Talking Property: Property prices are now so high that it is almost impossible for divorcing couples to fund two homes where one previously existed, writes Ann O'Neill.
Property and the escalating prices achieved by Dublin properties in particular has become a prominent topic at social gatherings.
For those farsighted folk who invested in property 10 years ago, the present market brings increasing enrichment and no doubt a sense of self-satisfaction. Even those of us who have simply watched the equity in our family homes dramatically increase over the years enjoy this feeling, so long as we are not planning an upward move.
Unfortunately, however, for an increasing number of those contemplating a sale or a purchase, the decision is not made by choice, but rather by necessity following the break-up of a marriage.
For the majority of married couples, the primary asset of the marriage is the family home. It follows naturally, therefore, that what happens to this asset following marital breakdown is one of the main concerns of separating couples.
As family lawyers, it is our function to deal primarily with financial matters following marital breakdown. All the advice that we proffer at a first consultation is ultimately predicated on what, in our view, a court would do in the event that, failing negotiations, the issues fell to be determined by a judge, either in a judicial separation hearing or in a divorce.
Family law is, therefore, largely about redistribution of matrimonial property and other financial matters, such as maintenance of the dependent spouses and children following separation.
There are three main options in respect of the family home: firstly, the house may be sold and the net proceeds divided between the spouses, although in many cases not on a 50/50 basis; secondly, the property may be transferred into the sole name of one of the parties to the marriage, perhaps following a buy-out; thirdly, the property may be retained in the joint names of both parties for the duration of the dependency of the children, with an agreed date of sale in the future.
There is a number of different factors which contribute to each of these results and, in so far as it is possible to generalise, I will briefly elaborate on why in some cases the property is sold and in others it is not. In many cases, however, it is possible to "save" the family home and effect a transfer of ownership to one spouse. This is mostly possible where both spouses are working outside of the home and it's possible for one to get a mortgage to buy out the other.
In most cases where this occurs, the party being bought out will not obtain anything like 50 per cent of the equity of the property, as usually this will occur where there are dependent children with attendant housing requirements.
Both parties have a duty to maintain their children and the reason why one of the parties forfeits a portion of the equity in the property is that the additional percentage may be deemed to be a form of lump sum maintenance, for either the dependent children or a partially-dependent spouse.
A recent development in the nature of mortgages being offered to borrowers has helped to assist this result in cases where previously it would not have been possible for the borrower to service a mortgage of the size necessary to effect such a buy-out. In a number of my cases, my clients have been able to obtain interest-only mortgages which result in much lower repayments, allowing one party the freedom to buy-out the other party's interest and still afford the monthly mortgage repayments. For many Irish people the concept of an interest-only mortgage would be anathema on the basis that, in theory, one would never own the property as the capital always remains outstanding.
But in a rising market, many people take the pragmatic view that it is preferable to enjoy the possibility of continuing to reside in your home with all the attendant benefits to the children of minimal disruption than to become overly concerned about what will remain to be distributed as an inheritance at some distant time in the future.
There are many factors which influence a lending institution in their willingness to offer such a facility, but in cases where the capital sum is not an overly large proportion of the total value of the asset, it should be possible to obtain an interest-only mortgage.
This is an option which should be considered by many separating spouses and it is one about which many people are entirely ignorant.
The final option in relation to the property is to allow one party to continue to reside in the house until, for example, the children have completed their secondary school education with an agreement to at that point place the property on the market and divide the proceeds of sale in an agreed fashion.
This option is the one least favoured by both practitioners in the area of family law and the judges who determine the family law cases which come before them.
The reason for our general bias against this result is that it does not allow the spouses to successfully move on and create new and different lives post-separation. When two parties retain a joint interest in a property, the party living there is constantly aware that at some point in the future they will be obliged to move out.
The party no longer residing there in all probability resents the fact that he, and it is usually the husband, is not in a position to fund the purchase of alternative accommodation, because he has no access to the equity accrued in the family home.
The financial circumstances which would dictate such a situation would be, for example, where the property was not particularly valuable and it would not be possible following the sale to adequately rehouse either party.
In such circumstances, where there are young children, their housing needs are paramount and this may be the only option available to allow these needs to be met.
Family lawyers are obliged to keep almost as close an eye on the property pages as estate agents, as we are often have to place the family home on the market.
An increasing number of sales are motivated by marital breakdowns and estate agents often find themselves under huge pressure to obtain unrealistic prices in such sales, as every penny counts when you are dividing one economic family unit into two.
One of the reasons it is so difficult for parties to separate in Ireland is that property, especially in the Dublin area, has become so expensive that it is almost impossible to facilitate two separate domestic housing arrangements where one previously existed.
One gripe of family lawyers is that the prohibitive rates of stamp duty prevent many parties starting again in the purchase of property post-separation.
A small stamp duty relief is afforded to some separating couples. Where a couple separate and one party transfers ownership of the family home to the other, he or she is then in a subsequent purchase treated as a first-time buyer for stamp duty purposes.
Depending on the purchase price of a new property, this can allow a potential stamp duty saving of between 1 per cent and 3 per cent. There is a further anomaly here in that, if parties are obliged to sell the property, neither can avail of this relief in a subsequent purchase.
The costs attendant on both the sale and purchase of property are very much a factor when it comes to determining whether or not a family home will indeed be placed on the market, as very substantial costs are engendered on a sale, by way of estate agents and lawyers fees and additional costs arise on the purchase, in particular stamp duty.
For this reason, we try to achieve a result whereby one spouse remains in the family home. Despite our best endeavours, in many cases the financial circumstances of the parties will not allow this result.
Remember that no two cases are the same. Make sure to consult a lawyer who practises in family law, as it is very heavily legislated on and very specialised.
Ann O'Neill is a solicitor practising in family law with Abercorn Solicitors, 38 Pembroke Road, Ballsbridge, Dublin 4. E-mail: info@abercorn.ie
