Any default on monthly payments will affect the credit score of both partners, impacting future rental and borrowing opportunities.
If there is any risk of missing payments, people should speak to their mortgage lender as soon as possible to look at options, such as payment holidays, or switch to interest-only payments until the financial issues are resolved.
Division of assets in divorce
The legal starting point in a divorce is that the assets of the marriage should be shared equally, but in cases where there is not enough money in the “matrimonial pot” for equal sharing to meet the basic needs of both spouses and children, this opens scope for arguments for unequal division based on individual needs and differences in earning capacities.
Mortgages and divorce
For most couples, housing will be the first priority, particularly when there are children in the family. However, this can be one of the most challenging areas to resolve, and difficult decisions often need to be made about the family home. Whether the house and mortgage are owned in joint names, or by just one spouse, it is considered a matrimonial asset.
Typically, mortgages as part of a wider financial settlement are dealt with in three key ways:
Sell the house, pay off the mortgage, agree how to divide any equity
This is a common approach adopted by clients who have a good level of agreement and understanding of each other’s needs, particularly where there are children of the family, and two homes can be bought if both parties use a share of the equity as deposit to buy a new home.
The division of equity, as part of the financial settlement, takes into account the borrowing capacity of both parties, and any savings, to determine how much each person needs to find suitable alternative accommodation.
Keep the house and mortgage in joint names, on the understanding it will be sold later.
As this option keeps couples financially tied together, potentially for a long time, it is only considered in limited circumstances, typically when one parent is unable to take out a mortgage or rehouse on their own. It enables the children to stay in the family home, usually until school or university age.
One of the couple buys out their ex-partner’s interest in the house, secures their release from the mortgage, and has it transferred into their sole name.
This depends on whether one party can afford to take over the mortgage by themselves and fund the buyout of their ex-partner’s interest. Sometimes, couples negotiate on other assets, such as pensions, savings or investments, to keep the home, although legal and financial advice is critical here to avoid expensive mistakes. This also requires a person’s ability to afford to run the home financially themselves.
