The marital home when a couple divorce

It is vital that the divorcing couple have a comprehensive picture of what state their joint finances are in before contemplating what they should do about the house.

Tom Riley, head of product at Nationwide, says the couple should obtain a full disclosure of their former partner’s finances and their own before coming to any decision.

This includes evidence of any financial arrangements between the couple - such as maintenance payments - and will check there are no other loans or financial obligations secured against the property or if any income is being generated on the property, for example if any rooms or part of the property is rented out.

What type of mortgage is held, interest-only, capital repayment or part and part, will also be detailed, alongside information regarding mortgage payments, such as whether one or both individuals have stopped contributing to their share of the payments and if the mortgage or property is in joint names.

It will also encourage both sides to get independent valuations of the property, which will show if the property is in negative equity, or if there is equity to be split.

The questions covered include:

1) Is the liability or equity split equally between the parties?

2) Is there a guarantor on the mortgage or does any another party other than the couple is contributing to payments or has a financial interest?

3) Is the mortgage subject to any scheme such as shared equity?

4) Is the property subject to any equity release product?

5) Is the mortgage in arrears?

Tax should also be a consideration for the splitting couple.

Mr Riley says there is normally no capital gains tax to pay but there could be tax on your share if you moved out more than three years previously, you have already bought somewhere else and declared it as your main residence or you have been running a business from home.

If this applies, Mr Riley says the couple may need to take tax advice. It should also be considered whether the property forms part of any inheritance tax planning, he adds.

According to Keith Churchouse, Chartered and Certified financial planner of Chapters Financial Limited, once the divorcing couple have a true picture of the state of their finances they can then consider options including selling the property, one person buying the other out or another partner moving in and buying out the leaving party.

Jeff Knight, director of propositions at Castle Trust, says another option whereby the couple remain joint owners but with one partner retaining the right to reside in the property is most typically the case where there are children involved.

In exceptional circumstances it has been known for a divorcing couple to both remain resident in the property but, for obvious reasons, Mr Knight points out this is rarely a satisfactory long-term solution.

When deciding what to do about the mortgage and former marital home, Mr Knight says a couple should not assume their mortgage lender will agree to or finance a buy-out of one partner of the other’s interest.

He says: “The mortgage lender’s risk exposure rises if the amount of the mortgage is increased or one of the borrowers is discharged from their liabilities. Depending on the financial position, a lender may still agree to such a proposal but may attach conditions.

“Partners who move out of the property but who remain as mortgagors need to remember that they may be liable for the entire debt if the partner in residence defaults on their share of the mortgage payments.”

Another option is both parties could move out of the home and let it out jointly, or one could take ownership and find a tenant for the former marital abode, according to Ronan Marrion, mortgage adviser, Cornwall-based Worldwide Financial Planning.