Transfer of Equity After Divorce
In life there tend to be two major decisions we make: getting married and buying a house. When both these decisions pan out it can be a liberating experience but unfortunately life can be cruel and often throws curveballs into the equation. If you have bought a house and are facing a divorce you are likely feeling overwhelmed by the situation.
The good news is you haven’t got yourself into such a mess that it is impossible to fix. There are many ways to address both problems and you can rest assured that if your divorce does go through, you can sort out the property and move on with your life.
Let’s explore transfer of equity in a divorce and how to make the best of a difficult situation.
What is a Transfer of Equity
A transfer of equity takes many forms but normally in divorce proceedings it is used to remove a spouse from the title deeds. In some cases, a transfer of equity will be used to apportion less equity to a spouse, which means changing the title deeds from joint tenants to tenants in common.
Which type of transfer of equity you will be undertaking will depend on your personal circumstances and any court orders in place.
Before we outline exactly how transfer of equity works you should know divorce proceedings can be extremely costly and you might find your funds dwindling if you pay for legal representation. You can do the following to mitigate some of these legal expenses:
- Look through your home insurance or life insurance policies for free legal advice. Although your insurer will probably not offer representation in court, they can help significantly and allow you to prepare as a litigant in person. For example, LV= has an exceptional free to use legal team with their life insurance policies.
- McKenzie Friends offers a reduced cost full service that again allows you to prepare a case as a litigant in person. With a McKenzie Friend though, you will be allowed to have someone accompany you in court and oftentimes, they are individuals completing legal training such as trainee barristers.
Alternatively, you can approach a solicitor’s firm as most people do when going through a divorce. Solicitors will do all the work for you but are expensive. They also have no vested interest in keeping your costs down and while you may achieve a 5-10% better deal, when you equate that to the ongoing costs, many are left out of pocket even if they think they have won in court.
How Does the Transfer of Equity Process Work
Now back to the transfer of equity process. A typical transfer of equity has five steps.
- A conveyancer will prepare the title deeds and transfer documents.
- Third party notifications – for example, your mortgage lender will need to be made aware of your transfer of equity.
- Signing the transfer of equity documents (much like an exchange of contracts when you first bought the property).
- Land Registry notification so all title deeds are accurately reflected in their records.
- The process completes and the transfer of equity takes place.
Most conveyancers will have handled plenty of transfer of equity cases and will be well versed in completing each step of the process expediently.
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How Long Does Transfer of Equity Take?
The transfer of equity process can go through quickly, especially if the equity transfer is straightforward and everyone involved signs and returns documentation promptly.
However, in some cases a transfer of equity can be a drawn-out process, especially if there are third parties that object to the transaction. This can happen if there are second charges on the property or one party in the marriage has taken finance using the property as collateral (secured loan).
In even rarer cases, there may be a third party on the property deeds unrelated to the marriage or finance of the property such as a family member. This can add a layer of complexity to transfer of equity proceedings, especially if they take steps to legally block the transfer of equity taking place.
What are the Tax Implications of Transfer of Equity in a Divorce?
There can be two taxable events with a transfer of equity, and it really boils down to how you are planning to transfer equity and to whom you are giving the equity.
Except for transferring equity to a spouse, civil partner, or registered charity you will need to pay Capital Gains Tax on a transfer of equity. In the case of divorce transfers there should be Capital Gains Tax.
There are instances where your ex-partner may want to add someone else to the title deeds. Because adding a third person into the equation can open a personal liability for you with Capital Gains Tax you should try to complete your transfer of equity and then allow them to start another separate transfer of equity process of their own to facilitate this.
The second tax that could be applicable is stamp duty. In some cases, a court order will define who is responsible for the stamp duty if it occurs during a transfer of equity. However, absent of any court order, both you and your spouse will be liable for the tax. You should attempt to decide who pays any stamp duty owed and how much each party pays before entering the process.
You can always have an initial consultation with the most reputable conveyancers to find out how much tax is involved. In some cases, no tax is charged at all on a transfer of equity and once again, it depends entirely on your personal situation.
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How Boon Brokers Can Help
Most transfers of equity in divorce proceedings are accompanied by one party buying the other party out. In many cases it is not feasible to pay such a sum of money and you may need a mortgage to complete your transfer of equity.
In the event of a divorce, you may find that a Mortgage Capacity Report is required which we, at Boon Brokers, can help you arrange.
Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers offers fee free mortgage and insurance advice.
Contact us to book your mortgage consultation today.