Divorce rates in individuals aged over 50 have increased over the past 20 years, with suggestions that social and economic changes have had a direct impact on the decision to divorce as people are now living longer, working for longer and many are able to maintain financial independence outside of a marriage.
Figures collated from 1993 onwards show that whilst the proportion of marriages ending in divorce for those aged 49 and under has either remained the same or decreased, for those aged 50 and over they have increased each year. B P Collins’ family team explores one of the biggest issues when going through a divorce – how to deal with a mortgage you hold with your former spouse.
The importance of independent legal advice
Naturally, most people want to ensure that their divorce and any financial negotiations arising from it are as amicable as possible, particularly when the marriage has been long and they have children together.
The assets involved within a marriage can often be complex and it is essential that each party takes independent legal advice to understand their rights and responsibilities and make informed choices. Family lawyers also collaborate with other professional experts, such as specialist pension actuaries, forensic and tax accountants. This is to help provide the best possible advice when splitting complex assets such as pensions, and businesses, make sure that a fair and realistic value is attributed to them, and they are split in a way that maximises their value for the benefit of both parties. These things may be overlooked should couples opt to divide their financial assets on an informal basis.
Many couples might also not appreciate that whilst a divorce legally dissolves their marriage, the financial settlement is dealt with separately. Without a final financial order, parties leave themselves open to claims against their assets in the future, meaning that should a business that was created or developed during the marriage continue to grow, pension assets increase, or one party inherits a large sum of money, claims against these assets following separation remain open.
What happens to the former family home on divorce?
There are various ways to deal with the former family home following divorce. It is ordinarily one of the most valuable assets within the marriage and in the vast majority of cases viewed as a marital asset, the value of which is to be shared between the parties. Whilst each case is fact specific, the Court will want to ensure that both parties’ reasonable housing needs are met and in order to do so, the following options can be considered:
(a) Selling up and moving out
For many couples, the former family home has often been their long-term home and it is a daunting prospect to consider having to sell the property and effectively start again.
It is always beneficial to obtain a market appraisal from an independent estate agent to ascertain the estimated market value of the property. Be careful not to speak with too many agents initially however as you and your ex may need to instruct agents jointly to appraise the property and they may no longer be viewed as being impartial if they’ve already advised you on your own. If the property is subject to a mortgage, it is also helpful to request an up-to-date redemption statement and check whether there are any early repayment penalties or other fees to consider; this will then allow you to calculate the net equity in the property.
It is important to research alternative properties to understand the kind of property that meets your needs and would also meet those of your ex, the location you wish to move to and the price of such properties. You also need to speak to a mortgage broker to find out what your mortgage capacity is and work out the parameters of your borrowing ability at a rate that is affordable to you on a monthly basis.
In the current climate, we are also seeing parties negotiate over who gets to port the existing mortgage product – if you’ve been lucky enough to have secured a low-rate long term fixed period with a current lender, you’re not going to want to lose this if there’s a way of keeping it. It’s worth checking with your lender as to whether they will allow you to port the existing mortgage, whether the size of the mortgage is affordable to either one of you and whether it works in your particular circumstances to maintain borrowing at that level.
Whilst the starting position of the Court when ascertaining how best to divide matrimonial assets following a long marriage is to provide equality, the Court’s primary concern is to ensure that both parties’ needs are met following their divorce, which includes both their income and housing needs. This provides flexibility in negotiations where parties have significant differences in their earning and mortgage capacity and is an additional benefit of instructing a family lawyer to advise you throughout the process.
(b) Transfer of mortgage
Many individuals, and particularly those choosing to divorce in later life, may wish to remain in the comfort of the former family home following their divorce by having it transferred to them and releasing the other party from the legal title and mortgage (if applicable), in exchange for a cash lump sum.
It is important that before agreeing this option, you check that the party wanting to remain in the property has the financial ability to pay all the household outgoings and can take on the entirety of the mortgage. If this is applicable, check with the existing lender that they will allow the leaving party to come off the mortgage and for the property to be transferred, and also consult an independent mortgage broker in case remortgaging is a better way forward. Equity release mortgages have also become increasingly popular for those divorcing later in life as a way to achieve a fair split but with one party retaining the family home.
Ordinarily, the party retaining the former family home would provide the other party with a lump sum payment in consideration for their equity in the property, although this is dependent upon the other capital assets in the matter and whether their share in the property could be offset with assets. When considering offsetting, it’s important to check that you are not overvaluing the other assets, and that tax, utility and risk are taken into account – again, this is why having independent legal advice is important.
Be aware that where one party retains the former family home and releases the other from the legal title and any associated mortgage, it is a formal process and requires a conveyancer just as a remortgage or house sale/purchase does.
(c) Both parties remain on the title deeds & mortgage
In some cases, the decision is made for one party to retain the former family home with the other moving out but whilst remaining a legal owner, and a party to the mortgage.
This option is common in situations where the parties have had an imbalance of income during the marriage and the party that wishes to retain the former family home is not able to take on the existing mortgage based on their sole earnings, and there is no other way of meeting their housing needs (especially if there are also children or other dependents living at the property). Ordinarily, the party remaining in the property would indemnify the other in respect of the mortgage payments and the household outgoings.
Advantages of proceeding in this way is that if the market has taken a downturn or if there is a significant early repayment penalty which would be detrimental, it allows breathing space and time to maximise the sale proceeds. It can also provide stability during a period of difficulty and adjustment, particularly if they have children who are revising for key exams.
However, this option does not free the parties from any future financial ties which is the Court’s preference following divorce. There is also a financial risk to both parties, as whilst one party may be indemnifying the other in relation to the mortgage and the household outgoings, both parties remain party to the mortgage and are therefore jointly and severally liable for those payments, regardless of whether they live at the property. This presents a risk to credit rating, should the paying party default on monthly payments.
Dependent upon the parties’ assets, another clear disadvantage is likely to be that the majority of capital from the marriage is tied up in the property for a number of years. If this is the case, it could impede their ability to rehouse in an owner occupied property, not least because it’s unlikely they could secure a second mortgage whilst they remain party to the mortgage secured against the family home.
It is also important to get tax advice from a specialist accountant when proceeding in this way, as whilst the rules surrounding Capital Gains Tax upon divorce have recently been made much more favourable to parties, this option may still pose tax consequences.
What if I am not on the title deeds?
There is a common misconception that if you are not on the legal title of the matrimonial home, you do not have an interest in it and are not entitled to a share the net sale proceeds, regardless of being married. This is untrue.
If the property is owned by only one party but has been lived in as the matrimonial home, it is very likely to be considered a matrimonial asset available for sharing.
If you are the party that is not named on the legal title of the property, it is essential that you seek independent legal advice as to how to protect your interest in the property – ordinarily done by way of registering a Matrimonial Homes Right Notice against the property at the Land Registry. Once registered, the spouse’s right to occupy the property is recorded on the title and anyone trying to buy the property, or lend against it, would be alerted. This normally stops a transaction in its tracks. However, this is not a long term solution and only provides protection until the final order of divorce is granted.
Looking to the future
There is no one size fits all approach to take when divorcing in later life and it is very much dependent upon your circumstances and needs. Whilst the above provides various options that are available to parties, it is important to take independent legal advice that is tailored to your circumstances, enabling you to make informed decisions moving forward.
If you’d like to find out more, please email the family team at enquiries@bpcollins.co.uk or call 01753 889995.
