'The fairest way to split a house on separation' blog discussion

VT82 · 18 January 2011 at 1:48AM

Jen paid a 20% deposit on the house. This was paid before a mortgage was involved and she owns this outright. She therefore gets 20% of the sale price before the repaying the mortgage is considered.

The remaining equity is split in the ratio of who paid what of the mortgage.

So Jen gets 20% x 250k = 50k outright
plus 1/3 x (250k - 150k - 50k) = 1/3 x 50k = c. 17k

The remaining c. 33k goes to Phil.

If the house value had gone down by 50k, Jen would still get 20% of the sale price, albeit less than her initial deposit, and her share of the small negative equity would come off her return. Phil would be in slightly more negative, and as he had no equity at the outset, he would have to pay money in when the house sells to release himself from it.

Calculating a 'return on the investment' is pointless in this case, especially with Martin's crude method - Jen took a punt on property prices going up quicker than savings interest by agreeing to put in the full deposit. Calculating a return in Martin's crude way does not take into account the time value of money. If Jen hadn't put in 40k when she did, she could have been earning (say) 5% interest on it in the time between them buying and selling the house.

Phil is more leveraged - so he gains more relative to what he invests from the house going up in value, and loses more when the house goes down in value. The two investments will never be comparable.

I'm surprised if those really were the only three scenarios Martin could come up with. As someone who is using the above method to decide how much we get from upcoming sale of our house currently in small positive equity (and with me being the one who put the deposit in), reading Martin's suggestion of the 'Equal Split' made my blood run cold.

kwinny · 18 January 2011 at 9:50AM

what if two siblings bought a house and sibling A left the property and rented elsewhere and did not pay any further to the house. Sibling B has bad debts which is affecting sibling A's credit rating and sibling A wants a new mortgage elsewhere. How can sibling A force a sale or remove themselves from the origional mortgage ? we have heard that you can get an annulment from a mortgage if you no longer pay towards it is this true ?

MSE_Martin · 18 January 2011 at 10:37AM

VT82 wrote: »

I'm surprised if those really were the only three scenarios Martin could come up with. As someone who is using the above method to decide how much we get from upcoming sale of our house currently in small positive equity (and with me being the one who put the deposit in), reading Martin's suggestion of the 'Equal Split' made my blood run cold.

Hi

Do note I said I could only come up with three 'simple' scenarios - one key difference here as I note in the blog, is I have automatically chosen to repay the mortgage first then divvy up - but I accept this is still a choice. Your method is interesting, the problem here is there are no rights and wrong.

The equal split method is certainly not one I'd personally advocate - yet reading the facebook discussion on this a common suggestion is "take what you put in to start with then divide the rest in half"

And this is the problem - there are many ways to calculate this, each favour one party or the other and have many arguments to them. Never easy.

Regshoe · 18 January 2011 at 1:53PM

Under the conditions of Martin's example my preference would be for the Proportionate split - as I think you should recognise the value of the deposit, as it is necessary to have one and a larger deposit goes towards reducing the rate received. Though as other's have pointed out there are a number of issues in relation to negative equity etc.

These difficulties contribute to my aims to buy a house and rent out a room to a friend as a lodger rather than split a mortgage. Clearly this leaves me with a larger liability and presumably a higher average outgoing each month, but it also gives me much greater control and I benefit from any increases in house value. With the tax free allowance through the rent a room scheme you can receive quite a decent amount each month, in all likelihood more than you would realistically be asking for until you had a house value in excess of around £150k (unless potentially you had two lodgers).

Also to all those who have mentioned their non-financial contributions as a housewife (etc) Martin did point out at the beginning of his blog that there are already procedures in this case to recognise this input (whether they are fair or not is another issue!)

antonia1 · 18 January 2011 at 3:59PM

If a person is buying as a house-share with friend/sibling etc as an alternative to renting, I prefer the scenario where your proceeds are proportional to the percentage you put in. It is very simplistic, but as has been pointed out it is important to get these things in writing before signing a joint mortgage. It is also less likely in these cases that one person has supported the other financially, either though food / bill payment or during maternity leave.

However, in terms of marriage (either official or common-law) I think that all accumulation of wealth during the marriage (or time living together) should be split equally. A marriage is, after all, supposed to be a partnership where any wealth accumulated by one partner is likely to have been supported by the other, whether that is financially, emotionally, or by (for example) being a stay-at-home parent to raise children. So in this case, you both get out what you put in as a deposit, plus half of any profit.

Katie-Kat-Kins · 18 January 2011 at 4:17PM

Personally I think that it should be a legal requirement that in all cases where houses are owned jointly with a mortgage between people who are not married there be some kind of legally binding agreement in place that covers how to terminate and split the house.

I also think that people chould be better advised in relation to holding property as joint tennants or tennants in common as this can make the ultimate division of the property much easier.

My now DH bought a house with a friend with a mortgage and they held the property as joint tennants with a joint mortgage. Just a matter of weeks after completion the friend changed his mind went to live elsewhere stopped paying the mortgage or any bills, never to be seen again. DH was left with a mortgage for which they were jointly and severally liable and all the bills - they had bought jointly as neither could afford to buy alone so he was saddled with unaffordable bills and mortgage repayments - Nightmare.

Personally I think the legal advice was negligent and they should have been advised to have separate mortgages and hold as tennants in common instead. Many people living with someone to whom they are not married are unaware that they can do this and that it can be advantageous to both parties as their interests are protected. It also means that you can will your share separately upon your death rather than it going automatically to the survivor.

Katie-Kat-Kins · 18 January 2011 at 4:19PM

antonia1 wrote: »

If a person is buying as a house-share with friend/sibling etc as an alternative to renting, I prefer the scenario where your proceeds are proportional to the percentage you put in. It is very simplistic, but as has been pointed out it is important to get these things in writing before signing a joint mortgage. It is also less likely in these cases that one person has supported the other financially, either though food / bill payment or during maternity leave.

However, in terms of marriage (either official or common-law) I think that all accumulation of wealth during the marriage (or time living together) should be split equally. A marriage is, after all, supposed to be a partnership where any wealth accumulated by one partner is likely to have been supported by the other, whether that is financially, emotionally, or by (for example) being a stay-at-home parent to raise children. So in this case, you both get out what you put in as a deposit, plus half of any profit.

For the avoidence of doubt there is no such thing as common law marriage. Couples living together unmarried should take legal advice as to what would happen to their home should they split up and they should consider a deed of trust or co-habitation agreement.

veruccasalt · 18 January 2011 at 7:22PM

If I was the new Mrs MSE, I would be a bit alarmed by the subject matter in this blog.....:eek:

sallymcp · 19 January 2011 at 2:33PM

What if one partner has paid everything, the deposit the payments on the morgage, all the bills, and the other person only pays for their own expenditure such as a car or credit card bill, should the person who has paid everything get everything?

or should it still be a equal split?

Katie-Kat-Kins · 19 January 2011 at 2:43PM

sallymcp wrote: »

What if one partner has paid everything, the deposit the payments on the morgage, all the bills, and the other person only pays for their own expenditure such as a car or credit card bill, should the person who has paid everything get everything?

or should it still be a equal split?

Well if you aren't married buying the food shopping etc won't be taken into account when it comes to splitting the house. If you are married then "services" etc can be considered. That is why it is so important if you are not married to get an agreement drawn up.

'The fairest way to split a house on separation' blog discussion

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