Are you over 55 and going through a divorce or a separation? Equity release could help you through the divorce settlement process by providing much-needed funds to buy out a partner’s share in a property, purchase a new property, or fund any legal proceedings.
Our equity release specialists have detailed how equity release can be utilised in a divorce or separation in retirement below.
Understanding Equity Release and Divorce
Equity release can be a practical solution for divorcing couples over 55 who need to access the tied-up cash from their property to reach a financial settlement. It can offer a way to achieve a clean break by providing tax-free funds that can be used to divide assets fairly.
An equity release plan, which is available to individuals aged 55 and over, can be particularly relevant in divorce situations. It allows one partner to buy out the other’s share, enabling them to remain in the family home without the need to sell. This option can provide financial stability during a difficult transition while ensuring both parties have the resources they need to move forward independently.
How does equity release work in a divorce?
When one spouse wishes to remain in the marital home while the other departs, equity release can provide a means to release funds to enable the resident to buy out their partner and assume sole ownership.
An existing mortgage can complicate this process, as it must be addressed before proceeding with equity release. Options include one partner taking over the existing mortgage or using equity release to facilitate the buyout process.
However, in cases where both divorcing parties seek to sell and purchase new homes, equity release can also cover the difference between the sale proceeds and the cost of the new homes, allowing both to have home-ownership post-separation or divorce.
It is crucial to understand how equity release works to make informed decisions during the divorce process.
How do I take the equity out of my house in a divorce?
During a divorce, one might choose to remain in the marital and or family home, while the other person relocates. In such instances, releasing equity through an equity release product can help the person staying in the home to secure tax-free cash based on the property’s value, your income, your age, and some other factors.
When dealing with an existing joint mortgage, options include selling the property or one partner remortgaging the property into their sole name to take over the obligations. Lender agreements may depend on affordability assessments and specific mortgage terms.
This is often used to help the person remaining in the property to buy out their ex-partner or purchase a new home.
Eligibility and Requirements
To proceed with equity release to fund your divorce or separation in retirement, you will need to meet the eligibility criteria. This includes:
- You must be aged 55+
- Your property value must be £70,000+
- 75+ years left on the lease if leasehold
- The property must be your main residence
- The property must be in a good, habitable condition
If you are currently going through a divorce or separation, you may be required to provide some paperwork relating to this, however your equity release adviser will discuss this in detail.
It is also important to consider how equity release might affect your eligibility for means-tested benefits. Learn more about the eligibility criteria of equity release.
The pros and cons of using Equity Release in Divorce
Equity release can be a useful tool for divorcing couples who need to access funds to buy out a partner’s share of the property. However, it’s essential to understand the advantages and disadvantages of equity release.
The advantages of equity release
- You can continue to live in your own home, rent free, for the rest of your life or until you move into permanent residential care.
- The ‘no-negative equity guarantee’ means that you will never have to repay more than the value of your home and your estate will never owe more than the property is worth when it is sold.
- The tax-free cash that you release can be used for anything you like from home improvements, clearing a mortgage or debt, to the holiday of a lifetime.
The drawbacks of equity release
- The value of your estate will reduce and the amount you can pass on in inheritance via your estate will therefore also decrease.
- Your entitlement to certain state benefits may be affected.
- If you wish to repay or end the plan early there may be financial penalties in doing so, such as an early repayment charge.
Read more about the pros and cons of equity release.
Alternatives to Equity Release for Divorcing Couples
While equity release can be a useful tool for divorcing couples, it’s not the only option available. There are alternative solutions that may be more suitable for your circumstances including:
- Remortgaging your home
- Switching to a retirement interest only mortgage
- Downsizing to a smaller property
- Getting a lodger and renting out a room
- Taking a personal loan
When considering these alternatives, it’s crucial to think about your future living arrangements. This includes evaluating whether you want to remain in the marital home or sell it as part of the settlement.
Read more about the alternative options to equity release.
Equity release advice for divorcing couples
Whether you are in the early stages of a divorce or separation, or have already completed the necessary paperwork, our equity release specialists can help you understand how equity release could help you meet your financial goals.
At Bower, we offer no-obligation, whole of market advice, so you can consider your options carefully with no pressure to move forward with equity release. Whether you’re at the beginning of the separation process or your divorce has been finalised, our advisers will carefully consider your individual circumstances before making any recommendations.
Get started today with our free online equity release calculator or request a callback to learn more about equity release.
FAQ’s
Can my spouse take equity out of my house?
Your ex-partner will need your consent for the removal of your name from the title deeds and the mortgage. Some lenders may keep you on the mortgage, and remove you from the deeds, but you will probably want to be removed from any liability as you won’t be living there.
Equity transfer following a separation will require your approval, and the mortgage lender will require you to have taken legal advice, however, it is important to note that the current mortgage lender will only approve this if your ex-partner meets their criteria.
Can I use equity release to buy out my partner?
Opting for an equity release arrangement during a separation can entitle one of the individuals to maintain residency and sole ownership of the marital home, facilitating divorce settlements. It can also furnish the necessary funds for the other party to buy out their ex-partner, or to purchase a new home for them if that is required.
Can I use equity release for a financial settlement?
Individuals over 55 can utilise lifetime mortgages to divide assets during a divorce.
This involves taking an equity release loan out against the property and repaying when the home is sold after their passing, or when entering long-term care. For older homeowners experiencing divorce who lack the funds to buy out their partner, purchase a new home, or qualify for a traditional mortgage due to age or income constraints, equity release may provide a solution.
At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.
Bower Home Finance provides independent, impartial whole of market advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,695 be payable.
If you are considering equity release, we strongly recommend that you read our equity release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or join our live chat you’ll find on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.
