Welcome to January, the month of fresh starts, new gym memberships and relationship breakdowns. (Fun fact! The first Monday of the year is dubbed ‘Divorce Day’ by those who work in family law.)
We appreciate that this might not be the most cheerful way to kick off our blog for the year, so you’ll have to forgive us for bringing a bit of doom and gloom to proceedings. But if you have found yourself facing a new year separation, we hope you’ll be glad of the advice.
If there’s one thing more stressful than dealing with a property transaction… it’s got to be dealing with a property transaction in the midst of a divorce, dissolution or separation. Things can be especially problematic for more acrimonious break-ups. We’re afraid that even the best conveyancers in the land won’t be able to make a property transaction alongside a difficult divorce total plain sailing. However, good legal support here really will make a difference.
If you’re going through a separation and there’s property involved, for the love of Elizabeth Taylor please do seek legal advice before you make any sudden moves.
Does jointly-owned property always need to be sold?
Though divorce and property sales often do go hand in hand, they don’t necessarily have to. Just as all relationships are different, so are all separations. It may be that you and your soon-to-be-ex are able to stop lobbing insults at each other long enough to agree to keep the property, especially if it’s the best option for the kids.
In cases like these, it may be that the divorce involves a mesher agreement. This might sound like something from a comic book, but it’s actually a very sensible legal document that formalises an agreement for one party to remain in the family home with the children until they come of age. The mesher would set out the terms of a separating couple’s decision to wait until a point in the future to sell the family home and to split any equity.
Alternatively, it may be appropriate for one party to buy the other out of the property rather than to sell it on the open market. Again, we recommend getting professional advice on this!
What if you can’t reach an agreement?
In some cases, separating partners might feel more inclined to throw their ex’s belongings out of a first floor window than sit down and make important decisions with them. We get it; sometimes seeing reason just doesn’t feel very attainable. However, as professional reasonable types we do have to point out that it’s always better to try and reach an agreement outside of court. Trust us when we say that taking things all the way to a judge will only ever make things more stressful.
If the court does have to wade in on the argument, they’re likely to impose a financial order that will set out how any assets (including property) should be split. Typically, these give strict deadlines for when assets need to be split, which can add an additional kamikaze element to the property sales process.
Should you sell before or after the divorce is finalised?
Once you’ve made the decision to sell a jointly-owned property, you’ll then have to consider the question of when you’ll do it. There are various schools of thought here, and which option is right for you will depend on a range of individual factors (and, again, personalised legal advice!).
On one side of the coin, selling before the marriage or civil partnership is officially ended could mean:
- You’ll be able to get all the hard work and stress of the transaction out of the way with the hard work and stress of the divorce proceedings, enabling a clean slate once you’re officially divorced.
- There may be benefits in terms of capital gains tax liability.
On the other side of the coin, selling after the marriage or civil partnership is officially ended could mean:
- You can allow the dust of the divorce to settle before you start making more big decisions.
- You won’t be under such strict time constraints and may be able to wait for a better time to sell, either in terms of your family life or a more suitable market.
It might also be worth giving a bit of thought to how the timing of your sale will affect the rest of the chain. Though it’s not necessarily true that potential buyers will run screaming in the opposite direction when they find out a property is being sold as part of a divorce, it likely will have an impact on the chain if your property sale is financing the purchase of two further properties. This might be something to consider if you’re hoping for a quick(er) and easy(er) transaction.
What’s the deal with capital gains tax?
Capital gains tax (CGT) is a tax on profit when you sell or transfer assets. It’s not usually payable when you sell your main home, as you’re protected by principle private residence relief. However, if one partner has moved out of the home prior to selling it, it would no longer count as their main home and theoretically they could be liable for capital gains tax on their profit of the sale. The good news here is that there was a law change last year that gives separating partners who’ve moved out of the matrimonial home the option to claim principle private residence relief on the sale of that home so long as they don’t claim it on the sale of any other property during the same period.
There’s a second CGT consideration here, and that’s the rules on the transfer of assets between spouses or civil partners. There is no GGT liability on the exchange of assets between spouses or civil partners while they live together, but once they separate this tax relief only remains for a small window of time. Thankfully, the 2023 law change has extended this window. Separating partners now have up to three years to transfer assets after they stop living together, or indefinitely if the transfer is part of a formal divorce agreement.
If it wasn’t clear enough from the previous two paragraphs(!), this is a complex area of tax law and is something you should absolutely get personalised advice on.
What about buying another property yourself?
A final note on this one before we allow you to get back to your scheduled January activities. Please, please make sure your conveyancer is up to scratch on matrimonial conveyancing law if you are buying a property yourself in the time around a divorce.
If the proper dots and crosses aren’t on the documentation here, you might find yourself in a situation where your ex gains an interest in any property you’ve bought yourself with your share of the marital assets. This would be an ideal way to complicate an already complicated situation, which we reckon is very much best avoided.
The Newport Land and Law team are back at our desks and full of new year vigour for tackling conveyancing woes of the matrimonial variety – along with any other varieties you might be able to think of (and some you won’t). If you think we might be able to help, please don’t hesitate to drop us a line. We can steer you through meshers, financial orders, CGT dilemmas and the kind of double ended chains your estate agent will use as a cautionary tale for years to come.