Dividing the proceeds of a sale

RabbitMad

there are many different ways of splitting it that could all be considered fair depending upon how you look at it.

You have an agreement - sticking to that is fair

You work out the growth in the value of the property after all costs and the parents get 75% of that plus their 75K - that would be fair

Her parents getting 75% of the capital paid down under the mortgage by your wife might not seem fair but how many years is this - shouldn't they get a return on their money over and above the house price rise as they will have had no interest on the money and no benefit from it in terms of living in the flat.

RabbitMad

Tirian wrote: »

Before anyone gets started again, this is not about what's written on the agreement. We don't want (and don't need) to take money unfairly from her parents; her parents likewise don't want (or need) to do anything that's unfair to her. I know this is a difficult concept for legal-minded peope, but there it is.

In that case only you can decide what is fair between you.

I feel your real issue is that both sides are so keen to be "fair" to the other there is some money that neither your parents or your wife want to accept. In which case I'll charge for my advice. :beer: my sort code and account number are ...

Tirian

Thanks RabbitMad, this is the kind of reasoned response that I was looking for

JimmyTheWig

Tirian wrote: »

So, once again ... can we just assume that EVERYONE involved wants a fair division of the proceeds. What way(s) are there to do this?

I think that that is a reasonable basis for a discussion.

There is no single right answer to your question. A lot of it will depend on what "seems" fair. A rule that seems fair if a property has gone up in value doesn't seem so fair for a property that has gone down in value.

So, how long has your wife had the property? Has she lived in it the whole time? With anyone else (e.g. you or a lodger)? If so, how did they contribute towards the costs?
What is the value of the house now?
What is the outstanding balance on the mortgage?
What was the mortgage term and basis (i.e. repayment or interest-only)? What overpayments have been made on the mortgage?


My thoughts...
1. What would the parent's investment be worth now if it had been put in a savings account instead? Maybe that amount for the parents would be fair?
2. I don't think that a 75/155 proportion for the parents is fair on them, as your wife has had the benefit of living in the property for these years and the parents haven't.
3. Had the parents not paid this deposit and your wife was still able to get a mortgage for the property, she would have been paying more than twice as much each month on her mortgage.
4. Do you mean that the agreement was to split the value of the house 25/75? Or split the profit 25/75? Or split the equity 25/75? The first of these seems particularly unfair on your wife, particularly if it was sold soon after purchase. The last of these is illogical.


My suggestion, without seeing the figures to decide if this seems fair or not...

I don't think it is particularly relevant that your wife took out a mortgage for some of her share and had deposit money for the rest of her share.
I'd say that the house was bought between them - 47% (75/160) by the parents and 53% (85/160) by your wife.
Your wife lived in the property. In effect she was renting her parents' share from them. Similar to a shared ownership scheme.
Decide how much it would have cost to rent such a property over that many years and calculate 47% of this.
The parents should get 47% of the sale price of the house (less non-mortgage-related selling costs - e.g. solicitors selling fees and estate agents fees) _plus_ the calculated 47% of the rent due.

This may well leave your wife in negative equity, so might not be seen as fair by all concerned.

sonastin

The fairest way to divide the proceeds is *whatever split any interested parties agree is fair*. The parents letting their child keep all the money because it would come as inheritance anyway and they no longer need it is fair. But the daughter gifting all of the proceeds of the house sale to her parents because they are about to be evicted from their own property is also fair. Anything in between which suits both sides is fair.

As both sides reached agreement before the house was bought about what they considered to be fair, it would be fair to stick to that agreement. But if circumstances have since changed and both sides want to change that agreement, that would also be fair.

You can have a cold black-and-white legal opinion on what each side is entitled to or you can have an emotional decision taking into account the circumstances. You seem to want the latter but a forum isn't really the place to get that answer.


Does your wife have any siblings? If so, have the parents given them a gift/loan/assistance of a similar proportion? A *fair* resolution to this dilemma should also take into account the effect on any brothers or sisters too...

JimmyTheWig

One more question...

What did they think they meant when they drew up the agreement?
Did they think it was fair at the time?

JQ.

Wow, talk about trying to make things complicated.

The parents get back their £75k investment, they then receive 48.387% (75/155) of any uplift in value (thats' the return on their investment), ie deduct the sale price from the purchase price and times by 0.48387.

Simply:

£75,000 + [(sale price - purchase price) x 0.48387]

Some may say that the above value should be net of costs, I don't think it should as the daughter would have faced those costs with or without the parents money and the parents have not received the benefit of living in the house.

Idiophreak

Tirian wrote: »

Before anyone gets started again, this is not about what's written on the agreement. We don't want (and don't need) to take money unfairly from her parents; her parents likewise don't want (or need) to do anything that's unfair to her. I know this is a difficult concept for legal-minded peope, but there it is.

Don't get all defensive again...I'm not legal-minded or trying to be funny, I'm honestly just trying to understand here...it seems like wife and her parents have already had this discussion, decided what's fair and written it down on a piece of paper. What's wrong with just doing what's already been agreed? Why do you think you need to go through the whole process again?

JimmyTheWig

JQ. wrote: »

Simply:

£75,000 + [(purchase price - sale price) x 0.48387]

To me, that is grossly in favour of the daughter.
That's how I would call the split if it had been two people jointly buying and both living there.
But given the daughter has been living there and the parents haven't, I don't see this is "fair". (I do take your point about the daughter paying the costs, but I don't think that accounts for anything like the benefit that the daughter has had from the parents' money.)

The above formula would be along the same lines of an interest-free loan.

Obviously, as has been said before, what is fair will depend on what they both think is fair. They might think an interest-free loan is fair. In which case JQ's formula is perfectly reasonable.


When did your wife buy the property, OP?

JimmyTheWig

Idiophreak wrote: »

Don't get all defensive again...I'm not legal-minded or trying to be funny, I'm honestly just trying to understand here...it seems like wife and her parents have already had this discussion, decided what's fair and written it down on a piece of paper. What's wrong with just doing what's already been agreed? Why do you think you need to go through the whole process again?

Because, on re-reading what they agreed, it seems like _they_ don't think that it is fair.
If the agreement was to split the selling price 25/75 (it's not quite clear to me if this was the plan or not) then what would have happened if it was sold straight away for the same price it was bought for?
The parents would have got back £116k - an overnight profit of £41k - while the daughter would have received £39k - losing all her deposit and facing a £21k shortfall on her mortgage.

I agree with them that I don't think that this is fair.
I think that either they meant something else when they drew up the agreement or they didn't think it through when they drew up the agreement.
I think that they thought they were doing the right thing with the agreement, thinking that they were agreeing to something that was fair.

Why should they stick to an agreement that no-one sees as fair?