Divorce - a fair separation of assets

[vrdiver]

A friend of mine has moved out of the family home and is now renting. His wife has established another relationship and wants a divorce. They have no children.

At the time of the marriage, he had credit card debt which she paid off by extending her mortgage. He moved in with her. The house and mortgage remain in her name. There is some equity in the house (but not a lot).

Overall, excluding the house, they might have a few thousand pounds of assets, (TV, old car, clothes, computers etc).

She has said to him: "I paid off your cc debt, which should count towards how we split our property.

He's asked for my advice, which is where I could do with some more knowledgeable Lemons confirming the legal position.

As far as I'm aware, assets would be considered "joint" regardless of who's name was on the deed, so he would be entitled to half the equity in the house. The earlier payment of his debt would not be considered a loan but a gift (there is no paperwork or agreement relating to the payment).

Hence, legally, he's entitled to 1/2 the net assets. Morally he (in my view) should pay her back the credit card debt but is under no obligation to do so. (E.g. if the house was worth £100k more than the mortgage but is now reduced to £80k because of the increased mortgage, his share would be £40k legally, but £30k if he did the honourable thing...)

Total assets mean that an acrimonious divorce would likely leave them in debt, so getting a mutually agreed division of assets seems pretty important, as that could then be presented for inclusion in the formal divorce proceedings?

He is pretty clueless when it comes to money: I haven't asked him if his wife has a pension scheme (he doesn't) or any other savings (he doesn't).

Of course, I may be wrong with my initial assumption of his entitlement to a share of the house...?

VRD

[stewamax]

The first question M'Lud would ask is how long they have been married.
If it were, for example, six months, the fact that she brought most of the assets into the marriage is relevant.

[johnhemming]

You should also assess what the total assets are and compare that to potential legal costs. It is very easy for the legal costs to escalate way beyond the amounts being disputed. There is a thing called "Form E" which is an assessment of the marital assets - and the evidence for this such as 12 months bank statements. It is worth doing as much work as possible to produce this without paying the lawyers to do it. It also tends to be updated from time to time and if you can update it yourselves that can save a lot of money. Items which are disputed can be listed and potentially negotiated away through compromise.

Otherwise it is difficult to advise on a forum. A lot depends, for example, on the amount of the credit card debts and how much goodwill might be obtained by accepting that they are taken into account. The psychology of divorce disputes is probably as important as any legal questions. In a legal sense, however, I don't know of any cases where this has been done by a court. However, judges have a very large amount of discretion in these cases.

Looking at the issue of "evidence" for example for a property the parties could pay a surveyor to value it or they might be able to agree that the zoopla valuation is adequate. If they can agree on this then it saves the cost of paying an expert to agree it.

[Clitheroekid]

Assuming he's been married for more than a couple of years then the question of the credit card debt would probably be considered irrelevant by the court. The longer the marriage (which in practice includes any period of cohabitation prior to the marriage) the greater the degree to which the court ignores the question of which party created an asset or a liability.

The starting point in any divorce is that the assets are shared equally. This is even more so where there are no children, and in the absence of a compelling reason to displace this presumption he would be entitled to half the equity in the house and also half of any other assets.

He does need to know whether she has any pension assets. If she does then if they're only fairly modest the usual way they're accounted for is `offsetting'. This means that the transfer value is obtained, a suitable discount applied to it and the resulting figure is treated as a cash sum that goes into the pot to be divided.

A practical difficulty where there's only a small amount of equity is that it may not be possible for the wife (in this case) to raise the cash to buy him out. On the face of it this would mean that the house would have to be sold, so he could get his cash. However, that's often a disproportionate remedy, and he may be better just agreeing with her that he will have a stake in the eventual sale proceeds. This can be protected by a charge over the property.

[Meatyfool]

This can be protected by a charge over the property.

CK,

Forgive me if my memory is failing me, but I thought you mentioned way back in the old place that if someone owed a debt put a charge on a property as a means to get their debt back, the requirement of the charge to notify that person that the house is being sold is useless as most solicitors would post the notification on the day that the funds transferred.

Or is this something similar, but most definitely different?

Meatyfool..

[staffordian]

This can be protected by a charge over the property.

CK,

Forgive me if my memory is failing me, but I thought you mentioned way back in the old place that if someone owed a debt put a charge on a property as a means to get their debt back, the requirement of the charge to notify that person that the house is being sold is useless as most solicitors would post the notification on the day that the funds transferred.

Or is this something similar, but most definitely different?

Meatyfool..

I thought a solicitor had an obligation to account for any charge on a property, otherwise mortgage companies wouldn't be able to extend loans if they had no certainty that their loan would be satisified if the property was sold.

[Lootman]

A practical difficulty where there's only a small amount of equity is that it may not be possible for the wife (in this case) to raise the cash to buy him out. On the face of it this would mean that the house would have to be sold, so he could get his cash. However, that's often a disproportionate remedy, and he may be better just agreeing with her that he will have a stake in the eventual sale proceeds. This can be protected by a charge over the property.

The problem with that "eventual sale proceeds" idea is that it may never happen. The house may never be sold or refinanced, meaning that he will never get paid.

Moreover what if she remarries and the new husband moves into that house? Maybe they have a child and that child decides to spend his life living there?

So if the house is not to be sold either then could there not be created a loan equal to the value of that half-share of the equity? And then the wife pays monthly interest on that loan, ensuring that the husband gets paid while he waits and waits? There would be the same charge/lien on the property, of course, subordinate to the main mortgage. But the husband would not enjoy any future house value appreciation.

[Mike88]

It is unlikely a lender would agree for a charge being placed on the property.

[Lootman]

It is unlikely a lender would agree for a charge being placed on the property.

I don't see the lender would care if the second charge was subordinate.

People do take out home equity loans and the like.

[Clitheroekid]

Forgive me if my memory is failing me, but I thought you mentioned way back in the old place that if someone owed a debt put a charge on a property as a means to get their debt back, the requirement of the charge to notify that person that the house is being sold is useless as most solicitors would post the notification on the day that the funds transferred.

Or is this something similar, but most definitely different?

It's something similar but most definitely different!

What you remember is the situation where a property is jointly owned and a creditor gets a charge against the share of one owner. It's known as an `equitable charge', and in that situation all the debtor is obliged to do is to notify the creditor of a sale of the property. However, there's nothing to stop them notifying after the sale's been completed, so legally it offers very little protection.

Unfortunately, most conveyancers nowadays are so ignorant of the law that they don't understand this and treat such a charge as a charge on the property, insisting to their client that it must be repaid on completion, which is great for the creditor but grossly negligent as regards their own client!

The situation is totally different in a case like this, where the property is owned by one person. If a charge is registered against the title it's a legal charge, and it means the property can't be sold without the chargee (the creditor) being repaid (assuming there's sufficient equity).

It is unlikely a lender would agree for a charge being placed on the property.

In many cases it's irrelevant what the lender wants. Unless there's a specific restriction preventing a further charge without their consent the lender has no say in the matter.

[Mike88]

It is unlikely a lender would agree for a charge being placed on the property.

In many cases it's irrelevant what the lender wants. Unless there's a specific restriction preventing a further charge without their consent the lender has no say in the matter.

I am helping my sister with her divorce. Less than a month ago her solicitor advised her to "try for a charge" but in her experience lenders are likely to refuse to allow it. The idea of a secondary charge might work and we shall try it. However, in view of CK's comments we shall raise this matter again.

[melonfool]

It is unlikely a lender would agree for a charge being placed on the property.

In many cases it's irrelevant what the lender wants. Unless there's a specific restriction preventing a further charge without their consent the lender has no say in the matter.

I am helping my sister with her divorce. Less than a month ago her solicitor advised her to "try for a charge" but in her experience lenders are likely to refuse to allow it. The idea of a secondary charge might work and we shall try it. However, in view of CK's comments we shall raise this matter again.

Well, obviously it is a second charge, the mortgage lender has the first charge already

Time for a new solicitor I think!

Mel

[DrBunsenHoneydew]

In principle the first charge holder could relinquish 100% control and permit a "first pari passu charge", but obviously they won't!
It's occasionally used where a new mortgage is being arranged with 2 lenders both providing funds at the start of a loan.