How equity release can help both sides with a divorce settlement

Divorce is a possibility that can affect individuals at any stage of life, and while overall divorce rates are decreasing, data from the UK's Office for National Statistics reveals a noteworthy 100% increase in divorce rates among those aged 60 and above between 1993 and 2019.


Financial burdens during a divorce can exacerbate the already stressful and emotional situation. Many individuals going through a divorce are seeking a clean break and the space to plan for their future and living arrangements.


For many couples, their marital home represents one of the most significant and valuable assets. Consequently, couples facing divorce may decide to sell the home and purchase separate properties. However, in many cases, one party may wish to retain the marital home.


Fairfield Finance has helped numerous customers find solutions during separation by tapping into the equity in the family home. Releasing equity from the marital home through an equity release arrangement can enable one of the divorcing parties to continue residing in the same property.


Alternatively, the party moving out can also explore equity release options for their new property to cover any financial shortfall after receiving their share from the marital home. This is subject to specific criteria, including being a homeowner, having a property valued at over £70,000 based on an independent valuation, and being over the age of 55. Equity release becomes a part of the overall financial settlement, which is legally addressed.


Post-divorce, there are typically two outcomes concerning the property:

  1. The property is sold, and the proceeds are divided between both parties.
  2. One party continues to reside in the marital home, while the other purchases a new property.


Both of these scenarios can pose financial challenges after a divorce. For the first scenario, if the proceeds are split, it may result in a substantial drop in the price range for the next property. However, many people may not be aware that individuals over the age of 55 can use the proceeds from the divorce as a deposit for their next property and utilize equity release to bridge the financial gap.


Consider this example: A 65-year-old with a joint matrimonial home valued at £350,000 and a 50% share of £175,000 might think they have to look for properties within that price range. But, in reality, they can use the £175,000 as a deposit for a property valued at around £263,000, with the £88,000 shortfall being covered by equity release. This approach provides greater flexibility in the next property purchase.


In the second scenario, where one party remains in the marital home, equity release can benefit both divorcees. The party staying in the property may need to raise sufficient funds to pay their ex-partner's share. If a mortgage isn't a viable option due to income, occupation, age, or income sufficiency, equity release can step in to provide the necessary funds for the settlement.


The amount that can be raised through equity release depends on factors such as the individual's age and the property's value. As shown in the first scenario, individuals over 55 can raise up to 33.5% of the property's value using a lifetime mortgage. This process can elevate the potential property price they can afford.


In conclusion, equity release offers a valuable option for financing divorce settlements and property purchases following separation. It provides flexibility and financial solutions for individuals navigating the challenges of divorce.