Money advice post divorce

[Summerset23]

Hi, I can’t see the answer to my question but if I’ve missed a similar thread, please point me to it.

I am currently in the process of a no fault divorce. My choice, husband has agreed. I want to stay in the house (we have one 10 year old, live near the primary, want to minimise disruption), but I can’t afford to pay him the equity in one go (he has agreed to 40%). He has agreed to me paying him the money in two lumps - one when we divorce/remortgage and one at a specific date later. I am currently drafting the financial settlement with a solicitor having paid a flat fee for her to interpret our amicably drawn up agreement.

I have tried to remortgage but after being offered one, the mortgage company now say my husband has ‘an interest in the property’ and will only proceed after judge has signed the financial order (which won’t be till January), long after the offer expires. I am worried that I won’t be able to afford the current rates if I have to start again via the broker.

The plan was to give him 30k by remortgaging, then 40% equity in 6 years time when our son is 16 (minus the mortgage repayments I will have paid during that time).

Now I don’t have the mortgage option, I have tried to source £30k from friends and family (instead of by remortgaging) and have almost found it. This would be financially sensible, as we are on a low rate fixed mortgage for 3 more years and there’s a 4k early repayment charge, but I now discover that I won’t be able to gift him that money without paying tax (I think). and I also don’t know what I am legally obliged to do regarding declaring this to my mortgage provider.

My husband, whilst being extremely passive and taking no actions unless forced, is a good person and I want to get the best for both of us. I told him I wanted a separation last august, so this is really taking a long time but he has neither the money nor the interest to move out (hence finding him a lump sum to get him to go and rent nearby). We have agreed to have our son with each of us 50/50. I don’t want this to go on too much longer as our amicable goodwill will fade and I very much want to move on.

So my question for the brains of mumsnet, is: what are my options?

• can I retain my current mortgage (do I have to tell my mortgage company once my husband moves out?) in any way to the end of the fixed term
• I think I can give him unlimited money without incurring tax while we are married, but how do I get the money from friends/family? there a way for me to gift him the money somehow?
• Any other ideas? Is selling the house the cleanest way forward?

Have you spoken to your current mortgage provider? You can usually port your current deal to one person so you could keep the current rate until it expires. My mortgage provider would let me port the mortgage to me, keeping the current deal but also extending the repayment period to make the payments more manageable. You don't need to tell the mortgage provider that he's moved out,

You shouldn't need to pay tax on a gift. The only time tax may be payable is if you die within 7 years and inheritance tax may be payable if you are over the threshold. But also you shouldn't be giving him any money until the consent order is signed by a judge.

But you are not gifting him the money, you are buying his bit of the house off him aren’t you? Or have I misunderstood? It’s part of your divorce settlement?

What is the basis of the money you are “sourcing” ? Are these loans? Do you really want to be in that situation or to put other people in that situation? Yes you will need to declare loans or gifts as these impact on your lending.

As others have said you will be buying him out of his share. I don’t see what the gift is?

However he will still retain an interest if you don’t but him out completely. And why are you deducting mortgage payments from the delayed payment. You are getting the benefit of his capital for years. He should receive a percentage of the equity without deductions. If he had the 40% now he could invest and get growth.

It all sounds messy to be honest. In his shoes I would avoid this deal as I think you will not be any better position to give him his money in 6 years time. You can’t do it now.

Agree with lemon

He’s retaining 40% Interest by deferring his share now , and should receive 40% in 6 yrs without deductions based on house value/equity at that point in time.

can you actually afford to buy him out if you are having challenges raising money now and with mortgages ?

If you are both sharing residency of your son 50/50, why do you get to keep the family home? From the sound of it, you are not being fair over the split.

Exactly why doesn’t the OP move into the rental if she wanted to separate.

I experienced the same with my mortgage lender and then they backed out last minute and declined as they don't like it when you do this - repaying equity in 2 goes

I have retained my current mortgage until I can pay him the equity in one go - I haven't had to tell my mortgage company - they aren't interested so long as it's being paid

thanks everyone, I appreciate your comments. 40% is fair based on our financial arrangements over the whole relationship (I paid the deposit, twice as much of the monthly mortgage and bills etc as him, have supported him in all ways over many years), and he has willingly agreed to this split, seeing it as fair given the circumstances. So this is not the question - it's about how to move forward to get the best arrangement for all 3 of us amicably. He understandably wants some money (but is flexible with how much - it was me that came up with 30k initially, based on what I thought I could afford to remortgage), in order to help with moving out. Neither of us earn a huge amount and money will be tight, but I have calculated that I can afford the current mortgage (£1200 a month) if I had to, until the end of the fix.

I would source the money as loans - some from my mum as an advance on inheritance, and the rest as an informal loan. That's true that it's a big thing to do and one I'm debating - it would allow me to keep the current mortgage (and therefore there would be more equity to split afterward, than if I remortgaged). It was my solicitors advice to say it would be 40% equity minus the mortgage repayments - based on the logic that it would be me paying these alone during the interim between payment 1 and payment 2.

I phrased it as a 'gift' to my husband as that was the guidance I found online, but yes it's not a gift, it's buying him out in two stages. I don't know if that changes the tax rules though. It's all complicated and I am trying my best to be fair and calm, I just want the best for all of us and am not seeking to get one over on him at all.

But you are tying up his investment, getting some use of the asset, gm deferring his share of capital and ability to invest it elsewhere - and he could charge you occupational rent - so his share should be 40% of equity at that point in time

you shouldn't be giving him any money until the consent order is signed by a judge.

This

Just sayin

If you really want to be fair make sure he has independent financial and legal advice. Your interpretation of what he is entitled to is wrong. Your are married and that makes contributions equal and ownership equal. In fact he is probably entitled to 60% of the equity if he earns less.

you will need to declare all those loans to the lender who refuse to lend because you at least 3 people with an interest in the property.

This looks like a slightly unfair and very risky proposition from your ex-husband's perspective. If he gets legal advice - and he should - he will probably be advised that his share of the equity in six years time should not be net of your mortgage payments. Your sole occupancy of the property for 6 years and his having to rent negates any advantage he might have from you paying the mortgage (it would maybe be different if he was buying another place rather than renting). He will also be warned about potential difficulties arising in being removed from the mortgage if the property transfers to you before you confirm this is possible with the bank.

I would strongly recommend neither of you continue without proper legal advice (with two separate solicitors).

No comment on the rest of your financial package, but while you are married to someone you can transfer whatever assets you like between the two people with no tax payable.

I gave my husband our house before we divorced and he gave me a large amount of cash also before we divorced.

You shouldn’t pay tax on giving your ex husband money because you are giving him money from his own house which was already his and had been taxed already.

Money from friends and family is a loan so you wouldn’t pay tax on that either.

You mentioned paying the mortgage was really tight just now on the fixed rate. Mortgage rates are only going up which may end up making it unaffordable for you down the line. Perhaps you should consider selling just now rather than down the line?

Two notes of caution here:

1. Ensure money borrowed from family and friends is structured as a loan. If for example you get it all from a parent, there is no formal agreement in place and the parent dies this might be considered a potentially exempt transfer for IHT purposes (although this is only relevant if their estate exceeds the IHT threshold).

2. Tax applicable to spouses who are divorcing will depend on when in the tax year the divorce is finalised. There are some reliefs but don't just go ahead without checking with a solicitor first.