Divorce can have a dramatic effect on a family’s financial situation, as the pool of money available moves from providing for one household to having to provide for two.
The family home is very often the main asset to consider on divorce. Can it be retained, and if so by whom, or will it need to be sold in order to arrive at a fair outcome?
Alongside the home is the consideration of the mortgage. This might be at a preferential rate that one or other of the couple are anxious not to lose. It might carry with it a significant redemption penalty that will be triggered on a sale, which the couple are keen to avoid incurring.
Various options are routinely explored. A few are set out below.
1. Consider selling
Very often neither party will wish to retain the home on divorce. It may hold too many bad memories for them or it might be that retaining the property is simply unaffordable. If the couple can agree then it is best to follow the advice of a selling agent and put the property on the market at a price and a time that they would recommend to achieve the best possible price.
If there is going to be a sale, it can often be important that the agent is instructed to hold onto the proceeds until an overall financial agreement is reached between the couple. Sometimes, the couple will agree that a limited amount of should be released to each of them at the outset just to tide them over whilst the treatment of balance is negotiated.
If you have to sell your home consider the redemption penalty and make sure this is factored into negotiations. You should also be careful not to disregard the costs of sale such as agents’ costs and conveyancing solicitors fees, which are often notionally included at 3% before the sale has occurred.
2. Consider buying out your spouse
This solution is sometimes looked at if one party has a particular attachment to the property. You often see this as well if the house has to be retained because its size is needed to accommodate the children and it is within a short distance of schools, for example. Affordability is often the key consideration here and it will depend on the other assets the couple have and the ability of the spouse looking to retain the property to borrow. Advice should be sought from a mortgage specialist in conjunction with your divorce solicitor to ensure that the right combination between mortgage and equity is arrived at in order to fund the appropriate settlement.
3. Consider deferring a sale for the children
Sometimes the only solution will be to defer a sale until a time in the future, for example when the youngest child is 18 or 21 or finishes full time education. This tends to happen most when the main carer for the children cannot afford to buy out their spouse but it is quite clear that they could not find nor afford another property nearly as appropriate as the family home to raise the children in. In this situation, the non-occupying spouse will remain named on the title deeds and the mortgage, but the spouse remaining in the home will agree to meet the mortgage payments month on month until it is sold. There is often a belief that this prevents the non-occupying spouse from purchasing another property themselves, however we are finding that the mortgage market is adjusting to this arrangement and that more high street lenders are open to providing a second mortgage to the non-occupying spouse on this basis.
Another option to consider is the occupying spouse being transferred the property and re-mortgaging, but subject to a charge providing the non-occupying spouse with a settlement amount at some agreed point in the future.
4. Consider deferring a sale of other reasons
Very occasionally a sale may be deferred for reasons other than the children. For example, the property might have the potential of attracting a high income yield that neither party wishes to lose. The property could well be in negative equity and a plan might be agreed on between the spouses to take it out of the red and into a situation that would achieve a profit for the parties on a sale. Sometimes development is looked at. Great care needs to be taken with these types of arrangements, not only to ensure that the scheme is viable, but also to make sure that one party is not being exploited by the other.
In all of these scenarios it can be vital that legal advice and representation, both to help you understand your legal rights and obligations, and to protect you from doing something unwise that you may regret.
Andrew Barton is a partner in the family team in Exeter and a Resolution Accredited Specialist in complicated financial matters arising from divorce. He regularly advises clients on divorce and financial matters. If you would like to contact Andrew, then please call 01392 210700 or email firstname.lastname@example.org.