrichment. ... To state a claim on the theory of constructive trust the complaint must state facts sufficient to show (1) unjust enrichment and (2) abuse of a confidential relationship or some other form of unconscionable conduct. The latter element can be inferred from allegations in the complaint which show, for example, a family relationship, a close personal relationship, or the parties' mutual trust. Watts, 405 N.W.2d 303, 314 8. Resulting Trust A "resulting trust" occurs when one partner advances money to purchase property in the name of the other partner. The money must be advanced before or at the time the legal title to the property is acquired. A resulting trust cannot arise from matters coming into existence afterwards. See Slocum v. Hammond, 346 N.W.2d 485 (Iowa 1984)(heterosexual cohabitants; relief denied because lack of proof). 9. Partitioning Jointly Owned Property Partition may be both a statutory remedy and a common law remedy. See, e.g., Watts v. Watts, 405 N.W.2d 303 (Wis. 1987)(recognizing both statutory and common law partition rights). Any co-owner of property has the right to request a partition. Generally if the property cannot be partitioned in kind, the court will order a partition sale and split the proceeds. 10. Equitable Division under Divorce Statutes In a case involving heterosexual cohabitants, the Washington court of appeals has held that the statute providing guidelines for property division upon dissolution of marriage, legal separation, etc., can also be applied to divide property acquired by unmarried cohabitants in what was "tantamount to a marital family except for a legal marriage." Warden v. Warden, 36 Wash.App. 693, 676 P.2d 1037 (1984). The rules for dividing property acquired during a meretricious relationship were clarified in Connell v. Francisco, 898 P.2d 831 (Wash. 1995)(only property acquired during the relationship may be divided between the parties, as though it were community property). In Washington, these rights have been extended to same-sex cohabitating couples. See Gormley v. Robertson, 83 P.3d 1042 (Wash. App. 2004)(equitable distribution when couple split up). Recently, this principle has been applied to vest 50% of property held at death by one cohabitant in the estate of the other cohabitant. See Olver v Fowler, 168 P.3d 348 (Wash. 2007)(opposite sex couple killed in automobile accident; property acquired during cohabitation was treated as owned equally by them at the moment of death so that only half of the property was administered in the estate of the male title holder). NOTE: The Washington courts now refer to these relationships as “committed intimate relationships,” whereas they were originally called “meretricious relationships.” 3