Financial Matters – What happens to the Family Home when couples get divorced?

Our family team look at the options which need to be considered when separating couples deal with the family home.

Typically, the biggest asset of any marriage is the family home, and many disputes can arise when trying to agree the best way to settle the dispute. There are a number of options that would need to be considered with your partner when determining the fairest solution in resolving matters regarding the family home.

Here at Thompson Smith and Puxon, we have identified the three most common options available to individuals when determining the best outcome for the property.

Sale of the Property

A sale of the property is where you and your partner have agreed to place the property on the market for sale and the property is therefore sold. After the deduction of any mortgage, Estate Agents fees, and conveyancing fees, the remaining balance (commonly known as the ‘net proceeds of sale’) will then be divided between your partner and yourself.

The sale of the property is typically the easiest option, as both you and your partner will both receive a lump sum payment, therefore allowing both parties to purchase alternative properties following the sale.

Sometimes a sale is the only option, especially if neither you nor your partner are able to release the other from the existing mortgage and pay them a lump sum in recognition of their legal interest.

One disadvantage of proceeding with a sale is that you, theoretically, do not maximise the equity due to having to pay for high Estate Agents fees and conveyancing fees.

Transfer of Ownership

A transfer of ownership is where the property is transferred from you and your partner’s joint legal names to either of your sole legal name, or jointly with another. In turn, the other will be released from the existing mortgage and will receive a lump sum payment in recognition of their interest in the property.

When considering whether a transfer would be achievable, you would first need to speak to your current lender or a Mortgage Advisor to ascertain whether you could raise sufficient funds to release your partner from your current mortgage and pay them a lump sum in accordance with their agreed interest in the property.

It is important that once you have agreed a lump sum with your partner that you do not pay them any funds at the point of agreement or at the point of the Court sealing the Order. It is important that any agreed sum is paid simultaneously upon completion of the transfer.

In comparison to a sale of the property, you can maximise the equity in the property, as you do not have to consider any Estate Agents fees and/or high conveyancing costs.

Mesher Order (also known as Order with Charge Back)

A Mesher Order is a mixture of the above two options, whereby the primary carer of the children remains in the property with the children until one of a number of “triggering events” have occurred. Subsequently, the property is then sold and the net proceeds of sale are divided in accordance with a previous agreement.

Ideally, you or your partner would be released from the existing mortgage and a legal charge would be secured against the property to register your interest for the future. This would ensure that the party released from the mortgage is protected in the future and, once the property is sold, that they will receive the correct funds.

Unfortunately, a party cannot always be released from the mortgage and therefore they will need to remain on the mortgage until the property is sold at a later date. This can cause issues, especially if the individual excluded from the property wishes to try and purchase an alternative property.

A disadvantage of a Mesher Order is the party excluded from remaining in the property will have to receive a delayed payment, which could be a significant period of time; however, as their payment would be recorded as a percentage, then they will also benefit any increase in the value of the property during any period prior to sale.

A Mesher Order is not always appropriate and therefore it is important to speak to a Solicitor about whether this option would be suitable in your circumstances.