What options do divorcing couples have when it comes to joint mortgages and their family home? Legal expert Nicky Hunter explains more
There are many financial challenges facing couples who are separating or divorcing. But one of the most difficult, and often most pressing, is how to deal with a property which is owned with a joint mortgage.
The joint nature of mortgage agreements means that both parties will remain legally responsible for paying the mortgage, even if one of them moves out of the house and has other housing costs, such as rent, to meet.
Inevitably, incomes that previously supported the outgoings of just one household will be more stretched by having to meet the costs of two, so it is important to reach an agreement as soon as possible about how the mortgage payments are going to be paid in the short term. Indeed, any default on the monthly payments will affect the credit score of both partners.
If there is any risk of missing payments, you should speak to your mortgage lender and see if it is possible to agree a payment holiday, or switch to interest only payments while the financial issues are sorted out.
What to do with the family home during a divorce?
Since all financial issues – assets, income and pensions all need to be taken into account in reaching a financial settlement, it can take many months – usually at least six to nine months, sometimes even twice as long if court proceedings are needed – to resolve the financial issues on divorce.
For most couples, housing will be the first priority to resolve, and this can be more complicated when there are children in the family.
The main options for dealing with the family home if it has a mortgage are:
- Sell the house and pay off the mortgage before dividing up the sale proceed
- Keep the house in joint names and with a joint mortgage on the understanding it will be sold at a later date. Because this option keeps a couple financially tied together for some time after they have separated, it is usually only considered in certain circumstances. This could be when there are children of the family and the intention is to preserve the house as a home for them. Sometimes until the youngest child finishes secondary education, when the mortgage is close to the end of its term or when one partner is unable to take out a mortgage on their own and would not otherwise be able to house themselves.
- One couple buys out their ex-partner’s interest in the house and secures their release from the mortgage, with the house then being transferred into their name as a sole owner.
There is no one answer as to what is the best route to take, as in every case it depends on individual circumstances.
What happens to the home and mortgage when there are young children to consider?
Where there are minor children, however, the law requires the courts to give first thought to how they will be housed following their parents’ separation and divorce.
Often this means trying to maintain the house as a home for them with one of their parents. This can be done to minimise additional disruption to the children as they adjust to their parents separating.
It may also happen if one partner was unable to take out a new mortgage to buy a new home in their own right, but was able to take over the existing mortgage.
However, it is important that both parents have a home that is suitable for the children to stay with them and, as shared care arrangements are increasingly common, this means working out how best to fund two homes from the same ‘pot’ of resources.
There is no legal presumption that both parents should be able to live in a house that they own, but it may be considered unfair if the assets are not shared in a way that allows both parties to live in a home that they own if they wish to, and this is a realistic option.
Splitting the equity
This means looking at the mortgage borrowing capacity of both people as individuals and working out from there how much of the equity in the house and other savings each needs so that they can both own a house.
Sometimes the maths just doesn’t work, but in other cases, with expert legal and financial advice, what may not seem possible initially can be achieved with careful planning and negotiation.
If only one partner has their name on the mortgage, the house is still considered to be a matrimonial asset and may still need to be sold to allow the equity in it to be shared.
Alternatively, if the partner who already has the mortgage wants to keep the house, they will need to explore whether they can increase the mortgage to pay a cash lump sum to the other partner, unless there are other savings or investments that can be transferred instead.
Whenever there is a mortgage on the family home, it is important to seek independent legal and financial advice at the earliest opportunity.
Specialist family lawyers will be familiar with all of the issues that need to be considered and, will often work with you and your financial adviser to help you find the solutions and outcomes that are best for you.
Nicky Hunter is a partner at Stowe Family Law
