Divorce - retaining equity in marital home - how to share house price growth?

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Hello, my wife and I are getting divorced. It is all amicable and we have managed to get nearly everything agreed without the need for involving solicitors. The thing we cannot work out is how to fairly share any growth in the price of our family home. We think there must be lots of other people who have managed to overcome this issue and would appreciate any advice on here.

Our house is worth approx £400k and we have £200k of equity. The plan is for me to leave my £100k of the equity in the house and transfer ownership to my wife so that she can stay there with our young son. I will then buy another house nearby with an agreement that she will sell the house or buy me out by the time our son is 18 (10 years' time). We are both happy with this arrangement but cannot work out what to do with any increase in the value of the house. She would be paying the mortgage on it so it is only fair that she takes more than half of the growth. However, I will have had £100k sitting there that I could have invested myself. One way of looking at it could be that I currently own a quarter of the house and so should receive a quarter of the sale price. So, if it went for £600k in 10 years' time, I would receive £150k. I would also be happy to pay a quarter of any work needed to maintain the value of the property (new boiler etc).

Does anyone out there know how how others have dealt with this scenario? It isn't causing any disagreements; it is just that we do not know what typically happens in such situations.

Thanks.
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Comments

  • Brie
    Brie Posts: 10,405 Forumite
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    Frankly I think that you will need a legal document to outline what has been agreed now and how it will work in the future.  The last thing you want is that in 9 years time when she needs to look at paying you back that she says she owes you one amount while you state another.  This may not be helped if either or both of you have new partners who may not be so amicable about the situation.  

    Others might contend that given that it's joint ownership essentially that she is, in part at least, a tenant and therefore may need to have that documented.  Again - that's going to be a legal document.

    (no direct experience as not happened to me - still married, reasonably happily, for now at least.....)
    "Never retract, never explain, never apologise; get things done and let them howl.”
  • Lennys_Shinpad
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    Thanks for the response. Yes, of course we will have it all legally agreed before transferring.
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  • Brie
    Brie Posts: 10,405 Forumite
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    edited 19 December 2021 at 7:30PM
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    You might also want to talk to the bank at some point.  They may object to only her name being on the mortgage if a portion of the house belongs to you.  

    But I think you've got the right idea of declaring a percentage owned rather than an amount of equity so that you get the same percentage from the sale of the property.
    "Never retract, never explain, never apologise; get things done and let them howl.”
  • Lennys_Shinpad
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    Thanks, yes of course we would formally transfer the mortgage to be in her name.

    The main question I have is on the calcs. Glad you think my suggestion feels about right.
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  • kimwp
    kimwp Posts: 1,844 Forumite
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    Probably worth talking to the bank about the arrangement first if the mortgage will be in her name but you will own part of the house, I'm not sure they will agree to this.
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  • BrassicWoman
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    I'd put a charge on the house for 100k, accept it is not an investment, and leave the maintenance to her. Much cleaner.
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  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    Hello, my wife and I are getting divorced. It is all amicable and we have managed to get nearly everything agreed without the need for involving solicitors. The thing we cannot work out is how to fairly share any growth in the price of our family home. We think there must be lots of other people who have managed to overcome this issue and would appreciate any advice on here.

    Our house is worth approx £400k and we have £200k of equity. The plan is for me to leave my £100k of the equity in the house and transfer ownership to my wife so that she can stay there with our young son. I will then buy another house nearby with an agreement that she will sell the house or buy me out by the time our son is 18 (10 years' time). We are both happy with this arrangement but cannot work out what to do with any increase in the value of the house. She would be paying the mortgage on it so it is only fair that she takes more than half of the growth. However, I will have had £100k sitting there that I could have invested myself. One way of looking at it could be that I currently own a quarter of the house and so should receive a quarter of the sale price. So, if it went for £600k in 10 years' time, I would receive £150k. I would also be happy to pay a quarter of any work needed to maintain the value of the property (new boiler etc).

    Does anyone out there know how how others have dealt with this scenario? It isn't causing any disagreements; it is just that we do not know what typically happens in such situations.

    Thanks.
    On the face of it the 25% of the value sounds reasonable. Your ex wouldn’t get 75% though as any outstanding mortgage would have to be repaid before any equity was paid out so you’d need to be clear that it’s 25% of the sale price and not 25% of the equity that you’re expecting to receive. 

    However, I agree with the others that the practicalities around mortgages could very well make this a non-starter. If your wife is the sole legal owner most mortgage lenders would expect her to be the sole beneficial owner too but in your scenario she wouldn’t be. You will also need to pay the higher rate of SDLT on your purchase because SDLT is based on beneficial ownership not legal ownership. 
  • Cabincrewcasey
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    This all assumes house prices will go up if you fix it at £100k.

    there is a possibility of a housing market collapse, not saying it’s likely but it could happen, if that were to happen she would be worse off in % terms and that may cause a whole load of new issues
  • diystarter7
    diystarter7 Posts: 5,202 Forumite
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    Put a charge on it for the 100k.
    Ensure it's all down in writing.

    About the price going up, don't forget a small chance it may be lower but unlikely as the government is printing money. However, it could go down if it was to crumble, sinkholes, problems will nasty new neighbours, a club or fish n chips shop built close to your place.

    About how to work out the amount you should get back if the price rises. Personally I'd say nothing as it will be her looking after it, etc.
  • CustardApple
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    Make sure that you secure that £100k for your child, just in case she remarries or you were to die
    Not sure how the charge works, but I agree with ensuring that everything is done legally.
    None of us are sure what will happen from one day to the next - you may be friends now, but what happens if she were to remarry and the husband does not take a liking to you - these things do happen and once the spanner is in the works, there is nothing you can do
    I would never go into something like this without thinking that maybe a couple years down the road the unexpected will or can happen - I would want everything spell out so very clearly.
    I applaud the two of you getting things sorted before going the legal route and saving money in the process
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