For many people, divorce or separation is one of life's most challenging experiences. Alongside the emotional impact, there are often important financial decisions to make, particularly when it comes to the family home.
As we move into later life, our property is often our most valuable asset. It is therefore unsurprising that many homeowners begin exploring equity release to improve their financial security following a divorce or separation. However, it is essential to establish the legal ownership of the property and agree how any necessary changes will be completed to meet lender requirements.
The legal information in this article relates to England and Wales. Different rules apply in Scotland and Northern Ireland.
At Adlington Law, we regularly help clients navigate these situations, and understanding some of the basics can help you avoid unnecessary delays and complications.
What Is Equity Release?
If you're new to the concept, equity release allows homeowners aged 55 and over to access some of the value tied up in their property while continuing to live in it. The most common form of equity release is a lifetime mortgage, which is a loan secured against your home.
Many people use equity release to:
- Supplement retirement income
- Repay existing debts or mortgages
- Fund home improvements
- Help family members financially
- Cover care costs or later-life expenses
- Improve their overall financial wellbeing
However, there are a few drawbacks to consider. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits. Many lifetime mortgages allow you to make no monthly payments, although some require payments for an agreed period. Where interest is added to the loan, interest is charged on both the original borrowing and the accumulated interest, increasing the amount owed over time. It may also reduce the amount of inheritance for your loved ones. This is why it’s essential to get advice from a qualified equity release adviser.
For homeowners who have gone through a divorce or separation, equity release can appear to offer a practical solution. However, every lender will want to ensure that ownership of the property has been correctly dealt with, before any funds are released.
Why Divorce Can Affect Equity Release
Many people assume that once a divorce is finalised, all legal matters relating to the family home have automatically been resolved.
Unfortunately, this is not always the case.
It is surprisingly common for issues relating to property ownership to remain outstanding years after a divorce has been completed. These issues often only come to light when a solicitor or lender begins reviewing the property title during an equity release application.
Examples can include:
- A former spouse still being named on the property title
- Property ownership not matching the terms of a divorce settlement
- Informal agreements that were never legally documented
- Restrictions registered against the property
- Outstanding claims relating to the home
When these situations arise, lenders will often require the issues to be resolved before the application can proceed.
The Importance of Clear Property Ownership
One of the most common situations we encounter involves a client who was awarded the family home during divorce proceedings but never completed the legal paperwork required to transfer ownership.
For example, a divorce settlement may have stated that one spouse would keep the property. However, if both names still appear on the property title, the lender will need to be satisfied with the arrangements for transferring ownership. Your solicitor and adviser can confirm whether this must happen beforehand or can be completed alongside the lifetime mortgage.
This is because lenders need certainty about who legally owns the property and who has the right to enter an equity release arrangement.
The good news is that these issues can often be resolved. The key is identifying them as early as possible.
What About Informal Agreements?
Another common issue arises when former partners reached an agreement between themselves but never formalised it through the courts.
While an informal agreement might have worked perfectly for many years, lenders often require clear legal evidence that all financial matters relating to the property have been settled.
Without the appropriate documentation, there may be uncertainty surrounding future claims against the property.
This can create delays and may require additional legal work before an application can move forward.
Unmarried Couples Face Different Challenges
Not every relationship breakdown involves a marriage.
Many people today have lived with a partner for years without formally marrying. When those relationships end, disputes can sometimes arise regarding ownership of the property.
Unlike married couples, unmarried partners do not automatically benefit from the same legal protections during separation. Because of this, establishing ownership rights can sometimes be more complex.
If there is any uncertainty regarding who owns all or part of a property, lenders will typically expect these matters to be clarified before proceeding.
Why Trusts Can Create Additional Complications
Another important consideration for equity release customers is the use of trusts.
Many people place property into trust arrangements for estate planning purposes or to help manage future inheritance considerations. While trusts can be useful in certain circumstances, they are frequently incompatible with equity release lending.
Most equity release lenders require the borrowers to hold legal and beneficial ownership of the property directly. Where a property is held within a trust structure, lenders may be unwilling to proceed unless the trust is removed or specific arrangements are made to satisfy their lending requirements.
For this reason, homeowners should always disclose any trust arrangements to both their adviser and solicitor at the earliest opportunity. Doing so can help prevent delays and ensure that the most suitable options are explored from the outset.
In addition, where people have inherited property under the terms of a Will Trust, there may often be complications relating to that acquired interest in the property, which will need to be resolved, before a client can assume legal ownership of the title.
Documents That May Be Important
You do not need to become a legal expert, but there are a few documents that may play an important role if you are considering equity release following a divorce or separation.
These can include:
Consent Orders
A Consent Order is a legally binding document that records a financial agreement reached during a divorce. It provides certainty regarding how assets have been divided and can help demonstrate that financial matters have been resolved.
Clean Break Orders
These orders are designed to prevent future financial claims between former spouses, providing additional reassurance for homeowners and lenders alike.
Transfer of Equity Documents
These documents confirm the legal transfer of ownership from one person to another and are often essential where a former spouse has been removed from ownership following a separation.
How to Prepare Before Applying
If you are considering equity release and have experienced divorce or separation, it may be helpful to ask yourself the following questions:
- Who is registered as owning the property, and does this reflect the agreed settlement?
- Was the family home included in a divorce settlement?
- Was a Consent Order obtained?
- Have all ownership changes been completed?
- Has a former partner ever had an interest in the property?
- Is the property held in trust?
Gathering this information early can help reduce delays and make the application process considerably smoother.
The Value of Early Legal Advice
One of the most effective ways to avoid complications is to seek legal advice before starting an equity release application.
Early legal review can help identify and resolve issues relating to ownership, title restrictions, trust arrangements and historic divorce settlements before they become obstacles. This often leads to a faster and less stressful experience for everyone involved.
Final Thoughts
Equity release can provide valuable financial flexibility in later life, particularly for homeowners rebuilding their finances after a divorce or separation. However, ensuring that the legal ownership of your property is clear, accurate and acceptable to lenders is a vital first step.
Whether the issue involves a former spouse remaining on the title deeds, an old financial settlement, or a property held in trust, addressing these matters early can help avoid delays and improve your chances of a smooth and successful application.
At Adlington Law, we understand both the legal and practical challenges that can arise when family circumstances and later-life lending intersect. By obtaining the right advice at the right time, homeowners can move forward with greater confidence and make informed decisions about their future.
Speak to Adlington Law
If you are experiencing divorce or separation, or your property involves a trust, and you are considering equity release, our private client team would be pleased to help you understand and address the legal issues involved.
Telephone: 01257 686386
E-mail: enquiries@adlingtonlaw.co.uk
