Equity release and divorce

Page last reviewed: 24th October 2024 ︱Next review date: 24th October 2025

How couples can use equity release to help settle a divorce

Written in line with our editorial policy.

According to the Office of National Statistics, divorce rates for couples over the age of 65 are increasing. Aside from the stress and upheaval that a divorce brings, many couples who divorce have to make some very difficult financial decisions. One of the more challenging and emotive hurdles is deciding what to do with the marital home.

With a number of financial options available, one solution you may want to consider is equity release.

To understand how equity release and divorce works, and what happens to your plan if you already have equity release, read on to explore the following:

• How does an equity release plan work?
• Can you use equity release to help with a divorce settlement?
• Using equity release to buy out your partner
• Using equity release to buy a property after divorce
• What happens if you have equity release and divorce?

Please note: Arranging an equity release plan on your home is a large and typically lifelong financial commitment, so make sure you consider all the pros and cons of equity release. We also encourage you to involve your family members, as your decision is likely to affect them. By its very nature, a plan will reduce the value of your estate and the amount of inheritance you leave to your loved ones.

How does equity release work?

Equity release enables homeowners aged 55+ to access some of the tax-free money tied up in the value of your home. The cash you unlock can be spent in almost any way you wish.

There are typically no monthly repayments to make as the loan plus interest rolls up each month. Your plan usually ends when you pass away or move into long-term care, at which point your home is sold and the loan plus interest repaid.

Whilst there are many flexible options and features to choose from, including interest payment options, there are two main types of equity release plan. These are lifetime mortgages and home reversion plans. 

Lifetime mortgages are significantly more popular and allow you to retain 100% ownership of your home. With these plans, you can take your money via a single lump sum or by selecting a drawdown plan. 

As with all financial decisions, it’s important to feel fully informed when entering into an equity release plan. Nobody wants to plan ahead for something like divorce, but if you are married and have taken out an equity release plan,  you may wish to think about what would happen to your property and plan should you divorce. 

Likewise, if divorce for you is either ongoing or on the horizon, equity release may provide a solution to the issue of settling property matters.

Want to know how much you could unlock from your home? Check your eligibility and get your free quote now!

Can you use equity release to help with a divorce settlement?

Releasing equity for a divorce settlement can be complex, so please take legal advice before agreeing to anything or taking action. However, here’s a short summary of the two main ways you may be able to use equity release for divorce:

Using equity release to buy out your partner

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 using equity release to buy out your partner. It’s a way to access a lump sum of tax-free cash to pay your ex-partner, in return for removing them from ownership of the property. You would then be able to remain as sole owner of the property, and be able to go on living there. You would also have the right to move at a later date.

Example: using equity release to buy out a partner

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.

If you are going through a separation or divorce and wondering “Can I use equity release to buy out my partner” then check our FAQ section at the bottom of this page for further information on the subject.

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.

Example: using equity release to buy another property

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.

What happens if you already have equity release and divorce?

Equity release is typically intended to be a lifetime commitment, so is not usually repaid until the last residing homeowner passes away or moves into long-term care. However, there are circumstances when your plan will need to be updated or perhaps end early – divorce being one of them.

If you and your spouse already have equity release and divorce, you will need to contact your plan provider for guidance regarding your plan. 

You will need to decide whether you want to keep the equity release plan in place, amend it, or end it early. The options available to you will depend on your specific lender and plan, as well as your personal circumstances.

Typically, your main options will be:

• One partner keeps the house and continues the plan in their sole name.
• The house is sold to pay off the equity release plan, with the remaining equity (less any accrued interest and early repayment charges) divided between you.

What happens if one partner keeps the house?

If one partner intends to retain the home following the divorce, the equity release plan may be able to continue in their sole name, but there will be some formal steps required. 

Your plan provider must be informed of any change in ownership and consent to the plan continuing in one name. During the plan update, you’ll need to update the property’s title deeds through a solicitor. 

Once the title is updated to reflect single ownership, the equity release plan will remain in the sole name of the partner who keeps the house. This means the plan will continue as usual until the homeowner passes away or moves into long-term care.

What happens if the house is sold?

In cases where neither party wishes to keep the home, selling it is a common solution during divorce proceedings. Once you agree to sell, you’ll need to contact your equity release provider to understand the full financial implications. These will include the final repayment figure, which consists of the loan balance, accumulated interest, and any early repayment charges.

Many equity release plans have early repayment charges that can be costly. However, some plans offer reduced or waived fees in certain circumstances. Speaking to your provider about your situation will help you to weigh up your options before deciding how to proceed.

Alternatively, if either party wishes to move the plan to a new home, this may be possible under the portability feature. The new property will need to meet your lender’s eligibility criteria. The value and type of the new property will need to be acceptable to the lender, and they will reassess the plan accordingly.

Talk to Equity Release Wise

There is much to consider when it comes to equity release and divorce. If you haven’t done so already then seeking legal advice is an important first step for understanding your options during a divorce. 

If you decide during or after your divorce to explore equity release, then our selected advisers will be here to help answer all your questions and get things started. All the initial advice and quotations you receive from our selected advisers is entirely free and without obligation. 

If you choose to go ahead with a plan then you will be charged a fee for advice, which can be paid directly from the money you unlock. So if you are considering equity release to help settle a divorce, why wait any longer? You have nothing to lose by calling our friendly team today!

Find out if you are eligible and how much you could release by calling 0808 178 3055 or request a free callback here for a time that is convenient for you.

FAQS

Can I use equity release to buy out my partner?

Some people when getting divorced struggle to find a way to raise the funds they need to buy out their partner. For people aged 55+ there is a potential solution in the form of equity release.

It may be possible to take out equity release to buy out your partner. By buying yourself out of the mortgage, the funds you release could enable your ex-partner to buy a property to live in. It could also enable you to solely own and live in the marital home.

However, the process of using equity release to buy out a partner will depend on the specific requirements of your lender. Lenders may have different conditions when it comes to releasing funds in the context of a separation or divorce, so it’s important to be aware of your lender’s conditions and process. Here are some examples:

Separation agreement: If you and your ex-partner have a separation agreement in place, your lender will likely need to see it. This document, usually prepared by a solicitor, outlines the terms of the separation, including how assets will be divided. Some lenders may require consent to contact your solicitor to verify the details, especially if the agreement was created some time ago. Providing the lender with a copy of the agreement will help clarify the financial arrangement between you and your ex-partner, making the process of releasing funds smoother.

Divorce proceedings: When it comes to using equity release to help settle a divorce, the requirements differ slightly. While a divorce officially dissolves the marriage, it doesn’t automatically deal with the division of assets like your home. For this reason, you will need a Consent Order—a legally binding financial settlement that divides your assets and prevents either party from making future claims on each other’s property or finances. This order must be approved (sealed) by the court. Lenders are particularly interested in seeing a Consent Order to ensure that your ex-partner cannot return in the future and make a claim on the property involved in the equity release plan. This helps protect the lender’s security in the property.

Ultimately, lenders want to be sure that there are no competing claims on the property once the equity release plan is in place. If there is any possibility of your ex-partner making a claim on the home, it could jeopardise the lender’s position. That’s why ensuring proper legal documentation, such as a separation agreement or Consent Order, is crucial when using equity release to buy out a partner.

As each lender may have different processes, it’s essential to contact your equity release provider for specific guidance on what documents and steps will be required in your situation.

What are the pros and cons of using equity release to help with a divorce?

If you are thinking about using equity release to help settle a divorce, here are some of the main points to think about. For a comprehensive guide to the pros and cons of equity release, click here. 

Pros of using equity release after divorce
One of the main potential advantages of releasing equity for divorce is that it allows one party to stay in the family home. This can be especially important for individuals who have invested time and money in renovating the property, still have a child living at home, live close to family, or simply wish to avoid the stress of moving later in life.

In some cases, selling a home can take a long time, which can lengthen the divorce process. By opting for a lifetime mortgage, you can access funds in as little as two months, which might be quicker that selling the home. This might help speed up the divorce process and provide both parties with a more immediate financial solution.

The partner who moves out may be able to use their share of the equity released to purchase a new home. They may even have the option of arranging their own plan to help with the purchase. 

Cons of using equity release after divorce
On the downside, particularly if you are in your 50s or 60s, then the amount you can unlock from your home might not be enough to buy out your ex-partner’s share of the home. If this is the case, you may need to find other financial means to help settle your divorce. You can get an idea of how much money you could release with our online equity release calculator. 

Additionally, the amount of interest that accrues can add up quickly as it is typically left to roll up on a compound basis. If you don’t want your loan to grow in size, then you’ll need to arrange a plan that allows you to pay off the interest each month, or make ad hoc payments of the loan capital as and when you can afford to.

You should also bear in mind that a plan will reduce the amount of inheritance you can leave to your family. Some homeowners may be concerned about leaving a smaller financial legacy for their children and grandchildren. If this is a concern for you, there are inheritance protection options to consider.

Finally, releasing equity could impact your entitlement to means-tested benefits, such as Pension Credit. If you think you might rely on certain benefits to help fund your retirement following your divorce, this loss of support can be particularly challenging when adjusting to living on a single income. 

When deciding whether to do equity release for divorce, it is very important you consider all available financial options to ensure your current and future financial goals can be met.