Divorce can be a difficult and emotional process, and one of the many issues that need to be addressed is the division of assets, including any mortgaged property. While the specific laws and regulations surrounding the division of assets in a divorce can vary greatly depending on the circumstances, there are some general principles that can be helpful to keep in mind when it comes to mortgaged property.
Who is responsible for the Mortgage after a divorce?
One of the key issues to consider is who will be responsible for paying the mortgage after the divorce. If both spouses are listed on the mortgage, they will both be responsible for paying it even after the divorce. If one spouse wants to keep the property and continue making the mortgage payments, they may need to refinance the mortgage in their own name. If this is not possible, the property may need to be sold to pay off the mortgage.
Going to court to divide assets in a divorce.
When it comes to the mortgaged property, the court will consider a range of factors when deciding how to divide it. These factors include the needs of any children, the income and earning capacity of each spouse, the standard of living enjoyed by the family before the divorce, and any physical or mental disabilities that either spouse may have.
The court will also consider the equity in the property when dividing assets. Equity is the difference between the value of the property and the amount of the mortgage that is still owed. If the property has significant equity, this may be taken into account when dividing assets. For example, if one spouse wants to keep the property and there is significant equity, they may need to buy out the other spouse’s share of the equity.
What to do if you can’t afford to buy out your spouse
1. Selling your marital home in order to split the equity and go your separate ways is a common solution. Though many would much prefer to stay in their home, especially if there are children involved. If you are in this position, start looking at the rental market as early as possible to find something suitable in your local area.
2. A modern trend is to ‘Birdnest’. When a couple can’t afford to buy two family properties, the market isn’t right for a sale right now, or they just want to buy some time for the children to adjust slowly to the concept, they keep the children in the home and rotate which parent stays with them. The other spouse may stay with family or friends, or they may rent or buy a second much smaller property for whichever spouse is not ‘on duty’.
Should you sell your property before or after your divorce?
If you decide to sell your home, you might wonder next whether it’s best to do this before or after the divorce has gone through. There are pros and cons to both approaches, and much will depend on your circumstances. In either case, always speak to a mortgage broker early in the process so you know where you stand. Let’s look at both options.
Pros of selling before divorce:
If you have sold your house already you know exactly what you’re working with financially for your financial agreement – you know what the house sold for and exactly how much equity you now have which makes those calculations all the more simpler because it takes the guesswork out.
If things are particularly difficult between you and your ex-partner, it might be very tempting to take the knee-jerk reaction of selling immediately. It may be the case that selling ASAP is best for your mental health and even your safety. And while a divorce *can* go through as quickly as 4 months according to the gov.uk, this is dependent on many factors – one of the biggest being meeting a financial agreement. If the circumstances aren’t straightforward or you can’t agree on the terms, then the process may take far longer. So selling your property prior to the divorce will speed up the process to the point where you will no longer be tied to each other.
Cons to selling before divorce:
If the housing market isn’t in an optimum place for you to sell you will find that you will either not get the asking price, or the process will take far longer. Selling at the right time will mean you get the most out of the sale, and when you’re trying to find two properties from one the more you can get out of your current home the better.
Pros of selling after the divorce
Waiting for the divorce to process, or the housing market to change may offer the time you both needed for things to calm down and for you to be able to more reasonably work together on the house sale. This added time might mean the difference between a knee-jerk reaction of selling the property, and a more considered one later down the line where one spouse decides it’s better to keep the family in the home they’re used to, for example.
So, while we discussed a quick house sale as good way to manage a particularly bad break up (because you will more quickly be ‘un-bonded’ from each other), there is always the chance that if you wait until the gruelling process of the divorce is behind you, you will both be in a far better headspace to sensibly approach the house sale.
Cons to selling after a divorce
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value, according to gov.uk. Married couples and civil partners can only count one property as their main home at any one time and if they sell it, it’s not usually subject to CGT.
If you have assets outside of the main residence, you do not usually have to pay Capital Gains Tax if you give, or otherwise ‘dispose of’ these to your husband, wife or civil partner before you finalise the divorce or civil partnership.
BUT, if one spouse moves out of the home and you don’t sell within that tax year (or within 9 months of the divorce agreement), then they may be liable to pay tax on their share of the gain made in the property sale.
‘Private residence relief’ is available where, in connection with a separation or divorce or dissolution of civil partnership, the leaving spouse or civil partner transfers their share of the jointly owned property to the remaining spouse or civil partner before the property is sold.
Rushed decisions often turn out to be costly decisions
– Joanne Dron
There is so much to know about the process of divorce with regard to property that the only good advice can be to try not to rush any decisions. Speak with the relevant professionals so you can act on information instead of emotions.
Relate’s mediation division works with people who have decided to separate or divorce – it offers a way of helping them to make decisions together about children, property or finance in a way that reduces conflict and costs and I urge you to speak with them if you need any support.
I’m Joanne. I’ve lived and breathed property for longer than I care to remember! This blog provides advice and support with problems surrounding property, and life in general.
Previously on the blog…
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After a Marital split, the husband in the couple had moved out and stopped paying the mortgage. Wendy's case at a glance: Husband had left and stopped paying mortgage £30,000 mortgage arrears Three autistic children meant she needed to stay where she was for...read more
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