In debt and part inheritance of house.

blueuntitled

Hi,

We are in a difficult situation and unsure on how to deal with it.

We have a DMP in my husband's name. He has just lost a close family member who has left their 50% share of a property to him and his sibling. The other 50% is still in his Mother's name as she will be still living in the property for the next X amount of years.

We want to protect the other parties from our financial situation as are unsure what the correct procedure is. We are looking at a disclaimer of the inheritance so all of the 50% from the family member goes to the sibling. 

Is this a wise/correct course of action? 

If my husband owned 25% of the said property that is still lived in by his Mother, could creditors force a sale, should we experience difficulties in the future?

Also, does anyone else have any experience of disclaimers?

Many Thanks

tacpot12

I'm not sure he needs to disclaim the inheritance. If it really is a DMP that he has, this is an informal arrangement and there is no requirement to use any money that he comes into to clear his debts. 

If he has a DRO then it is a different matter, as this is a formal agreement, and the inheritance is likely to mean that the DRO will be ended. Disclaiming the inheritance would mean that the creditors could not attempt to force a sale of the property after his mother dies. As far as I know, they would not be able to force a sale while she needs the house to live in.

blueuntitled

Thank you for your reply.

He definitely has a DMP.

We will be going through a lot of changes over the next few months. My husbands earnings have gone down by over £7k per year. We may have to move due to our rental agreement possibly coming to an end. 
We are aware we may not be able to carry on with a DMP and are worried for what the future holds.

The last thing we want is for our financial situation to have an impact on other people.

fatbelly

There's no reason why your husband's dmp should impact on anyone else. If he was contemplating a joint mortgage or loan or current account, that would be another matter but as I see things there is no reason why he should disclaim an inheritance.

Debt management plans are perfectly suitable for property owners and often that is the only sensible strategy available to them.

I wouldn't flag up to his creditors that he's now a property owner but even charging orders are rare beasts and an order for sale would not be possible in the situation you describe.

tacpot12

I think the wisest course of action here is for your husband to talk to his sibling about how they would feel if a charging order was applied for successfully. While this may never happen, if it did, it would mean that the house couldn't be sold without the debt to the creditor having been discharged, and there would always be a risk that this could delay his sibling from receiving money from the sale of the house. His sibling might be prepared to accept the risk, but I would be wary of this as they may not be so accepting when they have a buyer for the property, but cannot sell. 

Disclaiming the inheritance would avoid this risk, and your husband might come to an informal arrangement with his sibling whereby he is given some of the proceeds from any future sale, but it would be for the sibling to decide how much we would receive, and this could be influenced by many factors. 

If the DMP is at risk of failing, then you do have to consider what steps the creditors might take, and a creditor might be successful in obtaining a charging order.

There is some useful information here (including the relative numbers of charging orders vs. orders for sale): Charging Order On Your Home? Free Advice. StepChange 

 

doodling

Hi,

The fist and most important question is does the will give his mother the right to live in the house until she dies (a post death life interest trust)? This is common (but not universal) when one of a couple is going to remain in the house but part of the ownership is passed to children. This arrangement protects the house against creditors, divorces, etc of the ultimate beneficiaries whilst the remaining occupant lives. It also avoids the beneficiaries accruing a future capital gains tax liability. If the will does this then there is no way that creditors (or your husband come to that) can do anything to possess the house until the mother dies.

Your husband then needs to decide whether to accept the inheritance or to agree a variation to the will. If the will doesn't give his mother the right to live there until she dies then there is a small risk that creditors could force a sale. Others need to comment on the number of charging orders that are successfully pursued to force a sale, my understanding is that it is very rare but I'm not an expert.

Note that whilst a variation to the will will protect against your husbands creditors, it will also make your husband ineligible.for any means tested benefits, the same as if he accepted the bequest, as he will be assumed to have received it when entitlement is calculated.

The existence of a restriction (I don't think a charging order is possible with part ownership) on the house wouldn't be a massive inconvenience when it comes to be sold - from a selling point of view it is very like there being a mortgage on the property and people sell with mortgages all the time.  The only wrinkle is that you must make sure to keep records of who has placed the restriction and for what value - the biggest challenge during a sale can be finding out who the restriction is in favour of and getting them to confirm the amount, having some documentation to start from would help that process.

Obviously a lot depends on the progress of the DMP, if you keep the creditors happy then they aren't going to bother looking for assets your husband might not have told them about, like a part house inheritance.

sourcrates

As above, part ownership would only result in a restriction, not a full blown charging order.

You will also find as long as the DMP is adhered too, no further action will be taken by the creditors.

Most are quite happy to receive regular monthly payments, so going to the trouble and expense of legal action, then a CO (or restriction in this case) where they may get some money back when, or if the house is eventually sold, isn`t an option at the top of their list.

fatbelly

If he's not living there they're unlikely to ever find out that he's on the Land Registry record of that address.

LadyGnome

As others have said, unless your DH owes a very large amount to one creditor, the time, cost and hassle of getting a restriction that may not crystallise for many years probably wouldn't be worth it for most creditors.  Most financial institutions / finance providers are pragmatic - getting some money now is better than the possibility of a larger amount at some unspecified time in the future.