How to deal with the family home upon divorce

For the majority of couples who experience a relationship breakdown, their main joint asset is likely to be the family home. There are different options for dealing with this asset and some may work in practice more than others. For example, if one party has the financial means to buy the other out this will always be preferable to having to sell the property.  However, one of the big stumbling blocks in recent times has been around who gets to keep the current mortgage?

The consecutive interest rate increases are adding to the financial pressures faced by separating couples, as they try to resolve their finances against a backdrop of spiralling costs and uncertainty in the market. The immediate need for any separating couple is to work out how to divide their assets and use the family income to set up two homes from the same financial resources that in the past funded just one. This can bring many challenges, but one of the most difficult, and now often most pressing, is how to deal with the existing mortgage and affordability of a new one.

If the mortgage product was taken out some time ago, chances are it will have a much more competitive interest rate than the current market, with some fixed term mortgages being as low as 2%. Naturally one or both parties may wish to keep the current mortgage product if they can in order to avoid having to obtain a new mortgage at a far higher rate of interest. This new conflict over who should be able to do this is causing further delay to parties in reaching mutually acceptable terms of settlement.

In the short term, both parties need to ensure the mortgage is paid in full each month in order to avoid any black marks against their credit rating. This may mean a change in how much each person now pays towards the joint liability. In the long term, mortgages are typically dealt with in three ways as part of a larger financial settlement:

1. Sell the house, pay off the mortgage, and agree how to divide any equity – usually the most common approach as it can allow for both parties to be given a portion of the net sale proceeds as a deposit to purchase their new homes. As part of the financial settlement, the division of equity will also reflect both parties’ borrowing capacity as well as any savings, to determine how much each person needs in order to find suitable alternative accommodation.
2. Keep the house and mortgage in joint names, agreeing it will be sold later – this would allow the parties to keep the lower interest mortgage product for the time being but it does not allow for the parties to have a clean break from each other straightaway. Usually this option is only considered when the parties have young children and one parent is unable to obtain a mortgage or rehouse on their own. It allows the children to remain in the family home until they reach the age of school or university.
3. Buy out and transfer ownership – whether this is a viable option is dependent on whether one party can afford to take over the mortgage by themselves and fund the buy out of the other. Sometimes, couples negotiate on other assets, such as pensions, savings or investments, in order to keep the home, although legal and financial advice is critical here to avoid expensive mistakes.

It is important that any separating couple each look to get legal advice from the outset in order to try and avoid protracted and difficult negotiations around financial matters. At Barker Gotelee our family team can offer a fixed price initial consultation with one of our experienced family law solicitors to discuss all options available.

Amanda Erskine is a solicitor in the Family department at Barker Gotelee Solicitors in Suffolk.

Suffolk Divorce Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email [email protected]