The family home in divorce or dissolution is usually the most emotive asset for a couple ending their relationship. It is where memories are created, families are raised, and dreams and hopes for the future are envisioned.
It is also usually a family’s largest asset which invariably will have to be disposed of to allow both parties to create new independent lives.
In the past there were usually two outcomes in relation to the family home. Either one party would buy the other out, or the family home would be sold, and the equity is split.
The cost-of-living crisis in the United Kingdom is now making these outcomes more difficult to achieve. With rising interest rates and higher mortgage rates, potential home buyers are now being forced to put their property plans on hold. Borrowing is now more expensive, which consequently limits the amount a person can secure to buy another property or fund a buyout. House prices are also at elevated levels, and the cost of renting has increased around 10% due to there being a shortage of available homes for rent.
As the usual previous options are less viable, couples who are ending their relationship are now having to look at alternative and creative options when dealing with the family home. These can include:
Nesting
This is a modern arrangement that is gaining favour especially during the cost-of-living crisis where couples/parents are finding it difficult to create two permanent homes due to financial constraints. Birdnesting or nesting is a type of arrangement whereby divorced or separated parents keep the family home and the child(ren) reside there 100% of the time. The divorcing couple then rents or buys a smaller temporary one-bedroom apartment or other additional space for the two of them to live in when it’s not their parenting time. They could also stay at friends or family when not living at the family home.
In practice it works as follows:
Each parent spends time in the family home with the child, whilst the other parent lives in elsewhere until it’s their parenting time. The pattern continues with the child(ren) always remaining in the marital home and each parent rotating in and out of the family home during their parenting time. The arrangement usually comes to an end when child(ren) are old enough to leave the family home, and the family home can be sold.
The benefits of nesting are that the children do not have to deal with the upset or stress of moving to a new home or moving between homes often. It puts the emphasis on the parents to put the needs of the child first and to cooperate and co-parent effectively.
It also allows for the divorcing couple to “ride” out the cost-of-living crisis until the economic situation is better and a more long-term solution becomes affordable.
Co-own and cohabit in the family home after divorce and sell it later.
Couples often find that co-owning a house after a divorce is a good idea in the following situations.
- It’s a Bad Market
Unless you need to cash out your interest in the house immediately, it might make sense to hold onto the house. This could be because interest rates are high, there are a lot of other homes in your neighbourhood for sale, or you just think waiting a longer will get you more money when you sell. All these factors might be a good reason to hold onto the house until the economy improves so that both of you can maximize your profits when you eventually sell.
- You are in negative equity.
If you and your spouse owe more on your mortgage than you could sell the home for, it means you are in negative equity. Instead of selling now, you and your spouse could hold onto the property and live separately under the same roof. Continuing to pay the mortgage may even be cheaper than renting 2 properties, and you could wait until the market takes an upswing and you can sell for more than you owe.
- Neither of you can buy out the other
To complete a buyout, one of you will have to either have enough funds to buy the other’s interest or be able to qualify for a mortgage modification or refinance. Even when you both agree that one of you will buyout the other’s interest in the house, it simply might not be financially possible at the time of the divorce. Continuing to co-own the house gives the purchasing spouse more time to save up.
The advantages of co-owning and cohabiting after divorce/dissolution are:
- It makes it possible for the children to remain in the same house after the divorce.
- It provides both parties with a home they both know and very little upheaval.
- It provides more flexibility in the cost-of-living crisis. A deferred sale allows both parties to wait until a more beneficial time so they can maximize their gains.
- It allows both parties to benefit and share on any appreciation in value of the family home that occurs after the divorce.
The disadvantages of co-owning and cohabiting after divorce/dissolution are:
- Both of you are responsible for paying the mortgage and any increases in the mortgage payments.
- Co-owning and cohabiting in a house after divorce requires communication and cooperation, which can be difficult under high-stress circumstances. If you’re not able to communicate and work together, continuing to co-own may not be the best option.
- It requires planning. You should agree in advance when the family home can be sold. You should also think about estate planning, and consider what would happen to the home if one of you died while you were still co-owners.
Click here for more information on how to successfully separate under the same roof.
Renting out the family home
This is not a common option, but it can work in certain circumstances, for example when the family home is mortgage free. Normally if you have a mortgage, you must obtain your lenders consent before you can rent, you’re the property out. This may result in an interest rate change to a buy-to-let rate, which may not make renting out economically viable.
However, if your property is mortgage free, or in a prime location where you can command a premium rent, the rental income you could receive may be enough to fund two smaller properties whilst you agree what longer term arrangements are made.
Obtaining financial support from friends/family
This arrangement involves a close family member or friend going on the mortgage (and effectively stepping into the shoes of one party) to help their release from the mortgage. The new mortgage would then be in the name of one party and the family member or friend.
Alternatively, can a family member provide a lump sum by way of gift or loan to fund the buyout of the other party?
The benefit of this arrangement is that the other party is free to take out another mortgage (assuming they can afford to do so) and buy a property; or they can rent.
A Charge back to one party.
The mechanism for this arrangement is that one party remains living in the family home and takes over the mortgage in their own name, which releases the other party from their mortgage liability. A charge is then registered in the name of the released party to reflect the agreed percentage or fixed sum they will receive when the property is ultimately sold. The parties will also agree the “trigger events” that will trigger the sale of the family home These could include the death of the person living in the property, a child reaching 18 years or some other event.
The benefit of this arrangement is that the other party is free to take out another mortgage (assuming they can afford to do so) and buy a property; or they can rent.
A Mesher Order
This is similar to the arrangement above with some differences and variations.
The mechanism for this arrangement is that one party remains living in the family home and takes over responsibility for all routine maintenance and decorative repairs. Both parties
remain on the mortgage and property deeds, but they would typically change the joint ownership of the property from Joint Tenants to Tenants in Common.
They would agree a percentage split of the gross or net proceeds of sale and agree the “trigger events” that would trigger a sale. These events are usually as follows:
- The youngest child attaining the age of 18 and / or finishing full time secondary education (could be 16 or 20 depending upon their education status)
- Prior written consent of both parties or further order from the court
- The death of the child
- The death of the parent living with the child
- Remarriage of the parent remaining in the former marital home, or cohabitation lasting 6 months or more (or by agreement)
- Failure by the person residing in the family home to occupy the family home for a period of time.
- Failure to occupy the property as their main residence (this could happen when the person occupying the family home moves into their partner’s home)
- The voluntary sale of the family home.
Leave the family home to the children.
This would take place by a Deed of Trust not a Will. The effect of this arrangement is that a right to live in the family home would be created for the couple ending their relationship, but upon sale of the family home, the proceeds of sale would go to the children.
This arrangement is usually only suitable when the owners of the family home are older and wish to remain living in the same and intend to leave the family home to the children in any event upon their deaths.
Refinance or reconfiguring the existing mortgage.
This solution is to refinance the existing mortgage and leave only one spouse’s name on the loan. After the refinance closes, only the person named on the mortgage would be responsible for making the monthly payments. The person no longer named on the mortgage could then be removed from the home’s title.
If necessary, a cash-out refinance could pay the portion of equity that is due the departing spouse.
Refinancing into a new mortgage could be the simplest solution, but it works only when one spouse can qualify for the loan on their own. Mortgage eligibility will depend on:
- The borrower’s income
Qualifying for a mortgage as an individual may be harder than qualifying as a married couple. Why? Because a single borrower often makes less money than a couple.
If the single borrower’s income can support the new loan’s mortgage payment, then refinancing maybe a viable option.
- The borrower’s credit score
The person refinancing the mortgage loan must have a high enough credit score to qualify.
- The equity in the family home
If you bought the home recently and made a small deposit — or if you already have a second mortgage that uses home equity — the family home may not have enough equity for a refinance.
You should always take specialist and independent financial advice if you are considering this option.
Equity release of family home
Releasing some equity from the family home through an equity release arrangement can enable one of the parties to a divorce or dissolution to continue living in the marital home and become the sole owner of the property, providing funds for the other party to pay towards or purchase outright a property for them to live in.
The moving party could also take out an equity release arrangement if needed, to bridge any shortfall between the monies released to them from the marital home to pay towards their own property and the purchase price of their new home. This enables both parties to maintain their status as homeowners following divorce.
The most popular type of equity release arrangement is a Lifetime Mortgage. A Lifetime Mortgage, as the name suggests, is a mortgage that is taken out over your lifetime. It does not need to be repaid to the lender until either the death of the homeowner or if the homeowner were to move permanently into care when the property would typically be sold.
The youngest age a homeowner can take out a Lifetime Mortgage is aged 55.
Specialist independent financial advice/or legal advice should always be taken if considering this option. For more information have a look at this helpful video by the MoneyNerd about equity release
Can I stop my house being sold?
If you cannot reach an agreement about how to deal with the family home, either party could make an application to the Court for the house to be sold. A Court has the power to Order a sale.