In our recent podcast series, we discuss how Divorce and Separation can impact Equity Release. We cover how to access ER Funds, the difference between Divorce and Separation, the shortfall in Equity Release, and the involvement of Solicitors and Lenders.
Accessing ER Funds to Pay an Ex-Partner
Firstly we need to remember that the requirements will vary depending on the lender. Some of the lenders and their solicitors will have set requirements that don’t change case to case, but others will vary their requirements.
If the parties are separating, firstly we will need to know if they have a separation agreement in place drafted by a solicitor. It is also helpful to establish whether they intend on divorcing at a future date. If any solicitors are involved in the drafting of a separation agreement, we will almost certainly require their details and the client’s consent to contact them. If the separation agreement was entered into some time ago, the client will need to provide a copy to us.
In the case of a divorce, the process differs. The main distinction here is that a separation agreement will deal with the breakdown of the relationship (the separation, and also the division of assets). A divorce will only deal with the dissolution of the marriage and not the division of assets. Consequently, when parties are divorcing, they are strongly advised to enter into a separate financial settlement, often called a Consent Order.
This order must be sealed by the court and will have the effect of diving the assets, but should also prevent either party returning at a later date to make a claim against one another’s assets. That is the very reason why the lender would be interested in seeing the Consent Order, so they can be sure the ex-partner will not seek a claim in the property that is to be charged with the mortgage. The lender does not want any competition in realising their security, and that is the golden rule.
Claim Time Limits
If a client divorced in the nineties and doesn’t have a Consent Order, there is no time limit on an ex-partner seeking a claim on a property. Some lenders will refuse to proceed if there is no such order in place, regardless of when the divorce was issued.
In these cases, we can never really have too much information. The best action is to establish the facts and send us all of the information that you have collected from the clients. Once we have received a copy of the offer and have reviewed the client’s circumstances, any special conditions, and the lender requirements, we can advise you and your client about what we will actually need. If the parties have divorced some time ago, it would be worthwhile getting hold of the decree absolute, as well as any other order made by the court.
Short Fall in Equity Release
It is important to consider possible holdups in the process. If the Equity Release proceeds are to pay another party and there is a shortfall, we will need to collect evidence relating to the source of these funds to satisfy our AML requirements.
Alternatively, if the third party is willing to accept the money directly from the client, we may be able to avoid this, as long as the solicitor acting for the third party is happy for their client to receive this money directly (i.e. not via us). This process is helped if the parties are amicable.
Do the Different Parties Need to be Represented by a Solicitor?
This will depend on the lender. We can confirm this once we have the instruction and the offer, and the lender requirements. Essentially, these are the usual rules:
In relation to any transfer of property title, if a party needs to be removed, as a minimum, the outgoing party will need to have had their identity checked and advice upon the effect of the transfer. Depending on the lender, they may need to be represented in the transaction as well. Those solicitors representing them may have to sign a standard form for the lender’s solicitors.
In relation to any financial settlement, both parties should have had legal advice upon the content if there is a separation agreement. Usually, if they have not received advice, they will need to seek such advice or sign a declaration to satisfy the lender. However, if there is a court sealed Consent Order in the case of a divorce, they may not need to evidence this advice as the court will have already reviewed the terms.
Whilst we can represent a client in respects of the transfer, we cannot act for the third-party and we cannot give advice upon the legal separation, or matrimonial proceedings. For those reasons, we will always recommend that our client obtains specialist advice in any case involving an ex-partner.
Involvement of the Lender
In terms of the agreement or order, the lender will sometimes get involved with amending the terms, depending on the case. If your client has a draft agreement or order that is yet to be signed or finalised, we advise you to send us a copy. We can then obtain the lender’s approval to it upfront by sending it to their solicitors for comment. This approach is a lot cheaper and quicker to obtain amendments to a draft order, compared to asking the parties to return to negotiations and amend an order that has already been finalised.
The lender would only normally request any amendments that they consider would affect their security on the property. For example, if the order doesn’t state specifically that the agreement is in full and final settlement between the parties, the lender’s solicitors may request that it is added in.
That being said, some lenders will not raise any enquires about the agreement or order, but it all does all depend on the lender and the circumstances. It is always recommended to send us a copy of the order or agreement on instruction, so we can check it over at the outset. In addition, we need to be aware of any time limits so we can make sure we are advising the client correctly.
Important Information to Acquire
Unfortunately, we cannot provide a definitive set of requirements because they do vary depending on the circumstances and the proposed lender. However, the general rule of thumb is to provide us with as much information as possible at the outset so we can tailor our advice.
In summary, it is important for us to collect information from the client when completing Fact Find, and in particular, ask them what the status is with their separation or divorce. Do they have a written agreement in place, and if so can they provide us with a copy? We also need to find out whether they can send us copies of any divorce paperwork if there any solicitors already involved representing either party and if we can have their contact details as well. Once we have all of that, we will be able to advise the clients and update what needs to happen next.
