In 95% of divorce cases the family home is the largest family asset.

Equity is the value you hold in the property, usually value minus mortgage total.

 

There are usually three options.

 

OPTION 1.

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The home is put up for sale, with an agreed split in equity once sold. 

 

PROS: Clean break, with both parties usually using their equity share as a deposit for a new home each. 

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CONS: The extra cost and time of selling, including estate agent fees, refurbishment, surveys, conveyancing and removals. The family home will be lost, causing disruption, especially for children.

 

OPTION 2.

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One party buys the other out and keeps the home. This usually requires a remortgage that equals the current mortgage plus whatever is being paid to the leaving party.

It is worth noting that what is offered to the leaving party is usually what they would receive after the mortgage, estate agency, conveyancing, etc had been paid, i.e. not X% of the equity, but X% minus 50% of the costs of selling.

 

PROS: Cheaper overall, and one party (and possibly children) have less disruption. The leaving party gets a quick and guaranteed payout.

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CONS: The party remaining in the property needs to afford an uplifted mortgage, i.e. mortgage plus the equity payout. A conveyancer will still be needed.

 

OPTION 3.

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One party stays in the house and an agreement is reached where both parties agree on mortgage payments and who will have ultimate ownership: this is often called a MESHER order. An agreed date of sale is often included, with clear allocation of ownership and share of sale value.

 

PROS: Usually used to provide continuity for children if the remaining party is unable to buy out the leaving party. The leaving party retains a measure of equity in the home.

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CONS: The leaving party will not have an immediate payout to use as a deposit. The remaining party will likely not be able to stay in the home once the children move out.

 

THINGS TO CONSIDER

 

• When divorcing, all finances are considered, e.g. pensions, savings, businesses, future earnings, etc. Agreeing to allow them to keep their pension, free them from or reduce their maintenance obligation or agree not to 'go after' any other asset may well be compensated for by you getting more equity in the house. In many ways this is preferable as it is the most guaranteed asset.

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• It is possible to remove one name from a joint mortgage. This costs a few hundred pounds (paid to the lender) but requires either the other party's consent or a court order. If more borrowing (uplift) is required, a remortgage in just one party's name might well be a better approach. You would still need a conveyancer to remove their name from the deed.

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• It is vital to consider every aspect of the mortgage, especially the Early Redemption Charge ERC (a fee for paying off before the initial period completes). This is usually 1% of the value of the mortgage for every year still left to run of the initial period, i.e. a 5 year fixed rate will usually charge 5% in the first year, 4% in the second and so on. So a 100k mortgage on a 200k home will cost an additional 5k to exit in the first year, 4k the next year and so on.

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• Consider the extra costs of selling, like conveyancing, estate agency fees, reports, fixing up the property, moving costs, stamp duty, etc. What may be equity of 100k may end up being not much more than 40k each in the end.