Equity Release and Divorce

What happens to your home during a divorce? Can I use equity release for a divorce settlement?

Sadly, this sort of scenario is more and more common, especially in January and February. Sometimes people see the new year as a new start, and decide to split up with their partner. If they own a home together, this topic becomes relevant. Often the residential home is sold and the equity is split between the two partners. They can then go their separate ways. However, it could be that one partner could afford to buy the other out. We look at equity release as an option for them.

When might equity release be an option for divorcing couples? How can equity release help with a divorce settlement?

You don’t necessarily have to sell the family home, but that is a common outcome. It could be affordable to keep it, with one partner buying the other one out to keep the property. That can offer more stability for children – we can look at that option for you, as it may not be necessary to sell.

Can you do equity release if you are under 55? Do both partners have to be over 55 for equity release?

The youngest would need to be at least 55. But if not, we could look at a remortgage with additional borrowing, which you could use to buy out the other partner.

What happens if a couple with a joint mortgage split up?

Both parties are still equally responsible for continuing to make mortgage payments on the property until it’s sold or you agree on another outcome. You also have to carry on paying the associated bills like gas, electricity, water and council tax. If any payments are missed with everything in joint names, it will affect both your credit scores. So it’s important to continue paying – sadly, sometimes people forget about that. Then, in the future, when they want to get their own mortgage, poor credit can cause difficulties.

Is there a better alternative to equity release during a divorce?

The recommendations will depend on your age – we look at every client on an individual basis. If you’re younger and splitting up, we could look at remortgaging with additional borrowing. Or, you may choose to downsize and share the equity left over from selling the property. If you’re slightly older, we could possibly look at a retirement interest-only mortgage. That will keep the repayments lower for you compared to a repayment mortgage, as you just pay the interest on the mortgage. Or, of course, we could look into equity release if you are above age 55 – that may be beneficial. There are lots of options we can look at for you. Going for a remortgage with additional borrowing can be a very good option for many people. In some situations there could be a court order requiring one parent to stay in the property until the children have left school, after which it could be sold. It depends on the situation. The property might not be mortgageable if there are court orders in place.

Do I need a solicitor to buy out my partner?

Yes, you would need to pay for a solicitor because it involves a legal process called a transfer of equity. The property may currently be owned in joint names, but you’ll be transferring the property into one name. The solicitor would remove one of the partners on the listing with the Land Registry.

What are the benefits and risks of using equity release during a divorce?

The benefit is that one partner could remain in the family home, which can avoid children feeling unsettled. Equity release can also be a quicker option to get the money out of the property than selling it. Another option is a traditional remortgage with additional borrowing. If you go for an over 55s equity release product, you may not need to make any payments, because everything is rolled up and the mortgage is repaid when the property is sold in the future. Clearly, there are age restrictions for that option. The risk of this form of equity release is that you are reducing the inheritance you pass on. The interest rolls up – and compound interest is not our friend. It increases quite quickly and reduces the equity in the property. Equity release could also impact any state benefits you want to claim. Equity release can be costly and there is a negative equity risk – so it’s important to weigh up the pros and cons.

How can an equity release advisor help here?

I’m a qualified equity release advisor, so we can look at the 55+ options for you, as well as help younger people with remortgages plus additional borrowing. We can explore all the available options. It could be remortgaging, taking additional borrowing, using equity release, downsizing or even a retirement interest-only mortgage. We’ll guide you through every step.

Key Takeaways:

• Equity release can allow one partner to remain in the family home by buying out the other, which can provide stability for children.
• The main equity release option is restricted to couples where the youngest partner is at least fifty-five years old.
• Alternatives to equity release include remortgaging with additional borrowing for younger clients, or a retirement interest-only mortgage for older clients who want lower monthly repayments.
• A significant risk of equity release is reducing the inheritance passed on, as compound interest rolls up quickly, decreasing the property’s equity and potentially impacting state benefits.

• If a couple has a joint mortgage, both parties are equally responsible for all payments until the property is sold or another outcome is agreed upon, and buying out a partner requires a solicitor for a legal process known as a transfer of equity.