Keeping the family home after a divorce is a big topic and I’m not going to try and cover everything in one article.
I’m going to focus in this short article on a fairly typical scenario where you’ve agreed that one of you will stay in the house with the children. You’ll keep it in joint names, sell it when they grow up, and then split the proceeds.
In this particular case, I’m also going to look at what happens when a new partner moves in and why it’s so important to consider that possibility at the outset, often well before a new relationship even begins.
Reasons you might not want to sell the family home after divorce
First of all, let’s look at why you might want to keep the family home in joint names after a divorce.
Divorce is very tough emotionally both for adults and children. Staying in the same house can be a reassuring constant at a time of upheaval and change.
Moving house might mean moving school or make it difficult to commute.
There may be financial advantages in keeping the house. If there is a mortgage penalty that can be avoided, for example, by not selling. Or a saving made on estate agents fees, stamp duty on a new home and so on.
It might simply be the only option. If the main carer of the children can’t afford a mortgage or rent on their own, sticking with the existing arrangement might be the only or cheapest solution.
Reasons a spouse/parent might object to keeping the house in joint names after divorce
For the departing spouse/parent, visiting their children in what was once the family home can add to any frustration or distress at no longer being a united family.
One party won’t be able to access their capital. Realistically, they may also not be able to afford another mortgage and have to rent or live with family.
Capital gains tax might be paid on any increases in value of their share of the property.
Overall, they may feel trapped in a financial and emotional arrangement that prevents them moving on with their lives.
Balancing everyone’s needs – parents and children
Whilst it’s true that children’s needs come first, that doesn’t necessarily mean that we should ignore the needs of the adults in the family.
Keeping the family home in joint names after divorce is usually a last resort unless both parties agree to it.
Unless there is a lot of cooperation between you, the problems of keeping your finances tied together usually outweigh the disadvantages of selling the property.
However, if any of the following apply:
one spouse would find it impossible to rehouse elsewhere;
there are dependent children who could not be rehoused elsewhere;
the property is also a business (e.g. a farm); or
the property was inherited over many generations;
then a court might be more inclined to order that the property remains in joint names and that the sale is postponed.
This can be for a fixed period, for example until children grow up or until refinancing is possible . It can also be indefinite.
Whether you have a financial agreement or court order, it will almost always say that if the spouse/parent living in the house remarries or cohabits, this will trigger a sale.
That is usually the starting position anyway. The court’s permission might be needed if there are also children in the house. And here’s why.
Is the family home still needed for the children
In the vast majority of these situations, the reason you didn’t sell the family home was because you decided your children needed to carry on living there.
So, the first question you need to ask yourself is – has that need changed?
Maybe it has. Maybe it’s been a couple of years since the divorce and the children are older (teenagers perhaps, about to go to university) and it would be less difficult for them to move on now if they had to.
But if their needs haven’t changed, what then?
Can the house still be sold? That depends.
Can the ‘parent in residence’ afford the mortgage on their own?
Leaving the new partner out of it for a moment, it’s worth just mentioning that the spouse/parent in residence could have a very different/improved financial position a year or two after the divorce.
If that’s the case, they may well be able to buy out the other parent at this stage without help from a new partner.
But what if they can’t. What if their income and capital is just the same as it was? Should we expect the new partner to help out?
Asking a new partner to buy out the ex
Most people who decide to remarry, understand that this will have an impact on any previous divorce settlement. It’s common for the new partner to help take over the mortgage and buy out the previous spouse.
But sometimes that doesn’t happen. Usually it’s because they can’t afford to.
Can you force your ex-spouse’s new partner/spouse to buy you out of the family home when they move in?
No. That’s the simple answer. Whilst morally people may think they should at least try to, they don’t owe you anything legally. And what’s more, you will find it difficult to stop them moving in, even if you are still paying some of the mortgage.
That’s often a very unsatisfactory situation. So what can you do about it?
Forcing a sale of the family home
If your ex-spouse remarries and they carry on living in your jointly owned house without trying to buy you out, you can usually activate the sale clause in the agreement or court order.
The court has to consider the welfare of the children first and foremost, but beyond that has to try to sever the financial ties between the original spouses. This will usually end in a sale unless one spouse can now buy out the other.
What to consider before entering into an agreement to keep the family home after a divorce
No matter how well you get on, financial ties after divorce can be problematic.
Make sure you take professional financial advice before entering into an agreement.
Explore all mortgage options. Can the departing spouse obtain a mortgage elsewhere?
Limit your agreement to the shortest time possible – whether that is a year or two or until the children leave university.
Be realistic about new partners coming into your lives and the emotional response you might have when that happens.
Think about the long term. Will you be able to pay for structural repairs? How will you cope of interest rates change?
Discuss the practicalities of selling if one of you is ill or redundant or dies.
Check insurance policies. Whose name are they going to be in. Read the terms and conditions. Are there any requirements for the policy holder to live in the property.
Consider capital gains tax. A properly drafted agreement or court order will limit capital gains tax. A verbal or informal agreement won’t.
Make a will. Inheritance tax is payable if either spouse dies during the term of the agreement. Make sure your will takes into account the complexity of the agreement.
There’s a lot to weigh up and discuss when thinking about whether to keep the family home after a divorce.
Take professional legal as well as financial advice. If you can work together and there’s no conflict of interest, you can both use the same solicitor.
Make sure all your legal paperwork is done properly if you want to minimise your tax burden in the future and know exactly where you stand when the time comes to sell.
If you want to discuss these issues and your personal circumstances in more depth, give me a call on 020 3384 1977 or fill in the form below to make an appointment.