Our guide to remortgaging for divorce settlements
As with many major decisions, however, there may be times when circumstances change and you have second thoughts. So, what happens to the family home if your marriage turns sour and you file for divorce?
Our Guide to Remortgaging for Divorce Settlements may provide some of the answers.
Considering your options
Faced with the prospect of the upheaval of divorce, there are probably a million and one things to consider, but what happens to the matrimonial home is for many people the single most important decision.
Until any decisions are reached, of course, if the property is owned in joint names, then both of you are responsible for keeping up the mortgage repayments.
When considering your decisions, the options include:
- if there are children of the marriage, you might decide it best to keep the home and do nothing to change its ownership – perhaps delaying a decision on its future until any children are over the age of 18;
- if one of you wants to stay, you might arrange for the other to buy you out;
- an alternative is to reach a financial settlement in which one partner agrees to transfer an agreed proportion of the value of the property to the other – the spouse giving up their stake in the home nevertheless retaining an interest in it and, when the property is sold, receiving the agreed proportion of its value; or
- you sell the matrimonial home, both of you move out, and use the proceeds towards the purchase of separate homes.
The sale of the matrimonial home may be the most simple and straight forward way of resolving things, with the proceeds from the sale used to pay off the existing mortgage and other joint debt and the remaining equity split in an agreed proportion between the two parties.
Special court orders
In addition to those decisions you may reach jointly, the courts may also intervene to order specific solutions:
- these delay the sale of the matrimonial event until a defined event – the youngest child reaching the age of 18, for example;
- when that event happens, the property is sold, and the proceeds are split between husband and wife in the proportions decided by the court;
- a Martin order also delays the sale of the matrimonial home, but is not dependent on any children reaching a given age, rather the re-marriage or cohabitation of one of the partners. It can even grant one party the right to occupy the property for the rest of their lives;
- Martin orders are typically made when one of the partners is sufficiently wealthy enough not to need the equity owned in the property, but the other partner has insufficient means to buy a home of their own.
Remortgages for divorce settlements
Until a decision is reached on the terms of any divorce settlement, both spouses remain responsible for paying the mortgage on a jointly-owned matrimonial home.
Once a settlement has been agreed and this involves one of the parties remaining in the matrimonial home and assuming responsibility for the mortgage, it is likely that the property will need to be remortgaged.
Divorce remortgages may also be needed if both parties wish to retain a financial interest in the property – with each becoming separately responsible for their own mortgage commitments on the property.
Arranging a divorce remortgage
In the case of a joint mortgage, the spouse leaving the family home may want to remove their name from the mortgage so that they are free to arrange a new mortgage for the purchase of a separate home.
The remaining spouse is also then freed from any reliance on the ex-partner for the mortgage repayments but will need to remortgage the property in their own name. Before any of this can be done, there are steps you need to go through.
How are divorce remortgage amounts calculated?
The person staying in the matrimonial home and wanting to take on its ownership must first buy out the ex-partner’s share. This involves not only remortgaging the property, but also paying an agreed percentage of any equity you built up together in joint ownership of your home.
While not part of the remortgage as such, other costs that you may need to consider are splitting of joint credit card debts or other joint loans.
All these additional costs need to be taken into account when considering your options and ability to finance a remortgage after divorce.
Once you have agreed the settlement amount, you need to unlink your financial association with your ex-partner.
Unlinking your credit files
Removing a financial associate (i.e. your partner or spouse) from your credit file is important. When applying for a divorce remortgage while you still have joint accounts open and / or linked credit files, you’ll find it very difficult to get approved for any sort of credit.
And it is also important to note that until all joint accounts are closed and the financial link removed, your ex-partner’s actions – such as them taking out new finance – could impact on your credit rating too.
How to unlink credit files
- Firstly, shut all joint accounts. They can be closed or transferred to a sole account.
- Then contact the major UK credit agencies – Experian, Equifax and CallCredit – and ask them to place a notice of disassociation on your credit report. This should stop your former partner’s financial actions impinging on your credit report and score in the future.
Sorting out your respective credit status and histories becomes especially important for the spouse wishing to remain in the matrimonial home by arranging its remortgage in their name only.
At NeedingAdvice we are specialists in arranging divorce remortgages. We understand that every situation is unique, so can work to make this as stress free and as quick as possible. Why not get in touch in today to see how we can help?