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The family home is the largest asset in most cases so how can it be shared between the parties on divorce or dissolution?
The most common ways are:
An immediate sale may be appropriate where there is sufficient equity in the family home to be divided to provide both parties the means to purchase an adequate new home. It may not always be possible to purchase another property of the same size or standard of the previous family home and the division may not necessarily be equal either, especially where one party has a greater mortgage raising capacity than the other or has access to other funds to help with the purchase of a new home.
An immediate sale may not be appropriate where there is insufficient equity in the family home to rehouse both parties, in which case the sale and distribution of the net proceeds can be postponed to a later date. This is called a Mesher Order. The triggering events for a postponed sale are agreed between the parties at the outset (or set by the court if the parties are in litigation). The most common triggering events include: the death of the occupying party; the youngest child of the family reaching a certain age, the occupying party remarrying, entering a civil partnership or cohabiting with another person. This is not an exhaustive list and parties can agree any number of triggers that suit their situation.
This option is likely to appeal to those who want the children of the family to remain in the family home during their minority to avoid any disruption to their education and routine. However, it is only viable if the occupying party can afford to pay the mortgage and outgoings from their income (child and spousal maintenance count towards their income); if not, an immediate sale is inevitable despite insufficient equity.
Assuming the family home was jointly owned by the parties during their relationship, it will remain so until the postponed sale takes place. The same applies to the mortgage – if it was in the parties’ joint names, it will remain so. Careful consideration needs to be given to the departing party’s housing needs. Their future borrowing capacity may be greatly reduced because they remain jointly and severally liable for the mortgage on the family home, even though the occupying party usually provides an indemnity. In practice this means the party leaving the family home will be unable to purchase another property until the postponed sale of the family unless the departing party is a high earner and their income can support more than one mortgage.
An alternative to the Mesher Order is a Martin Order which is the same as the Mesher Order except that it allows the occupying spouse to remain in the family home until death or remarriage and the sale is postponed until then. This type of order is not every common, but it may be an option for an older, financially vulnerable spouse with no earning capacity.
Where the family home is held in the parties’ joint names, it can be transferred to one of the parties on divorce or dissolution. This option is likely to be used where there is sufficient other capital in the matrimonial pot to offset the departing party’s share in the family home.
However, if there is insufficient capital to offset, the departing party’s share can be deferred to a later date and protected by way of a legal charge against the family home. The deferred payment to the transferring party is usually expressed as a percentage of the gross or net value of the family home, rather than a fixed sum.
Capital gains tax arises on the disposal of an asset or the receipt of money in respect of an asset if there is ‘chargeable gain’. Most disposals of the family home are covered by the private residence exception. However, this is not always the case so it is best to obtain legal advice from a solicitor or accountant before any dealings relating to the family home take place.
For further information and advice on this issue, and other family law issues, please contact us for a free initial consultation on 01992 306 616 or 0207 956 2740 or email us.Back to Law Articles