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How to calculate buying out your spouse’s share of the house
For people who own a property together, it could be important to understand how to calculate buying out a someone's share of the house
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Aside from the emotional upheaval a divorce brings, almost all couples who break up have to face some difficult financial hurdles, such as how to calculate buying someone out of a house or how to divide their savings and assets. No matter how amicable things are between you, buying your ex out of the house can be a complex and overwhelming process, so it’s important to think properly about all the available financial options when looking at what you are each entitled to.
How to approach dividing your asset when you own a house together
One of the most emotive decisions to make when going through a divorce is who, if anyone, will keep the marital home.
Deciding how to split your biggest asset can be tough and there are multiple potential solutions. If neither partner wants to stay, or one can’t afford to buy the other out, one of the most common approaches is to consider selling the home and splitting the proceeds.
How is a house buyout calculated in a divorce?
Once you have decided exactly how your assets are to be divided, you can go about working out the percentage of your home’s value to which this equates.
One of the things that you need to do is find out how much your home is worth. You can then calculate how much equity you have, which is the value of your home minus any debts secured against it, such as a mortgage.
Example 1: If your home is worth £250,000, and your asset is being split 50/50, you might need as much as £125,000 to buy your spouse out of the home should you decide that you wish to stay.
However, if you are still paying off your mortgage, the amount of equity you have may be lower.
Example 2: If your home is worth £250,000 and your asset is being split 50/50 but you still have a mortgage of £100,000 on the property, the equity both you and your partner have in the property will be only £75,000 each (£250,000 minus £100,000 then divided by two.)
In this case, you may need less to buy out your partner, but could find yourself contributing more to the mortgage going forwards.
How equity release can help divide assets
With house prices at a historic high, now could be a good time to consider using the value stored in your home to your advantage. If you are a UK homeowner (or part-homeowner) aged 55 or over, you could use an equity release product to contribute to the funds that will allow you to buy out your partner. Equity release does this by allowing you to access some of the capital tied up in your home, meaning you can receive a tax-free cash lump sum which could help make up some of your partner’s percentage. Whether this as a potential solution could of course depend on your spouse agreeing to the buyout too.
Example 3: Imagine you are in the scenario outlined in Example 1. You need £125,000 to buy out your spouse and you already have £50,000 available to you. Depending on your age, you could then consider using an equity release product to free up an additional £75,000 from your own share in the property to buy your partner’s half. In this example, you may now own the property yourself and the £75,000 (plus interest) will be paid back when you pass away, move into long-term care, or decide to sell the property.
You should bear in mind though that the amount you can release from your home with an equity release product is affected by your age and the value of your home, so if you are not able to release the full amount required it may not be suitable for you without further savings or other funds to cover the difference. That’s why it’s important to speak with a fully qualified adviser to better understand if equity release could work for you.
Note too that it’s a requirement of the equity release process for any existing mortgage on your home to be cleared. Whilst many use the equity they release to contribute towards this, it does mean that the higher the amount remaining on your mortgage, the less equity there will be available in your home to take advantage of. This might then mean that you need to find an alternative way to fund the buyout of your spouse.
You may also be able to remortgage the home to raise enough capital to buy your spouse out of their share of the home, but you should ensure that you will be able to cover the cost of monthly repayments.
What is the equity release process?
The UK’s most popular type of equity release product is a lifetime mortgage, which allows you to access a tax-free cash sum against the value of your home. Unlike other types of equity release schemes, you retain 100 per cent home ownership with a lifetime mortgage, so it could be a good option for those who want to remain in the same home after a divorce.
The amount you are eligible to release will depend on a number of factors, including your age and the value of your property. You can find out an estimate by using the equity release calculator below.
What you do with the cash is entirely up to you. Therefore, you could use it to buy out your spouse’s share of the home, providing it was a sufficient amount.
As with the above example, the amount needed will often be 50 per cent of the home’s value. However, if you and your ex-partner have agreed on a different split, for example because one of you contributed a bigger deposit, then it is important to consider if you could release this amount with the equity available to you.
If you wish to find out more, seeking independent advice is the best next step. A fully qualified adviser will be able to tell you if this would be possible and explain how the process works in more detail.
If you choose to use the free equity release calculator above you will be put in touch with Responsible Equity Release, the provider of the Telegraph Media Group Equity Release Service. If you so wish, they will be able to book you an initial free, no-obligation appointment with an equity release adviser.
Key considerations
When considering equity release, many people have questions about the product and how it may affect your family in future. Here are some key things to note:
- All lenders who are members of the Equity Release Council offer a no-negative-equity guarantee. This ensures the maximum amount that you will have to repay is capped at the value of your home. In the very unlikely event that your home’s value plummeted and the amount you owed exceeded it, anything above the value of the home when sold at market price will be written off. This ensures that your beneficiaries will not inherit any lifetime mortgage debt.
- Equity release will reduce the value of your estate and could affect your entitlement to means-tested benefits. Ask an adviser for a personalised illustration to help you choose the best plan for your unique situation.
Always get advice to understand how equity release works and determine whether it is right for you.
Buy out your spouse with equity release
To offer more comprehensive advice on this, the Telegraph Media Group has chosen Responsible Equity Release to provide its equity release advice service. Responsible offer customers initial free, no-obligation appointments to discover whether equity release can form part of their divorce finance solution. Responsible Equity Release prides itself on only recommending equity release if it is truly the right option for you and consequently their advisers will tell you if they recommend a different financial solution.
- Try our free equity release calculator now and see how much tax-free cash you can release
Read more:
- Should you remortgage to release equity from your home?
- How to pay off a mortgage early using equity release
- How much does a loft conversion cost?
- Can you pay back equity release?
The above article was created for Telegraph Financial Solutions, a member of Telegraph Media Group. For more information about Telegraph Financial Solutions, click here
Equity release is only available to homeowners that own a property within the United Kingdom.
Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is Authorised and Regulated by the Financial Conduct Authority on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. By consolidating your debts into a mortgage you may be required to pay more over the entire term than you would with your existing debt. Only if your case completes will you be charged an advice fee, currently not exceeding £1,690.
Information correct at date of publication.