Transfer of equity in a divorce: getting the timing right
Sophie Jones, Chartered Legal Executive in Coodes Solicitors’ Residential Property team, says timing is crucial when arranging a transfer of equity in a divorce.
The matrimonial home is the biggest asset in most divorce cases. That means the transfer of equity – when one spouse is removed from the property title deeds – is an important step in a divorce.
While some divorcing couples choose to sell their property, others want to transfer the ownership to one spouse. This is often seen as the best solution if there are children and one parent would like to stay with them in the family home.
In property law, equity is the value of the amount of a property that you own. A transfer of equity is a legal process that adds or removes someone from a property title deeds. In a divorce, it typically involves removing one spouse. In some cases, a new partner may also be added to the deeds. In a transfer of equity, the property is not sold and at least one original owner remains on the deeds.
Waiting for the court order
Many of my clients come to me for advice on a transfer of equity when they are going through a long divorce process. This can be a stressful time and emotions may run high. Being faced with another legal process, many people just want to arrange the transfer as quickly as possible.
However, timing is critically important when arranging a transfer of equity. You may be keen to push it through ahead of the end of a tax year or before a mortgage offer expires. However, our advice is usually to wait until the Court Order finalising your financial agreement is made by the Court. Otherwise there is a risk that the District Judge does not agree the Order, in which case the transfer may need to be reversed.
There are other checks and approvals that should be carried out ahead of the transfer of equity, including securing your mortgage and ensuring you have all the information you need on the property deeds.
Secure your mortgage lender’s approval
If you wish to transfer a property which is subject to a mortgage then you will either need your existing mortgage lender’s consent. In most cases, the mortgage would have been approved based on both spouse’s salaries. The lender will therefore need to agree to continue with the mortgage based on just one salary or, if a new partner is moving into the property, a different income.
If the lender approves the change in ownership, they will then release the departing spouse from the mortgage agreement. However, in many cases the remaining owner will need to go through a remortgage. This takes time and it is important to have everything in place before the Order is made by the Court or there is a risk you may not be able to comply with the terms if this provides for a transfer and your ex-spouse’s release from a mortgage.
Get the title deeds checked
It is wise to have as much information about the property as possible before agreeing to a transfer of equity. When a couple buys a property, one spouse is often more involved in the process than the other. Commissioning your conveyancer to carry out a full report on the deeds can be a sound investment. The research may raise issues about the future use of the property and about access rights and restrictions. Because it could highlight issues around the value of your former matrimonial home, this information will be relevant whether you are due to leave or remain in the property.
For example, if you are considering setting up a holiday let in the property, you need to ensure there are no restrictions called restrictive covenants in the deeds limiting the use that would prevent you from pursuing your plans. A check of the restrictive covenants in the deeds may also reveal other possible issues such as if consent is needed from a third party for alterations such as an extension to the property. Restrictions and historic rights of access may also affect the value of the property and this information could be important to your financial settlement.
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Make sure you understand stamp duty requirements
Many people are confused by rules around Stamp Duty Land Tax (SDLT) when they are arranging a transfer of equity. SDLT is not payable if you are simply transferring the property to one remaining spouse and this is pursuant to your divorce proceedings. However, standard rates are payable if a new partner is becoming joint owner.
An exemption from the higher rate of SDLT applies to property transfers between spouses or civil partners who are not separating. The transfer will be at the standard rates whether or not the spouse or civil partner owns another dwelling.
Two conditions must be met to qualify for the exemption from the higher rate of SDLT:
- The only parties to the transfer must be the spouses or civil partners.
- The couple must be living together.
Married couples and civil partners are treated as living together unless they are legally separated (by Court Order or Deed of Separation) or are separated in circumstances in which the separation is likely to become permanent.
Make sure you know where you stand with Stamp Duty before arranging the transfer.
Be prepared to wait
A straightforward transfer of equity is likely to take between four and six weeks. However, every transfer is different so be prepared to wait. Any complications with your mortgage lender will cause delays.
Consider a charge back or Mesher Order
Some divorcing couples choose to continue as joint owners of the matrimonial home, with one spouse staying in the property until it is sold in the future. The court order in your divorce will set out how the proceeds of the future sale will be divided.
In some cases, the spouse who has left has a charge secured against the property, which protects their interest and provides some security. This is known as a charge back.
A Mesher Order involves setting out ‘trigger events’ that will result in the property being sold in the future. These typically include death, remarriage and children reaching adulthood as well as the remaining spouse choosing to relocate.
There are pros and cons to both of these approaches and to choosing a transfer of equity. Therefore, it is important to get advice to work out which approach is best for you.
A transfer of equity can be a complex process and it is important to be thorough in your approach. Carrying out the right checks, getting specialist matrimonial conveyancing advice and giving the process proper consideration will help ensure the process goes as smoothly as possible.