Transfer Of Property Ownership & Equity After Divorce

Property settlement agreement after divorce

A property settlement agreement after divorce is part of the financial settlement reached between a divorcing couple that relates to property that needs to be separated.

In most marriages, the property that needs to be separated is the matrimonial home (the main residence where they lived during the marriage), but it can also include second homes or investment properties which are either jointly or individually owned.

Once a divorcing couple has agreed on what to do with their assets within a property settlement agreement it is then wise to record the details in a consent order. This is a legal document, usually prepared by a solicitor, setting out what both parties have agreed.

The consent order is normally presented to the court to make it legally binding when the divorce reaches the ‘Decree Nisi’ stage. The consent order then becomes legally binding on both parties once the Decree Absolute has been granted.

Obtaining a consent order is the only way to finally sever your financial obligations after a divorce, providing financial certainty for both parties by ensuring any future claims are dismissed.

Transfer of Equity Stamp Duty Land Tax (SDLT)

If the property is being transferred as part of a divorce settlement, there is no Stamp Duty Land Tax (SDLT) to pay.

It is also important to note that transfers after the decree absolute may be subject to inheritance tax (IHT) if the transferring spouse dies within seven years of the transfer.

Stamp Duty Land Tax (SDLT) is payable on property transactions in the UK. The rules for SDLT during a transfer of equity in the context of divorce are specific:

• No SDLT for Transfers Ordered by Court:
  • If the transfer of equity is part of a court order or a formal divorce settlement, no SDLT is payable. This is because such transfers are considered exempt from SDLT.
• Consideration and SDLT:
  • If the transfer involves consideration (payment), such as one spouse paying the other for their share of the property, SDLT may be payable on the amount of the consideration.
  • Consideration includes taking on a share of the existing mortgage. If the remaining spouse takes over the entire mortgage, the value of the mortgage taken on is treated as consideration for SDLT purposes.

Real-life Example

1. Court-Ordered Transfer:
   • John and Mary are divorcing. The court orders that John transfer his share of the family home to Mary. Since this is a court-ordered transfer, no SDLT is payable.
2. Transfer with Mortgage Consideration:
   • Assume the family home is worth £300,000, with an outstanding mortgage of £200,000. John is transferring his share to Mary, who will take on the entire mortgage.
   • Mary’s consideration is her share of the mortgage (£100,000). If this consideration exceeds the SDLT threshold, SDLT will be payable on the amount of consideration (in this case, £100,000).

How does transferring property before divorce work?

Transferring property before a divorce can be a strategic move for some couples, but it is important to understand the legal and financial implications.

One of the key considerations before transferring a property before divorce is to ensure the transfer is done fairly and transparently.

Courts may scrutinise any transfers made shortly before a divorce to ensure they were not intended to deprive the other spouse of their rightful share.

Transferring property between spouses is generally exempt from CGT if they are living together.

However, once separated, the exemption applies only until the end of the tax year of separation. Transfers after this period may be subject to CGT.

Transferring property before a divorce can simplify the division of assets, but it requires careful planning and consideration of legal and tax implications.

Always seek professional advice to ensure the process is conducted correctly and to avoid any unforeseen liabilities.

Can my ex-spouse sign the house over to me?

Yes – if the matrimonial home is mortgage-free, it may be transferred between either divorcing parties as part of the overall financial settlement. What this essentially entails is removing the name of one ex-spouse from the property deeds, leaving the other party as sole owner.

If there is still a mortgage on the property, it will be necessary to ask permission from the mortgage provider, and financial ability to pay the whole mortgage will be taken into account.

Normally the divorcing couple will agree to a property transfer as part of the divorce settlement, following negotiation and possibly mediation. Read advice on divorce and property to find out more.

On occasion, a court may decide to make a ‘transfer of property order’ which imposes a court decision regarding property transfer. However, this type of order is quite rare and will normally only be intended to protect the interests of any children under the age of 18.

Removing a name from the land registry

A transfer of equity solicitor can draw up a title deed transfer that effectively transfers the property to one of the divorcing parties and removes the name of the other ex-spouse from the deeds.

Alternatively, this can be done directly with the Land Registry, which involves removing a name from the land registry using the following process:

1. An application must be made to change the register using form AP1.
2. If transferring the entire property, form TR1 (Transfer of Whole of Registered Title) must be filed with the Land Registry. 
3. If a conveyancer is not handling the transfer, form ID1 should also be filed along with the application.