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Pros and cons of options for divorcing couples

This article is part of
Guide to Mortgages and Divorce

Tom Riley, head of product at Nationwide, says one half of a divorcing couple remaining in the marital home while the other continues to pay their share of the mortgage can be a good medium term option if the mortgage is fixed and charges would increase to move elsewhere.

He warns for this to work, both parties need to be on good terms and be able to afford the mortgage and any other living costs. He adds that it is probable that at some point in the future the house will have to be sold.

Alternatively selling the house immediately and paying off the mortgage can provide a clean break, according to Mr Riley. This approach would see any equity being perceived to be a marital asset and split between the couple.

However, the division of funds could be open to dispute and the process of selling may involve unnecessary costs if both partners intend to purchase separate homes.

Mr Riley says: “If you cannot reach an amicable agreement the matter would need to be settled in the divorce courts.”

The alternative to a short or medium-term sale of the property is for one party to buy the other out and effectively buy the property outright. By moving the joint mortgage into one name the couple can enjoy the same break as selling, with one being able to remain in the home.

But Mr Riley warns the party hoping to buy their former spouse out will need to prove to their lender that they can maintain the mortgage on their own.

He says: “You will need to buy the ex-partner’s share of the equity before the mortgage can be put in your name. Sometimes the person giving up their interest in the property can act as a guarantor, although, this could affect how much they can borrow in their own right.

“There may be dispute over the value of the property and they could need to go to court to agree a settlement.”

In many cases, Jeff Knight, director of propositions at Castle Trust, points out neither partner is willing or able to take on the entire obligation of the marital home in which case a sale will take place.

He adds that where children are involved often courts will force a partner leaving the property to continue to help service the mortgage even if they have been bought out.

Mr Knight says: “Clean break buy-outs are ideal for those who can afford them but often the court will direct one partner to service part or all of a mortgage obligation until all of the resident children attain the age of majority [18] or finish full time education.

“This can often leave a departing partner in poor financial position as they seek a new home. The courts normally prioritise the welfare of minors over the interests of the couple.”

If valuations reveal the home is in negative equity, options are more limited as Mr Riley points out you will not be able to sell the house to pay off the mortgage in full. If the couple cannot face continuing to own a home together, they would have to split the existing debt.