Can you use equity release to help with a divorce settlement?
According to Legal & General, in over half of divorce cases one of the partners will want to remain in the marital home. However, not everybody has the financial capability to buy out their spouse to take full ownership of the house.
So what can you do if you really don’t want to sell your family home but don’t have the available funds to buy your partner out? You may be able to consider releasing equity for a divorce settlement that includes buying your spouse out of the house, with their agreement.
A married couple in their mid-60s decide to divorce. The wife wants a fresh start with a new home but can’t purchase a property without getting her half of the equity from their house. The husband wants to keep their home as he doesn’t want to move, but doesn’t have enough in his savings to buy his wife’s half of the house.
After meeting with each of their solicitors to discuss options, the husband decides to apply for an equity release plan on the marital home in his name.
After calculating his age and property value, the husband is told he can unlock 35% of his home’s value with an equity release plan. To pay his wife the full 50%, he makes up the shortfall using his personal savings.
The couple’s equity release and divorce solicitors work together to arrange the plan and remove the wife’s name from the title deeds. Once complete, the equity release solicitor transfers the money directly into her account.
Using equity release to buy a property after divorce
In addition to the emotional and financial challenges of finding a new home after a separation, today’s later life divorcees who need to move house may face fierce competition from other buyers. Highly sought after, well-maintained homes can be expensive and tend to get snapped up quickly.
If you are struggling to find a property within your budget after a divorce, it might be worth exploring equity release to help purchase your next home. This can be done by using a combination of the sale proceeds from the marital home and any savings you have, together with money raised from an equity release plan on your new home.
A couple in their early-70s begin divorce proceedings and agree that neither of them wish to keep the family home. They sell their shared property which raises them £440,000 – or £220,000 each.
The wife finds a property which she can afford using her share of the money from the house sale. However, the husband struggles to find anything suitable in that price range. He does however find an ideal property for £320,000.
Due to his pension income and being 71 years old, he finds that he is unable to secure a mortgage on his new property large enough to bridge the £100,000 shortfall. After considering all of his options, he decides to arrange an equity release plan to facilitate the purchase of his new home.
With the help of his equity release adviser and a specialist solicitor, he releases £100,000 from his new home to put towards the purchase of it. He has no monthly repayments to make, so when he passes away, his home is sold and the loan plus interest is repaid in full.
Remember, equity release isn’t right for everyone, so speaking to a specialist is essential before making a decision.