Equity release and divorce

How couples can use equity release to help settle a divorce

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 can play a role in divorce finances, and what happens to your plan if you already have equity release and divorce, 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 ex
• 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 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, 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. 

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?

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.

Example:

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.

Example:

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 surviving 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. 

What happens if one partner keeps the house?

Say your spouse or partner moves out and you intend to take full ownership of the property. After notifying your plan provider of the change, your chosen solicitor can update the property’s title deeds to reflect your single ownership. The equity release plan will then continue in your name solely until you pass away or move into long-term care. 

What happens if the house is sold?

If you decide to sell your home as part of your divorce settlement then you can end your plan early. You do this by contacting your lender and requesting to repay the loan in full. They will inform you of the final settlement figure which will include any interest and early repayment charges due. 

Alternatively, one of you may choose to port (move) your plan to your new home in your sole name, providing your new property meets your lender’s requirements.

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. 

Only if you choose to go ahead with a plan will you be charged a fee for advice, though this 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 0800 096 2215 or request a free callback here for a time that is convenient for you.