What is a Property Settlement Agreement?

A property settlement agreement essentially refers to the part of a financial settlement between two divorcing parties concerning any property which needs to be separated between the ex-spouses following divorce.

When it comes to divorce and property, the family home is generally the most important and valuable asset held by a divorcing couple.

It is crucial therefore to ensure that an agreement is reached regarding the division of equity and/or proceeds of matrimonial property. Read on to find out how a property settlement agreement can help.

Property settlement agreement after divorce

In most marriages, the property that needs to be divided just consists of the matrimonial home (i.e. the property where the husband and wife lived during their marriage), but it can sometimes include second homes or an investment property which is either jointly or individually owned.

How then is property divided in a divorce? There are many ways in which a divorce house split can be done, including one spouse buying out the other or selling up and splitting the proceeds. But if an agreement cannot be reached between both parties then it may be necessary to seek professional help or mediation.

Ultimately it may even be necessary to go to court so that a judge can decide on a fair financial settlement.

How do you create a property settlement agreement?

Once you have negotiated and reached an agreement the co-owners of the property can have a property settlement agreement drafted to record the terms of any transactions, such as the payment from one party to the other in a buyout or the division of proceeds if selling up.

The Property Settlement Agreement is then drafted by solicitors and submitted to court for approval to prevent any future claim over the property. But how do you get to that point?

There are several stages to creating a property settlement agreement:

1. Negotiation – the divorcing parties must first discuss the options for dividing up any property which forms part of the matrimonial pot. This can either be done informally or through mediation which involves an independent specialist mediator.
2. Agreement – once an agreement has been reached, this is generally written down and formalised in a document, with both parties signing it to confirm they agree to the terms. The overall agreement – which is also known as a divorce settlement – will generally include all the other aspects of financial affairs, as well as the property.
3. Consent order – in order to ensure the settlement is enforceable, it will need to be turned into a consent order (see below).

If the divorcing parties cannot agree to a financial settlement between themselves or by way of mediation, they may need to go to court so that a judge can decide on a fair divorce settlement.

In this case, the court will assume a 50:50 split to start with and then apply principles of fairness considering the particular circumstances. In particular, the court will consider the welfare of any children under 18, and will look at various other factors set out by section 25 of the Matrimonial Causes Act 1973, eg:

• the income, earning capacity, property and other financial resources that each of the parties to the marriage has or is likely to have in the foreseeable future;
• the financial needs, obligations and responsibilities that each of the parties to the marriage has or is likely to have in the foreseeable future;
• the standard of living enjoyed by the family before the breakdown of the marriage; and
• the age of each party to the marriage and the duration of the marriage.

The decision of the court will result in a divorce order being created, which will include directions on how any property is to be divided.

What should be included in a property settlement agreement?

The portion of a divorce settlement that deals with property should include express instructions as to how these assets should be divided up between the divorcing parties. Potential ways of splitting up property includes:

• Selling up – this involves selling any property that forms part of the matrimonial pot and dividing up the proceeds.
• Buying out – this involves one divorcing party purchasing 100% of the equity in any property, or taking on the full mortgage.
• Maintenance payments – one party may decide to leave the property to their ex-partner and continue paying their share of the mortgage, either for a certain number of years or until the whole mortgage has been paid off.
• Transfer of ownership – any mortgage-free property may be transferred between the parties as part of the overall financial settlement.