What happens to your home if you divorce? You or your ex may be keen to move on, but you’ll have to sort out the house first. Buying out your ex, selling up entirely and splitting the proceeds or hanging on to the property until the kids are older are possible routes, but you’ll need to do the sums.
“We are seeing a lot of younger people at the moment and they don’t actually realise how difficult it is to take someone off a mortgage or to remortgage when you are going through a separation but you are not legally separated yet,” says family law solicitor Avril Mangan of Mangan & Company solicitors.
“People sometimes expect that the mortgage is there and it’s in my name, just take the other party off, but unfortunately that’s not how it works,” says Margaret Barrett, managing director of Mortgage Navigators.
Those trying to move on quickly can face a reality check. Even if you and your ex-spouse never owned a home together, without a legal separation you may not be able to buy a home with anyone else.
“I have had people coming to me in the past year and they have gone ‘sale agreed’ on a property, some have even paid deposits, but when they try to get their mortgage, they can’t because they don’t have a court order or legal separation,” says Mangan.
A bank won’t let you draw down a mortgage until you are legally separated and there is a deed of separation or a court order, says Mangan. “Without one of those two things, you are not getting your mortgage.
“The bank has to be satisfied that your ex won’t have a claim on the house in the future,” she says.
And as part of any court-approved separation agreement, before moving on, there needs to be proper financial disclosure, says Mangan. That means both spouses must provide a full and frank statement of their assets, their income, their debts and other liabilities and other financial information, verified by documents, to ensure a fair financial settlement.
“If proper financial disclosure hasn’t been made and one spouse goes ahead and purchases a property, that could be deemed a marital asset in the future and that can be a problem.”
Joint mortgages
For many divorcing couples, the home they shared is jointly owned with both names on the mortgage. If they separate, the court must make proper provision for both of them. That means enabling them as far as possible to be housed again.
“We need to look at, can we, from the marital assets, provide a home. It doesn’t necessarily mean that both people need to own a home. One could own and one could rent, it’s very much on a case-by-case basis,” says Mangan.
The options open to couples include one buying the other out of the home they shared, if they can afford to do so; for the house to be sold and the proceeds divided; or it could be the case that the sale is delayed until the youngest child reaches 18, with the home being sold at that point and the proceeds divided.
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If there is limited equity in the property – ie, it is not currently worth much more than the mortgage on it – hanging on to it may be the most financially viable option.
Facilitating younger children to remain in the family home with one parent is common, says Mortgage Navigators’ Barrett.
“We are seeing a lot of people in their mid to late 40s at the moment, with two or three children, and they are trying to secure the family home and buy the other person out,” she says.
Speaking to a mortgage broker and a solicitor sooner rather than later will inform you how realistic financially this is. The bank will have to agree too.
If there is a mortgage, you cannot sell the house to the other partner without the consent of the bank. The court can make an order but ultimately the bank will have to agree or you can’t do it.
That one partner may have contributed significantly more money to paying for the family home doesn’t matter. The court has to make sure there is proper provision for both parties, says Mangan.
“You could have put in a lot but it doesn’t put you in a stronger position in relation to keeping the house or being able to buy someone out,” says Mangan. “From the court’s perspective, it’s a joining endeavour, direct and indirect contributions are taken into account.”
She describes one case where the family home was gifted to someone by her parents. “Although it was her inheritance, the equity was split 50:50 in the divorce and that was by agreement.”
Buy out
A court can make orders or former couples can agree that one buys the other out. But where there is very little equity in the property, the spouse being bought out may not gain much.
“The best result they may be able to get is getting their name off the mortgage,” says Mangan.
If there is equity in the property, the person buying out can raise the money to do so by releasing the equity in the house. That means borrowing more money from the bank based on the value of the house.
Rapidly increasing house prices mean many homes purchased even a few years ago are now worth more. The result is that those separating can have amassed a good bit of equity in their home. Mortgage repayments over the years will also have reduced the loan-to-value ratio.
For example, if your house is now valued at €600,000 and your outstanding mortgage is €300,000, you have €300,000 equity in the property. The ratio of your loan to the value of the property is 50 per cent. That means you might be able to get a lower interest rate on any mortgage loan.
Margaret Barrett is seeing many divorcing couples where the loan to value ratio of their house is 50 to 60 per cent. This kind of low ratio provides bandwidth to borrow money against the value of the home to buy the ex out.
The person remaining on the mortgage “tops-up” the mortgage with the money borrowed being added to their overall loan. Depending on age and financial circumstances, that might mean higher monthly payments or pushing out the term of the loan.
Lending criteria
Since 2022, separating and divorcing couples are entitled to a “fresh start” when it comes to mortgages. This means they have the same borrowing power as first-time buyers.
This recognises that divorced and separated people, after they move out of the family home, can struggle to raise the 20 per cent deposit required of second-time buyers while paying high rents. People who end their marriages later in life can also struggle to be considered for a mortgage at all.
Under the fresh start, people in that position are allowed to borrow up to 90 per cent loan to value and to four times income.
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That doesn’t mean getting a new mortgage or remortgaging is easy, says Barrett.
“The main pillar banks – AIB, Bank of Ireland and PTSB – still require a demonstrated repayment ability. That means they are looking at your bank statements for the past six months and you have to show you are capable of paying that new mortgage repayment in your sole name,” she says.
“You still have to pass the standard of multiples of net disposable income and make sure there is enough income left over every month to service the mortgage and any other debt.”
Play the field
Newer names in the Irish lending market can be more favourable towards those who are divorced or separated. Nua Money, for example, will include maintenance, child benefit and other State benefits when assessing your income, says Barrett.
“The applicant remaining in the home is predominantly the mother we find. She may have taken reduced hours from working to rear the children, her income is reduced because of that, and Nua is quite good for applicants in that situation,” she says.
“Whilst their interest rates can be marginally more expensive, sometimes it’s about gaining independence, and there is nothing stopping you switching banks in three or five years because, by then, you will have ticked the boxes from a credit assessment perspective.”
If the spouse being bought out is also looking for a mortgage, they should also shop around.
When assessing disposable income, some banks will assess having children as a financial commitment and paying maintenance as another separate commitment. Other lenders will only count one of these factors.
“That could be the making or breaking of your credit assessment,” says Barrett. Some lenders will also regard pension or investment properties as income, adds Barrett.
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Longer mortgage terms can also be available from some lenders than others too. Having the facility to spread out payments to the age of 70, for example, will make monthly repayments more affordable, though the cost of credit over the longer period will be higher.
“A longer term is really helpful when you are 50 and going through a separation because, if you are getting a 15-year mortgage, it’s really hard to finance,” says Mangan. “But if you can get a 20-year mortgage, you can at least renegotiate later.”
It should be noted that if you are divorced or separated and have no interest in the family home, you will be eligible for the State-backed schemes such as the local authority-led Affordable Purchase Scheme or the First Home Shared Equity Scheme too.
Informal agreement?
A separation or divorce can be amicable, but that doesn’t mean you shouldn’t formalise arrangements about property.
While you might agree between yourselves that one person pays the mortgage and the other rents, not formalising it can be a mistake.
“Unfortunately what can happen, and we see it time again, is one of the parties stops paying the mortgage,” says Barrett.
“What couples forget is that even though it’s a joint mortgage, they are individually liable – so if there is a missed repayment, it is reflected on both parties’ Central Credit Register record and lenders frown on it.”
