What Happens to Joint Property in Divorce
The matrimonial home is generally the most important asset which needs to be dealt with upon divorce.
Any jointly owned property can be quite complicated, especially what happens to a joint mortgage when you divorce.
So what are the options and your joint mortgage separation rights?
Mortgage advice for separated couples
Questions that we get asked most often relating to joint mortgage separation are ‘who pays the mortgage when you separate’ and how to go about ‘removing name from mortgage after separation’.
Deciding who pays for a joint mortgage during a separation or after a divorce will often be down to individual negotiation and agreement between the two parties. Any such agreement can form part of a consent order (see below). If an agreement cannot be reached, it may be necessary to go to court.
What happens to a joint mortgage when you divorce?
Anyone with a joint mortgage who is planning to get divorced should inform their mortgage company immediately to discuss the best options for dealing with repayments going forward.
That said, our advice is that regular repayments for joint mortgages must continue being made as normal if the borrowers are separating or have got divorced – even if one (or both) has moved out.
This applies whether the divorcing couple are joint tenants or tenants in common.
Any failure to ensure that scheduled repayments are made on time, and in full, will be considered a breach of contract by the mortgage company; this can damage the credit ratings of both parties, making new mortgage applications more difficult and even potentially leading to a repossession of the property.
Joint Mortgage Separation Rights – What Are The Options?
There are various options for dealing with a joint mortgage when owners decide to go their separate ways. These range from a spouse selling their equity to their ex-spouse to both selling the property outright.
Another option may be for one spouse to remain in the family home while the other moves out. See Mesher order below:
Selling joint property after divorce
Putting the property on the market may be the best way of achieving a clean break. Proceeds can be divided to help both parties find their own homes and make a new start. Normally the money from the sale will be split 50:50 but this can be negotiated – or decided by a court.
NB: If there has been a housing crash and the property has gone into negative equity, selling up may not be an option, as it will potentially lead to hefty personal debts. In this case, it may sometimes be best to carry on paying the mortgage until the market improves.
Buying out jointly owned property
Another common method for dealing with a joint mortgage upon divorce is for one ex-spouse (who wishes to carry on living in the property) to effectively take on the mortgage of the other party by buying them out.
This method also provides for a clean break, but it is dependant on one of the joint owners being in a financial position to take on the entire mortgage.
In marriages where there are young children, sometimes the husband will move out upon separation but carry on paying his share of a joint mortgage, leaving his wife and kids in the former matrimonial home (or vice-versa).
This arrangement can carry on upon divorce and may form part of the overall maintenance agreement. Although this does not lead to a clean break, it can work in the case of amicable breakups where one party is in a stronger financial position.
NB: In this scenario, the party who has moved out may want to remove their name from the mortgage even though they are continuing to make payments (as this can make it easier for them to get a new mortgage), but this is subject to the financial situation of both parties.
Carry on paying and living at the property
In the case of very amicable separations, both ex-spouses may decide to carry on paying off their joint mortgage whilst living together in the same home as friends.
This is an increasingly common scenario in today’s inflated housing market, where it is often impossible to get a mortgage without a partner or live independently. There is obviously no clean break but this is a straightforward option.
What’s the best option for you?
Everyone’s situation is different, divorce and property is a complex matter and can cause a lot of tension between couples. So often continuing to cohabitate after the divorce is not an option.
Your decision can also differ if children are involved.
The main thing to consider is that the option you wish to choose is viable both financially and emotionally. If you and your partner can’t come to a decision together mediation can be very useful and has helped thousands of couples come to an amicable decision that is best for their family and situation.
What is a Mesher order?
Divorcing couples with children can ask the courts in England and Wales to impose a Mesher order which stipulates what happens to the family home when a couple gets divorced.
A Mesher Order, also referred to as an Order for Deferred Sale, is a form of ‘Settlement of Property Order’ in which a trust is created, and within that trust the parties hold the property as tenants in common in defined shares.
The purpose of the Mesher order is to allow one spouse to remain living in the family home after divorce while preventing the sale of the property until one of the specified trigger events is met.
Trigger events could be the youngest child reaching the age of 18 or else leaving full-time education, or alternatively a fixed date sometime in the future, the spouse living in the home getting remarried to a new partner or cohabiting with a new partner for a period of say 6 months.
The term Mesher Order originates from a ruling in a case Mesher v Mesher’ at the Court of Appeal. The Mesher order precedent allowed for the family home to remain in the couple’s joint names until a certain trigger event happens. At this point the property could be sold and the sale proceeds divided between the couple.
Is a Mesher order a good idea?
A Mesher order can be a good idea as a way of providing family stability if one parent wants to stay in the family home with the children but does not have the financial capability to take over the cost of running the home and paying a mortgage on their own.
This situation would mean the property is unlikely to be transferred into their sole name and so they would need their ex-spouse to remain on the mortgage. Though that former spouse would not necessarily still have to contribute towards the mortgage there is usually a contribution via spousal or child maintenance.
The benefit of a Mesher order is therefore clear in that a divorcing couple can maintain the matrimonial home while the children are young, however they are viewed as an imperfect solution. This is because a Mesher order does not provide a complete financial clean break for the divorcing couple.
Whilst one spouse gets to live in the family home, but not permanently, the other spouse still has their finances tied up in the property for years to come.
Pros and Cons of a Mesher order
- The immediate sale of the property is not required, possibly helping avoid negative equity
- Provides a stable environment for children – they get to stay in the family home and go to the same school
- A financial clean break is more difficult because both former spouses are still financially tied to each other
- Both former spouses must remain in communication with each other after divorce proceedings end
- Money is tied up in the matrimonial home for the spouse who moved out, possibly making it harder to buy another property
- No long-term security for the spouse who stays in the family home because eventually they must sell up and move out (furthermore it may be harder to get a new home because lenders consider age and income when applying for a mortgage)
- The non-occupying spouse may face a capital gains tax liability when receiving a pay out from the sale proceeds of the home
- If one party faces bankruptcy it could prematurely trigger a sale
Despite a Mesher order being an imperfect solution for several reasons, in some cases it is the only viable option that meets the housing needs of each divorcing spouse and their children. This matter is always the Court’s primary concern when deciding what should happen to the family home in a divorce.
Who pays the mortgage in a Mesher order?
The Mesher order can be drafted to suit whichever arrangement is preferred.
Most often, both parties will pay the mortgage together, with the spouse that has moved out possibly contributing through a spousal maintenance agreement. Whatever arrangement is agreed must meet both party’s housing needs.
Possible alternatives to Mesher order include obtaining a Martin order.
This type of order works in much the same way but is designed for divorcing couples without children. However, under a Martin order the spouse who remains living in the property then has the right to occupy the former matrimonial home for life or until re-marriage.
What is a consent order?
A consent order essentially provides legal standing to an agreement between a divorcing couple, providing them with a method of enforcing the agreement later down the line.
This can be particularly useful in the scenario mentioned above relating to maintenance payments, where there isn’t a clean break. A consent order can also enforce a divorce settlement to prevent one party from making financial claims on their former spouse at some point in the future.
Clean break consent orders are vital in divorce proceedings, especially when there is property is involved. However, many divorcing couples are put off due to the prices high street solicitors charge.
Consent order service
We offer a choice of consent order services starting from just £399 including VAT for a fixed-fee clean break consent order. This DIY service is ideal for those that want to obtain a clean break consent order by filing it themselves with the courts. Our qualified divorce solicitors will draft your agreed financial settlement ready for you to file.
More popular is our fixed-fee managed clean break consent order service costing £599 including VAT. For just an extra £200 we manage the whole process on your behalf. This means a solicitor will complete all of the forms for you and processing them with the courts, so you don’t have to, saving you over £1000 compared to your high street solicitor.
This is the service for those who need to include Pension Sharing as part of their financial settlement agreement.
This post was written by Mark Keenan. Editor of Divorce-Online and Managing Director of Online Legal Services Ltd. Mark has been writing about divorce and related subjects for over 20+ years and is an expert in legal marketing.