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Divorce Scenario Lifetime Mortgage

Divorce at any time of life is a stressful and upsetting experience for all parties, unfortunately, within the over 60 cohort it is becoming far more common for couples to separate. Often they will have lived in the matrimonial home for many years and the emotional upheaval at the thought of selling the home can cause increased animosity and pain.

For these divorce cases where selling the matrimonial home is either too stressful or just not possible equity release can provide a solution. A lifetime mortgage can be used to provide the liquidity that is required and therefore help simplify the process of splitting the assets allowing one party to raise equity on the property and in essence pay off the other person thereby providing freedom to purchase another property whilst allowing the other person to stay in the matrimonial home.

However this is not the same as selling the matrimonial home and splitting the assets 50/50 and whilst an equal spilt is not often the case in any event, it is essential that clients
understand exactly how equity release works. The amount able to be released will depend on the age and health of the person who will be remaining in the matrimonial home and a detailed advice process with independent legal advice will be required.

At Bower we have helped a variety of people who have faced this unfortunate situation by explaining in sensitive terms what their options are and how their decisions will impact on their estate, explaining both the risks and the benefits of choosing equity release. Below is a scenario laying out more detail but with changes to certain
information to protect the client’s privacy.

Mr and Mrs Jones were divorcing in September 2014 and needed to arrange a financial settlement as quickly as possible. In this case it was the wife who wished to move out as Mr Jones needed to remain in the home due to poor health. His wife did not want to add any more stress to her husband and therefore she was happy for him to remain in the home but the couple needed to release the equity to enable the divorce to be settled. The matrimonial home, owned in joint names was a Grade 2 Listed property in London worth £5million with no existing mortgage.

The couple had agreed that they needed to release a cash settlement for Mrs Jones of £1.8 million to enable her to purchase a property of her own. They also agreed that the matrimonial property would be transferred into Mr Jones sole name when the decree absolute was granted.

Mr Jones at the time was aged 66. Due to his health he was able to qualify for an enhanced lifetime mortgage and raise the £1.8million required and also mitigate potential Inheritance Tax liabilities. Mrs Jones age was immaterial as she would not be party to the lifetime mortgage.

Bower Private Clients appointed a specialist adviser to the couple to help Mr and Mrs Jones understand the implications of their decision and ensure they had the best possible outcome, which in Mr Jones case meant he could release the money to enable the divorce to go ahead and remain in his beloved home. However as he was unable to make any monthly repayments the loan would increase over time as the interest would be compounded. Mr Jones felt that possible future house price inflation would go some way to mitigate this and so was comfortable with his decision. Their specialist adviser helped the couple to fully understand the process and the risks along with exploration of any other possible options. The adviser ensured the clients lending and conveyancing process went as smoothly as possible enabling communication between provider, solicitor and surveyor whilst keeping the couple fully informed at all times helped to ease the stress of a very difficult time for the couple.

Summary

  • Matrimonial home valuation: £5 million
  • No existing mortgage
  • No dependents
  • Age of client – 66 (impaired life)

Outcome

Couple agreed on a lump sum release of £1.8 million to enable Mrs Jones to purchase her own home and subsequent divorce.

Mr Jones, in ill health, remained in the matrimonial home with a lifetime mortgage of £1.8 million. Lifetime fixed Interest rate – 5.99%

The process

  • Bower Private Clients appointed Mr and Mrs Jones an independent dedicated specialist adviser providing a tailored service in a difficult situation.
  • The clients had peace of mind that all options would be discussed and the best possible lifetime mortgage available would be advised.
  • Safeguards, regulation and impact on estate and any possible state benefits was discussed in detail with the couple. The impact of any future changes to Mr Jones situation were highlighted, such as any need for long term care and how equity release may effect this.
  • The adviser, on hand at all times, liaised with provider, surveyor and conveyancer ensuring a timely and smooth process, keeping the couple informed every step of the way.
  • An additional requirement for clients is the need for independent legal advice to ensure they are fully aware of and in complete understanding of the nature of the contract.
  • Bower Private Clients, as members of the Equity Release Council and a fully regulated firm abide by a code of conduct laid down by the Council which can be found at http://www.equityreleasecouncil.com/ship-standards