44

My wife and I bought a property just over 2 years ago for €114,000.

We put down a 10% deposit (€11,400) and so took out a mortgage of €102,600.

We took the mortgage on a short term (15 years) to pay off capital as quickly as possible. The mortgage balance is now down to €89,000.

So, based on the price for which we purchased the property, we have around €25,000 of equity available should we sell at the same price.

We have recently separated (in November). At the time, we had had the property on the market for a couple of months. We have left the property on the market since and still have yet to have a single viewing.

My wife has been contributing to the mortgage since we separated, even though she doesn't live there. This is so that she can receive an equal share when the house sells (it was 5 year fixed rate). She is now telling me that she cannot afford to continue doing this. She has asked that I 'buy her out', by giving her half of the equity (around 12,500) and in return, she will sign over her half to me.

My issue(s) with this:

  • I have around 20k in the bank. This will drastically reduce that to less than 8.
  • What if the house sells for less than we paid? It's not looking promising right now.
  • What if the house takes years to sell? I will not be able to access that capital, meanwhile I'm paying twice as much each month towards the mortgage. (And stuck living in a location I don't want to be in anymore).

What are my options in this situation? I'm looking for something that will not put me in financial difficulty, whilst still being fair to and helping my ex-wife, whom I still care for.

  • 9
    Do you want to sell, or would you consider living there if you would pay her up? "What if the house sells for less than we paid?" - why do you feel you need to ask that? Isn't it quite obvious what will happen if you will pay the price so high no one is even looking at the house now?.. – Mołot Jan 23 at 14:52
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    You have tagged this question united-kingdom, but your question refers to figures in euros (€) which the UK does not use. Please can you clarify and amend the question accordingly. – JBentley Jan 23 at 17:15
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    @JBentley who cares how the funds are denominated? If OP uses bitcoin, or quatloos, doesn't change the Q or A. – Harper Jan 23 at 18:18
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    @Harper I think JBentley is more interested in clarifying the location than the currency. Housing market prospects in other € nations might be different than the UK at present, it might affect the What if the house takes years to sell part of the question perhaps. I don't know. – CactusCake Jan 23 at 19:04
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    @Harper As per the above comment, my point is in reference to the UK tag, not any concern about the currency. I was prompted to make the comment because one of the answers makes reference to the US vs. the UK, and it seems likely that the location is not in fact the UK. The currency is simply the clue to the fact that the tag might be wrong. – JBentley Jan 23 at 23:48

11 Answers 11

48

To actually answer your (financial) question:

What are my options in this situation?

  1. Rent out the property share the profit / remaining costs while building equity until you find a buyer.

  2. Lower the asking price. You may have to sell it at a loss. Too late to complain now. As they say, you make the money in buying. Looks like you bought too high. Split profit or worst case the loss.

  3. Keep the house, buy out your ex. Either give her what she asks or, what's done in other cases where the real market price is unclear: Find another buyer, while you get pre-emption right to buy at that price. This could also go the other way 'round, if she'd be willing to buy you out.

Also, it sounds like you live in the house, but you share the mortgage. Normally, shouldn't you have to pay her (half) the typical rent as long as you live there and did not buy her out?

  • 6
    Owners have the right to use their own property, subject to contracts varying. Whether they exercise that right or not doesn't affect whether any other owner can or can't, and doesn't apply any condition to it. Paying someone else rent for living in a house that you yourself are paying the mortgage for? Why would that be normal or typical in any sense? – Nij Jan 23 at 23:05
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    @Nij: He owns half of the house and pays half of the mortgage. If he uses the whole house, he´d pay rent for the half he does not own. – Daniel Jan 24 at 0:47
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    He owns half the equity in the house, that's not at all the same as owning half the house, and neither of those has any relevance to what absolute parts or relative proportion he can or can't use. – Nij Jan 24 at 1:11
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    @Nij he doesn't "own half the equity in the house" or "half the house" he owns all of the house, probably jointly and severally with his wife, and he has a mortgage secured on it, probably jointly and severally with his wife. He can use it, he does not have to ask permission, and so can she, and neither does she. If only one of them uses it the other may have a claim in equity. – Ben Jan 24 at 15:31
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    @Daniel I'm not a lawyer, but having read a bit about tenancy rights, it's my understanding that in the majority of cases jointly owning a house entitles both owners to the use of the entire house. Absent another agreement, the husband should be able to use the entire house without owing anything to the wife, but he also cannot legally prevent her from coming back and using it herself, nor can he modify it without her permission. – GrandOpener Jan 24 at 17:53
43

Depending upon the divorce laws in your jurisdiction she could be entitle to 50% of the proceeds of the property sale no matter if she contributes to the payment or not. In some sense she may be doing you a big favor by contributing half. You may want to seek a lawyer's advice on all this because it is so jurisdiction dependent.

Typically there are closing costs when selling a property. Here in the US, even if you got the asking price, the property would yield about €7-10K. So each party would be entitled to between €3.5-5K. If applicable closing costs need to be factored into the transaction. I am having difficulty finding this information that is UK related for the seller.

Whatever you can do, it behooves you to work with your estranged spouse. Will she take a bit less than what she is owed? Even if it partially depletes your savings, it might be worth it. If she takes you to court to force the sale, those costs can wipe out your savings and yield nothing. By buying her out, you at least have a property on the asset sheet, where paying a lawyer is nothing but an expense.

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    The UK does not use the euro (€) so the question either has a wrong tag or the OP is converting to € for some reason in the question. I will add a comment on the question as well to ask the OP to clarify. – JBentley Jan 23 at 17:14
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    Forcing the sale would be a bizarre result here as he is also trying to sell it. – Joshua Jan 23 at 18:50
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    This is a good point about jurisdictional entitlements, but it's also worth noting that you and your spouse can reach any arrangement that you like and you're not bound by these entitlements if you're in mutual agreement. Thus, you could (for instance) agree on a buy-out value with your spouse as well as a payment schedule with acceleration on the occasion of a sale. Whatever you do, however amicable things are, be sure you get some legal representation to ensure that the agreement is iron clad (for both parties) – Dancrumb Jan 23 at 22:12
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    Surely a buy out would require Cloud to take on the full mortgage responsibility, which Cloud may be prepared to do but the bank is unlikely to be – Richard Tingle Jan 23 at 22:26
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    Typical UK fees on a sale would be approx £1000 in legal fees plus an average of 1.8% estate agent (aka realtor) commission though that can vary a lot depending on the level of competition in your area and if you use online realtors that offer fixed fee sales (though typically for a more basic service). With a fixed term mortgage there may also be an early repayment charge (ERC) that would add to seller costs when redeeming the mortgage – RobV Jan 24 at 10:48
25

Anecdote: My grandparents gifted me and my girlfriend £30k so that we could buy our first house together, and I contributed a further £3k towards the deposit for a better mortgage rate. Over the next two years, I paid for the bathroom to be re-done at £7.5k, as well as the windows and doors for £2.5k, so the house went from being worth £210k to £250k... and then we broke up. She had contributed 50% to all the mortgage payments, and was entitled to 50% of the house - it cost me a further £20k to 'buy her out'.

It was a lot of money to scrape together... but I ended up with a property and she went back to moving around and renting for a couple of years, so actually wound up a little worse off than myself - even after a £20k payment.

In the grand scheme of things; 12,500 is a drop in the ocean. Having somewhere to live is better than nothing, and you'll still have a decent amount of savings behind you.

I appreciate you no longer want to be in that particular location, and we can't tell you what to do, but whilst the house isn't selling and your ex-wife is offering you an out... I would take it.

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    I agree. 12,500 is a pretty good deal to be free of divorce related problems and then be a 100% home owner by yourself. Take the deal, pay her out, and look at the practicality that you own a house and are some years down the repayments already. Rent out a room or two in the house, if you have to. – vikingsteve Jan 25 at 8:10
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    Agreed about the "drop in the ocean". Worrying about it also makes me wonder whether the OP can pay off the 15 year mortgage without his ex -- selling may be the only option, at whatever the market yields. – Peter A. Schneider Jan 28 at 6:57
14

I purchased a home Florida many years ago for 165,000. I subsequently took a job in New York and had to put the house up for sale. I listed the house for what I paid for it, 165K. after a couple of months my CFO asked me if the house has sold. I told him no because people were not offering what the house was worth. He corrected me by saying "The house is worth what the market is willing to pay"

This is a tough lesson but a true one. Regardless of the marital situation, your asset is worth what the market will pay. I recommend you list the home at a price that will sell, take your loss and then go live where you want to live. Holding on to an asset you do not want to own simply makes no logical sense.

I suggest move on and be happy. 10 years from now you will not miss a few thousand euros.

  • 2
    Exactly. Houses (and everything else) are worth what the market will pay. Nothing to do with what you paid initially. Put it another way, if the price had risen to 150K, would you still sell it for 114K, because that's what you paid for it? – Oscar Bravo Jan 25 at 11:07
  • I was going to provide an answer along the lines of this one, but this one sums it up perfectly. Some real estate does take longer to sell than others. As an example, in the US, property in rural areas generally takes longer to sell than property in areas that are more urban. If you live in an area where house typically sell fairly fast and your house doesn't, it means that your price is too high. If you live in an area where houses do sell more slowly, then it will likely take longer to sell and if you reduce your price too quickly then you won't get the full value for your property. – Itsme2003 Jan 26 at 16:09
12

I am answering from the perspective of:

We have recently separated (in November). At the time, we had had the property on the market for a couple of months. We have left the property on the market since and still have yet to have a single viewing.

I would suggest you reach out to the estate agent (I'm assuming you have "conventionally" put it on the market rather than one of those 'sell your own house through our portal' outfits) to find out what the situation is there -- have they had any feedback from potential viewers, why don't they think it is getting any "bites"? Presumably they want to get their commission..?! Is it on 'Rightmove' and things like that. Maybe they are just rubbish.. What are their terms for moving to another agent? Is there anything obviously wrong with the house (e.g. it's in such a state of disrepair that it's "unmortgageable")?

You can sell any property (within reason!) if you are prepared to compromise on price. If you haven't had even a single viewing it sounds like there is something you need to remedy with the listing / the price / the agent before looking at other options.

Personally (I have a fairly high risk-tolerant attitude) I would buy her out (as part of a divorce agreement) on that basis, if I had reasonably stable job prospects (current employer / could find another) in your situation. Make sure you consult a good lawyer to see that the paperwork is done properly with "signing over" the deeds.

Btw: It isn't clear whether she has "officially" asked (via the divorce procedure) or just unofficially, for you to buy her out. It sounds like you are on amicable terms so I would suggest you agree between yourselves and then get it officially recorded as part of the financial arrangements of the divorce. If you can agree it yourselves first rather than everything going through solicitors, both of your legal bills will be much lower! :)

Source: went through something similar myself 18 months ago.

6

UK property market is in limbo right now; nobody is buying or selling unless they have to due to the uncertainties of brexit. This has been the case for half a year or so, but is getting really bad right now according to estate agents I know. Autumn and winter are also bad times to sell properties anyway.

If you and your wife (and your divorce lawyers) were amenable to waiting for a while, the situation is likely to improve with regard to getting viewings and being able to sell the property. Take it off the market now, and put it back on the market in early Summer. (this assumes that Brexit is resolved by then, of course, but even if not, summer is always better for selling houses)

If you cannot wait, then the you have the option of selling the house by auction. This typically brings in a lower valuation than a normal sale, and the amount you'll get for the house is by no means certain, but it is a way of guaranteeing a sale (though pragmatically, you will likely want to put a reserve price on the auction to avoid selling for less than you can afford).

  • How long until we know what is happening in the Uk then? – Cloud Jan 25 at 10:47
  • There's a hard cut-off date of 29th March for Brexit, by which time something will definitely have happened. At this point in time I can't tell you what that something will be though. – Spudley Jan 25 at 23:00
  • UK housing market is not in limbo now. That's nonsense. Source: Personal experience. – Ben Jan 26 at 20:18
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    The UK market is slowing down - prices are dropping (according to the property portal places) and "for sale" signs are going up all round my way. @Ben might have sold up easily, but all that shows is the market is not a uniform whole, but overall things aren't rosy. – gbjbaanb Jan 28 at 0:23
  • @Spudley: unless Brexit is delayed, which is currently a possibility. – Steve Melnikoff Jan 29 at 11:39
5

Buy her out as part of the property settlement and only as part of the property settlement.

Don't, whatever you do, buy her out without a property settlement. Nobody cares whose name is on the property when it comes to settlement so you'd be just funding her legal fight against you at the cost of being able to defend yourself and she'll still take half the house.

Even though she isn't living there, she still has to pay half the mortgage as it's her name on the loan. Everything she has to spend now is less she can spend on lawyers.

Whilst you're in a position of power (more or less), negotiate like hell and try your best to settle out of court. Do everything you can to avoid court because lawyers will take the lot.

My ex never gave me any choice and used the court system to hurt me. I spent four years fighting and the only winners were the lawyers.

4

I can't speak for any of the legal matters, such as what she's entitled to due to divorce, what kind of legal agreement you need, etc, but there's something else you might want to consider: if she wants you to buy her out, she's asking you to assume all the risk afterwards. Even if you're on good terms, it makes no sense for her to get 50% of any profit by sandbagging you with a property that obviously won't rent or won't sell and that could sink much lower. If she can't or isn't willing to stick around and ride out the risk, she shouldn't be entitled to an equal payout, even at its current value. I understand that you don't want to be mean about it and that you still care about her, but if she really wants what's best for you, she can't take half the equity and then leave you with a risk like that. Try to negotiate buying her out for less than 50%.

  • This is the problem.. I don't want to cheat her out of money, but I also don't want to be in trouble myself. – Cloud Jan 25 at 10:48
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    @Cloud I understand not wanting to hurt someone, but it's really not cheating her. People have to say no to opportunities all the time because they can't afford them or don't want to risk them. If she can't afford to continue paying or doesn't want to, then maybe it's not an opportunity she was meant to have. On the plus side, she's also free from the risk if it dives. Kind of like cashing out at the gambling table before the odds can go against you. To me it seems unfair to want half the reward while leaving any future risk to you. It might be worth talking about. – CMB Jan 25 at 10:59
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    @Cloud This is assuming you don't sell the house for a loss immediately but decide to hold out for a better market after your ex sells out. Jimalaya made a good point, too. Sometimes it better to just call it quits and get out with what you can get. If you both decide to sell it at an offered price as soon as possible, then ignore me and split 50/50. – CMB Jan 25 at 11:04
1

First, because it's very important, perhaps the most important detail, I'll repeat what others have said: Whatever your arrangement, make sure it's detailed in writing and included in the property settlement agreement. You never know what can happen, she could remarry, or something could happen to her or you (god forbid as they say). Someone else may be involved in making a claim when the property sells, besides you or her, and they may know nothing about your arrangement. This protects both of you.

Another issue that I don't think has been raised yet, is real estate property tax. I'm in the US so I don't know if there is a property tax in the UK, how it's determined, or how much it might be. In the US, it would be significant. This might be included in the monthly mortgage payment as it frequently is here in the US (principal, interest, taxes, and insurance). If both of you are paying towards the property tax now, and she stops making payments, you'll have to pay the full property tax. You'll have to decide if you'll consider the property tax you'll pay as reducing the final profit (equity) calculation, or if you'll just consider that as an expense (like utilities) that you'll be responsible for since you'll be living in the property until it's sold. Alternately, perhaps she agrees to continue to pay towards the property tax until it's sold.

Lastly, as (partial) protection in case you have to sell the property for an amount that results in less than your expected equity, you could agree to pay a portion of her share now, and the remainder calculated based upon the actual selling price less selling expenses.

For example, if you expect that when you sell, there will be 20,000 net proceeds (equity) after paying all selling expenses, and you split that with her (10,000 each), then agree to pay her 5,000 (or perhaps 7,000) now, and the remainder as calculated after the property is sold. This wouldn't fully protect you against all things that could happen, but unless you are seriously overvaluing the property, you might have to wait a while to sell at or near your price, but it would be unlikely (not guaranteed) that you'd loose money. In any case, if you have to sell at a loss, or for less "profit" (equity) than you expect, you'll be in a better position than if you paid her the full 10,000 now.

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    The UK equivalent is council tax, but it's paid monthly (10 out of 12 months) and there are discounts if there is only one person living in the property. Because it's ever-present, it's not as easy to forget as an annual property tax bill. – CactusCake Jan 28 at 15:37
1

If you are going to continue to live in the house and she isn't, instead of buying her out, consider freezing her equity and allowing her to stop making payments. Currently you both have the same equity as you've both paid in the same amount. Calculate that equity.

Equity = Price of house - amount owed on loan

Divide that in half. That's her equity. If that's 25k, she'd have 12.5k and you'd have 12.5k. From now on, your equity is

Equity = Half original equity + amount owed on loan now - amount owed at that time

So if 12.5 is half the original equity (at this moment), you add that to the current loan amount (89k, so a total of 101.5k). In the future, you will subtract out the amount owed on the loan at that time. The resulting amount is your equity. When the house sells, calculate the profit

Profit = Proceeds from house - any fees - amount owed on the loan

That's the amount of money to split. Calculate total equity

Total = Her equity + your equity

Her share is

Her share = Profit * Her equity / Total equity

Your share is

Your share = Profit * Your equity / Total equity

Those two numbers should add up to the profit.

If you sell relatively soon, then you can just split the profit without going through all these calculations.

The point of all this is that buying her out guarantees her a 12.5k return. If you instead just allow her to stop making payments, then you can split the return when the house sells. That is fairer to you than a buyout.

It's reasonable for her to stop making payments, as she no longer lives there and presumably has her own rent payment. You are getting the full enjoyment of the house, so you should make the full payments. But if you do that, you should also get the full equity increase from the ongoing payments. So the split shifts over time.


Another possibility is that you work out a market rent. You make half the mortgage payment plus half the market rent. She pays just the excess of the mortgage over that.

Her payment = Half the mortgage - half the market rent

Then you'd maintain an even split.

This is the equivalent of renting out to someone else. You'd split the rental income and the mortgage payment. Here you're just skipping the rent collection, as you are the one in the house. To be fair to her, you should pay her back rent from the time she moved out. So most likely, you will be paying the whole mortgage payment and she'll pay nothing for some time. If there's still a balance when you sell the house, add it to her share of the profit and subtract from yours.


A third possibility is that you find a tenant and rent it out. You move into an apartment. You use the tenant's rent to pay most of the mortgage. You and your wife split the remaining amount of the mortgage payment. Sell the house with tenant.

Both of you are out of the house. You can rent something in your single price range. You probably have to pay some extra on the mortgage (over and above the rent payment). But neither of you have to pay the full mortgage. Since you say that you want out of the house, this may be the closest to what you want so long as the house does not sell.

You can look for the tenant while you still live there. And look for a new apartment while still living there. You only need to act if you find both.

  • This post is confusing. You seem to be using the term "equity" differently to its established meaning, that is "value of property less mortgage". "Her share = Profit * her equity / total equity" makes my head hurt. – AndyT Jan 28 at 16:36
  • Selling a house with a tenant greatly limits the number of potential buyers, as you're only going to be selling to landlords. This is particularly relevant now, as changes in taxation in the last few years have greatly increased the costs of buying and maintaining rental properties. Given that OP is having difficulty selling the property as it is, I fear that this will a sale even less likely. – Steve Melnikoff Jan 29 at 11:36
-3

This answer presumes a situation where the economics do support the management costs (e.g. every managed rental property). This isn't guaranteed, and management costs can yield a net loss. They can win because they "third party" the project to get the emotions out of it.

The cleanest answer is set the property up in an LLC, GMBH or whatever it's called in your country. Or at least structure it that way in your thinking, so there is a bright-line separation between you, she, and the asset.

You allocate ownership stake based on relative initial investment, sounds like it'll be 50/50.

At this point the LLC owns the equity and owes the mortgage, but both parties are still cosigners in effect.

Have someone competent manage the property for maximum profit. If push comes to shove, you can hire a manager and ask him to make the most profitable decisions in the property's management, and he will do so impartially. Whoever is living there will need to pay market-rate rent. If the LLC is running underwater, paying more in mortgage/expense than taking in in rents, the owners will need to invest more cash on an equal basis.

Both owners may enjoy tax advantages as a result. This may more than offset losses. Many losing properties become profitable after tax advantages are factored in.

Once the manager is looking at it purely from a profit perspective, you really don't know how it'll break out. We can't know either as it is so situational to local conditions. It could wind up selling fast is best. It could be renting it out. It could be AirBnB. His job is to figure it out. Because it is ideally a third party "corporate" decision, his decisions won't be so clouded with emotion.

  • Improved, thanks. My aversion to your previous wording is from my long history on a UK housing forum where there are a number of one-off "accidental" landlords who don't realise that letting a property is a business and comes with a heap of regulation. I'm still not convinced by your argument for an LLC and paying someone else to manage the property for you, within the framework of UK housing, but I no longer find your answer misleading. – AndyT Jan 28 at 17:05
  • @AndyT thanks. The answer is circling the drain anyway. I suspect I could put the cure to cancer after "corporate guy here" and it would get DV'd til it turns white. – Harper Jan 28 at 17:17
  • While it is possible in the UK to transfer a property that you own to a limited (Ltd) company, it is far from trivial, and can be quite costly. It's normally done to reduce tax, and the current received wisdom is that it's not worth the effort unless you own more than 3 properties. So while this might work in other jurisdictions, I don't think it's viable in the UK. – Steve Melnikoff Jan 29 at 11:31
  • @SteveMelnikoff fair enough, it doesn't have to be an official LLC-like, with mental discipline you can do the same separation informally (as it's unlikely the liability shield will ever be a factor). The point is to view the asset as a separate unit and profit center. Edited. – Harper Jan 29 at 15:38

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