Family law partner, Justine Flack discusses how the coronavirus pandemic may affect property in divorce proceedings and highlights what those going through a divorce should consider.
There has been a lot of speculation about how the pandemic will affect the property market. This is of particular importance to those going through a divorce because the matrimonial home is often one of the most significant assets and accommodation is the primary need which has to be satisfied for the parties and their children.
As soon as we were placed into lockdown the residential property market was essentially frozen with viewings ceasing and moves made virtually impossible. The easing of restrictions started to allow progress and the recent announcement of the stamp duty 'holiday' until 31 March 2021 has caused some real movement in the market. So how does all this affect property in divorce proceedings?
The starting point is always about understanding the value of the asset and the equity in it; it's the realisable cash which is the crucial point. If a valuation was agreed or obtained ahead of the pandemic it may be worth getting it reviewed to check that it is still accurate. This should be considered now and in the months ahead, particularly after March 2021. It may be relevant to the asset pot as a whole and how that is to be shared and also to the discussion as to whether one party will retain the house or whether it will be sold.
Selling the property crystallises value - the market will determine what it is worth. The net proceeds are usually divided by reference to a percentage, sometimes setting a base receipt for the financially weaker party. Understanding value informs decisions about the overall split and how other assets may be shared. The relaxation of the stamp duty provisions may provide a great opportunity to sell now and has certainly focused the mind of some of my clients who are on the verge of settlement. None of us know what will happen to the market after March.
How the former matrimonial home is treated has to be viewed in conjunction with someone's ability to rehouse and so the wider property market is relevant in terms of house prices and affordability. Again, the stamp duty break is of assistance at this time. Other factors which impact on rehousing are mortgage capacity and ability to meet day-to-day needs. A holistic approach has to be taken when structuring a settlement.
The future of property, its impact upon divorce and the effects of Covid-19 may be complex and long lasting. Accommodation is directly linked in many cases with someone's ability to raise a mortgage. That is dependent on the availability of products from lenders and their terms. In turn, someone's ability to sustain a mortgage may be affected by redundancy or working reduced hours. There is much speculation and some uncertainty about what we may be facing in the months ahead. Mortgage holidays offered assistance in the short term and have been very useful where finances have been under strain, which is often the case mid divorce however, they are not there as a long-term solution.
No matter what the economic situation of the country, people will still get divorced and we have to construct a financial settlement. Housing remains a primary issue. The emotion that sits around the family home will continue but perhaps now, more than ever, practical and creative solutions will need to be found. Emotion often has to be put to one side and we have to be pragmatic. A sale may be the only option although it could be deferred if the market is in a poor state. If taking that step a clear timescale needs to be in place for future marketing and agreement about meeting costs until sale will also have to be reached.
Consideration may have to be given to capital being paid to one party at an agreed time in the future if for example one person's ability to rehouse is compromised, say by redundancy. There may have to be a greater sharing of risk in terms of other assets such as investments and business interests, all of which have been affected by Covid and have uncertainty attaching to them.
We are very much taking things a step at a time and having to adjust to changing circumstances. As ever, if parties can find a way to work together and compromise then a solution which allows everyone to move forward can usually be found.
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