Dealing with a mortgage in a divorce can be a daunting prospect – especially if there are children involved. There are a range of options are available in relation to the mortgage depending upon the unique situation of the two divorcing parties.
In such a complicated area, there is lots to consider when dealing with the mortgage during a divorce. We have outlined all the key points in the blog below.
The different options available
There are a number of options available to you when dealing with the mortgage during a divorce. These include the following:
- Instructing the sale of the property
The simplest option may be to sell the property, pay off the mortgage and divide the remaining equity between the two parties. However this may not be practical in many cases, particularly if one party (or your children) want to keep living in the property, or you want to minimise family disruption.
- Transfer ownership to one party
As part of the financial settlement the value of the house can be included and ownership transferred to one party. The party who transferred ownership retains a stake or ‘interest’ in the property meaning that when it is sold, they will be paid a proportion of its selling price. Ownership can also be transfer to a child/children.
- One party buys out the other
Under this option one party buys out the other based on the current market price of the property and their initial equity stake. The purchaser can then remain in the property or choose to do with it what they wish. This is subject to the mortgage lender agreeing and loaning more capital to the party who will retain ownership.
- One party stays but both parties remain owners
Under this option there is no change to the mortgage set-up and repayments continue but only one party remains in the property. This is most common if the couple has children who want to remain in the home as it minimises disruption and provides some stability. This option can be formalised through the court system though a so-called ‘Mesher Order’ which mandates that the property cannot be sold until a certain event, such as a child turns 18 or leaves school.
- Settle in court
If no agreement can be reached, the case can be sent to court to be ruled on by a judge. In such cases the judge usually prioritises the option that minimises disruption to the children in a relationship.
Deciding which option is best will come down to the individuals, their mortgage position and their distinct financial circumstances.
Coming to an agreement
Reaching a mutually agreeable solution is usually the best option, especially for couples with children. It avoids the need for a court hearing which adds time, financial costs and uncertainty and may lead to a deterioration in communication between the two parties.
If the parties do reach agreement, depending on which option is sought this can be actioned informally or codified formerly in a financial or legal settlement, if applicable. As some options need consent from the mortgage provider, it is advisable to speak with them at the earliest opportunity to explain the situation and understand the possibilities available. Providers are normally compassionate in such situations and will try to offer viable solutions, such as a payment holiday whilst the two parties try to reach an agreement.
How do the courts decide who gets the house if we disagree?
In the event an agreement cannot be reached, the court will determine how the property should be treated. If there are children involved, especially young children, their need to have a suitable place to live will be prioritised. The judge will typically seek to minimise disruption to any children which would be associated with forcing them to move. The financial circumstances of both parties is also assessed. A 50/50 split resulting from a court case is unusual you should bear this in mind when deciding on what to do.
The outcome will vary in each case depending on the circumstances of the parties involve. There are also somewhat different approaches in England and Wales, Scotland and Northern Ireland which will have a bearing on the outcome. This is why it is extremely important to engage suitable advice at an early stage.
The importance of getting qualified advice
Mortgages and divorce settlements in isolation are complicated enough but when combined together the level of complexity increases significantly. Every situation is different and thus it is essential to use qualified expert advice to assist in considering the options and resolve the issues in each unique case. Doing so will help to ensure the best settlement for all involved is reached.
Expert advice can assist to determine which option is right for you taking into account your circumstances. A qualified professional can help to explore options for the mortgage, the advantages and disadvantages of different routes and the factors to consider if the case goes to court. Seeking such advice as early in the process as possible is prudent.
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