Couples facing separation or divorce encounter numerous financial challenges. And among the most daunting and time-sensitive is handling a property owned through a joint mortgage.
With joint mortgage agreements, both parties remain legally responsible for the mortgage payments, even if one partner moves out and incurs additional housing costs, such as rent.
This shift from supporting the expenses of a single household to supporting two; inevitably puts a strain on incomes. Therefore, it is crucial to reach an agreement promptly on how the mortgage payments will be managed in the short term. Failure to make timely payments could adversely affect the credit scores of both individuals.
If there is a risk of missing payments, it is advisable to communicate with the mortgage lender. You could explore the possibility of arranging a payment holiday or transitioning to interest-only payments while resolving the financial matters.
What to do with the family home during a divorce?
Reaching a financial settlement in a divorce involves considering all financial aspects, including assets, income, and pensions. This process typically takes several months, ranging from six to nine months. But it can extend even longer if court proceedings are necessary.
- For most couples, resolving housing matters becomes a top priority, especially when children are involved. Dealing with the family home, particularly if it has a mortgage, presents several options:
Selling the house and using the proceeds to pay off the mortgage before dividing the remaining funds. - Retaining the house in joint names with a joint mortgage and agreeing to sell it at a later date. This option is usually considered in specific circumstances. Such as when there are children involved, and the intention is to maintain the house as their residence. It might also be chosen if the mortgage is nearing its end or if one partner cannot secure a mortgage individually to find alternative housing.
- One partner buying out the other’s interest in the house and obtaining sole ownership by releasing them from the mortgage.
The best course of action varies in each case. Depending on the unique circumstances of the individuals involved, and should always be discussed with legal professionals.
What happens to the home and mortgage when there are young children to consider?
When young children are involved, the law mandates that courts prioritise their housing needs following their parents’ separation and divorce. Often, the objective is to maintain the family home as a residence for the children with one of their parents. This approach aims to minimise additional disruptions in the children’s lives as they adapt to their parents’ separation.
In some cases, this arrangement may be due to one partner’s inability to secure a new mortgage to purchase a different home independently, but they can take over the existing mortgage.
It is usually crucial for both parents to have suitable homes where the children can stay, especially as shared care arrangements are becoming more common. This requires figuring out how to fund two homes from the same pool of resources.
Although there is no legal presumption that both parents should own a house, it could be deemed unfair if the assets are not distributed in a manner that allows both parties to own a home if they wish to and if it is a feasible option. Ensuring equitable living arrangements for both parents becomes a significant consideration in such cases.
Splitting the equity
This involves assessing the individual mortgage borrowing capacity of both parties and determining how much equity from the house and other savings each one needs to become a homeowner.
Sometimes, the financial calculations may seem challenging to achieve at first glance, but with expert legal and financial advice, careful planning, and negotiation, viable solutions can often be found.
Even if only one partner’s name is on the mortgage, the house is still considered a matrimonial asset and might need to be sold to facilitate equitable distribution of the equity.
Alternatively, if the partner with the existing mortgage wishes to retain the house, they must explore the possibility of increasing the mortgage to provide a cash lump sum to the other partner. Alternatively, they may consider transferring other savings or investments as part of the settlement. When a mortgage is involved in the family home, it is crucial to seek independent legal and financial advice at the earliest opportunity. Specialist family lawyers are well-versed in all the considerations necessary for such situations. They will often collaborate with financial advisers to find the most suitable solutions and outcomes for each individual’s circumstances. Contact our team today on 01634 96811 or book your appointment online.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount will depend upon your circumstances.
The fee is up to 1% but a typical fee is £598.
This article is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.
