How to divorce-proof your mortgage

ended 13. January 2022

A journalist at Mail Online / Thisismoney is working on a piece about how to 'divorce-proof' your mortgage. She's looking at what steps people (couples, siblings, friends) should take when buying a home and taking out a mortgage together, to ensure that there is minimal hassle and mayhem if the relationship ends. 

For example, what records should people keep, how should they split the deposit and payments, and should they have a legal mortgage prenup plan thingy for how they would divide the ownership if needed? And are there any other legal/contractual steps they can take to make things easier, e.g. being tenants in common rather than joint tenants?

Any insights on this, wing them over. Deadline is midday tomorrow. Don't try and cover everything as there's a lot of stuff to cover here, just zoom in on a few simple points.



 

7 responses from the Newspage community

Star Quote
"I'm seeing more friends buying together to get on the ladder. Tenants in common is the way to go, especially if they are putting in different deposit amounts. Deeds of trust can be used to protect deposits where one party may have put in more than the other. Where parents are making sizable gifts they may even want to protect their interest with a second charge, which one high street lender allows. A living together agreement is also a great idea. It can specify rules and have clauses on when one party must allow the other to sell."
Star Quote
"Put everything in writing. The best way to avoid any arguments is to agree at the outset what should happen in the event of a breakdown in the relationship, and to put this down on paper. Some people agree that regardless of how much they contribute, they will split the equity 50/50. Some people will split everything according to how much each party has contributed to the deposit and to the monthly mortgage payments. Others may agree that one party has the right to buy out the other party. There are no set rules. The most important thing is that you are both happy with the choices you make."
"A common step for couples divorcing, and where it's agreed that one partner in the relationship will remain in the property, is to change ownership from Joint Tenants to Tenants in Common. With Joint Tenants, each person in the relationship has equal rights to the whole property and should one die, the other automatically inherits. With Tenants in Common, the partners each own an agreed share of the property, and can specify in their Will who they want to leave their share to. So agreeing how the property will be split as Tenants in Common is definitely one to think about."
OK, first the bad news...you can't divorce proof your mortgage. Lenders have for many, many years lent mortgages on a joint and several liability basis - meaning all parties to the mortgage are responsible for 100% of it, not just what they see as their "share". One party cannot be released from their obligations under the mortgage unless the lender agrees to release them. No amount of paperwork between the borrowers can change this. Now the better news...you can take steps to help divorce proof your property ownership. By owning the property as Tenants In Common rather than Joint Tenants you can take some steps to preempt a relationship breakdown if the property is purchased as an unequal share, by reflecting that unequal share in the ownership details. Another option, if for example one party has put in a larger initial deposit than the other, would be to ask the conveyancing solicitor to draw up a Deed Of Trust. This could then state that one party receives their "extra" deposit back first, before the remaining equity is split 50/50 There is however a big BUT in all of this...these legal remedies are unlikely to withstand an acrimonious divorce in Court, especially if there are children involved, so the real world value of them is limited.
"First off, you can’t divorce proof a mortgage. What you can do is put down in writing who is contributing to the deposit in both cash terms and as a %. This can help ensure you get back what you put in. Secondly, talk about what happens in the event of a divorce before you get to that point. People are terrible at thinking about what ifs, even though there’s a 1/2 chance you’ll get divorced and a 100% chance you’ll die. Sort it out before you need to."
If you are going to split up it is important to try and make sure that your joint bills are still paid where possible. We regularly speak to borrowers who have separated and missed mortgage and credit card payments. When this happens they often find themselves in a worse position financially because they can't get credit from standard lenders. If your mortgage is coming up for renewal and your relationship isn't great, think twice before you lock into a longer-term fixed rate. Many mortgages have high exit fees and they are expensive to get out of espcailly if you end up selling your home.
Buying a property is a huge commitment. No matter how you choose to make your mortgage repayments together, you will both be jointly liable for the full amount, so you need to be 100% confident in your decision. Discussing what would happen to your property if it needed to be sold at the point of sale, is therefore advisable. To protect your investment and give you the reassurance you need if things do not go to plan, many mortgage lenders will allow you to make a Deed of Trust. This is a legal document that outlines how any equity is to be spilt, if the property is sold or remortgaged to remove someone from the title, based on the percentage that you put in initially. Both parties will need to be involved in the process and receive the appropriate legal advice.