Isobel Massey from the Family team at Ashfords outlines the options for releasing equity in a family home
If you are considering equity release in respect of your family home or another property following separation, there are some important points to be aware of.
We have summarised below, some key points which should be considered at the outset of any equity release transaction following separation. These issues will have a key impact on your financial security in the future, in addition to the timeline of your equity release transaction, so it is important to consider them at an early stage to avoid any difficulties.
- Requirement for a deed of separation or a financial consent order alongside divorce proceedings
Although the requirements for all lenders inevitably vary, it is a standard prerequisite for the individual seeking equity release to provide the lender with evidence of a final financial agreement with their ex-partner, which includes provision for how the family home is to be dealt with.
If you are unmarried, lenders will require evidence of a deed of separation being in place, which sets out how assets are divided following your separation. Although all lenders differ, most lenders will require the document to clearly detail who is to retain the subject property and confirm that the agreement is intended to be in full and final settlement, which includes there being no ongoing payments between each former partner.
If you are married, lenders will require either:
- Evidence of a deed of separation; or
- Financial consent order, incorporating the terms of your financial agreement, which has been approved by the court alongside divorce or dissolution proceedings.
Again, it is often a standard requirement of most lenders that both of the above documents confirm that the terms are intended to be in full and final settlement of financial matters. In respect of the financial consent order, this involves there being a “clean break” clause within the document, which has the effect of preventing either person from making any further financial claims against the other in the future, once the order has been approved by the court. This provides the lender with the necessary security to proceed with the transaction.
- If you are married – should you choose a deed of separation or a consent order to resolve your finances?
It can be tempting to choose the quickest and most cost effective option, to satisfy the lender and enable the equity release to proceed. However, it is important to understand the implications of each document and be able to make an informed decision as to which option is right for you and sufficiently protects your position in the future.
Considering a deed of separation first, these types of documents are not strictly legally binding, but where you have both entered into one freely, with open and transparent disclosure and ideally legal advice, they do usually carry weight, unless the court considers them to be unfair. Both individuals should therefore expect to be held to the terms. It is not, however, possible to have a fulling binding and enforceable deed of separation, as if there were to be a dispute in the future, the terms of the agreement would be subject to the court’s final powers to determine finances. For this reason, we always advise individuals still to incorporate the terms of their deed of separation within a consent order alongside divorce or dissolution proceedings as soon as possible.
In contrast with a deed of separation, a consent order is able to achieve a clean break between you and your ex-partner and dismiss the financial claims that you each have against one another by virtue of your marriage or civil partnership. Once a consent order has been approved by the court alongside the divorce proceedings or dissolution proceedings, it is binding on both individuals.
Given that it is not possible to have a consent order without divorce or dissolution proceedings, the process of preparing a consent order is inevitably longer. It is only possible to submit a consent order to the court for approval once the divorce or dissolution proceedings have reached the middle stage, known as decree nisi or a conditional order. This usually takes two-three months from the date that the divorce / dissolution petition is filed with the court. Once the consent order is finalised and signed by both individuals, this then needs to be submitted to the court for approval, which can take a further one-two months.
Although a separation agreement can usually be prepared much quicker, as there is no need for divorce / dissolution proceedings to be issued, crucially, it does not provide individuals with the same level of financial security following separation. The only way to achieve a clean break and finally dismiss the financial claims between each individual arising from the relationship is to enter into a consent order and get this approved by the court. Without taking this step it is not possible to achieve a clean break in respect of the financial claims that each person has against the other.
The above information is only an insight into the important points to consider at the outset of any equity release transaction. The preparation of a separation deed or a consent order takes time and careful consideration to protect your financial position in the future, so it is advisable to seek early advice from a lawyer to assist you before you proceed with any equity release transaction and well in advance of any deadline. You can then make an informed decision about how you wish to proceed, being fully informed of your options.
For more information on this please speak to the Ashfords Family Team, or contact Isobel Massey on email hidden; JavaScript is required www.ashfords.co.uk