Transfer Of Property Ownership & Equity After Divorce
Last Updated:February 23rd 2024 Table Of Contents
Transfer of equity refers to changing the ownership of a property, usually to add or remove someone as an owner. During a divorce, this often involves transferring one spouse’s share of the property to the other.
Property is normally the single most significant asset in a marriage and, therefore, it is at the core of most financial settlements in a divorce.
Often during the transfer of property ownership after divorce, the matrimonial home is sold and the proceeds are divided between the two parties.
But sometimes the property is transferred so that one spouse becomes the sole owner – the way you decide to divide the property you own is up to you and should be looked at as part of the overall divorce settlement you reach.
There is no one-fits-all answer, but for the purpose of this article, we’ll be walking you through everything you need to know about property law concerning the transfer of equity process after divorce and the potential tax implications.
Property settlement agreement after divorce
A property settlement agreement after divorce is part of the financial settlement reached between a divorcing couple that relates to property that needs to be separated.
In most marriages, the property that needs to be separated is the matrimonial home (the main residence where they lived during the marriage), but it can also include second homes or investment properties which are either jointly or individually owned.
Once a divorcing couple has agreed on what to do with their assets within a property settlement agreement it is then wise to record the details in a consent order. This is a legal document, usually prepared by a solicitor, setting out what both parties have agreed.
The consent order is normally presented to the court to make it legally binding when the divorce reaches the ‘Decree Nisi’ stage. The consent order then becomes legally binding on both parties once the Decree Absolute has been granted.
Obtaining a consent order is the only way to finally sever your financial obligations after a divorce, providing financial certainty for both parties by ensuring any future claims are dismissed.
Transfer of Equity Stamp Duty Land Tax (SDLT)
If the property is being transferred as part of a divorce settlement, there is no Stamp Duty Land Tax (SDLT) to pay.
It is also important to note that transfers after the decree absolute may be subject to inheritance tax (IHT) if the transferring spouse dies within seven years of the transfer.
Stamp Duty Land Tax (SDLT) is payable on property transactions in the UK. The rules for SDLT during a transfer of equity in the context of divorce are specific:
- No SDLT for Transfers Ordered by Court:
- If the transfer of equity is part of a court order or a formal divorce settlement, no SDLT is payable. This is because such transfers are considered exempt from SDLT.
- Consideration and SDLT:
- If the transfer involves consideration (payment), such as one spouse paying the other for their share of the property, SDLT may be payable on the amount of the consideration.
- Consideration includes taking on a share of the existing mortgage. If the remaining spouse takes over the entire mortgage, the value of the mortgage taken on is treated as consideration for SDLT purposes.
Real-life Example
- Court-Ordered Transfer:
- John and Mary are divorcing. The court orders that John transfer his share of the family home to Mary. Since this is a court-ordered transfer, no SDLT is payable.
- Transfer with Mortgage Consideration:
- Assume the family home is worth £300,000, with an outstanding mortgage of £200,000. John is transferring his share to Mary, who will take on the entire mortgage.
- Mary’s consideration is her share of the mortgage (£100,000). If this consideration exceeds the SDLT threshold, SDLT will be payable on the amount of consideration (in this case, £100,000).
How does transferring property before divorce work?
Transferring property before a divorce can be a strategic move for some couples, but it is important to understand the legal and financial implications.
One of the key considerations before transferring a property before divorce is to ensure the transfer is done fairly and transparently.
Courts may scrutinise any transfers made shortly before a divorce to ensure they were not intended to deprive the other spouse of their rightful share.
Transferring property between spouses is generally exempt from CGT if they are living together.
However, once separated, the exemption applies only until the end of the tax year of separation. Transfers after this period may be subject to CGT.
Transferring property before a divorce can simplify the division of assets, but it requires careful planning and consideration of legal and tax implications.
Always seek professional advice to ensure the process is conducted correctly and to avoid any unforeseen liabilities.
Can my ex-spouse sign the house over to me?
Yes – if the matrimonial home is mortgage-free, it may be transferred between either divorcing parties as part of the overall financial settlement. What this essentially entails is removing the name of one ex-spouse from the property deeds, leaving the other party as sole owner.
If there is still a mortgage on the property, it will be necessary to ask permission from the mortgage provider, and financial ability to pay the whole mortgage will be taken into account.
Normally the divorcing couple will agree to a property transfer as part of the divorce settlement, following negotiation and possibly mediation. Read advice on divorce and property to find out more.
On occasion, a court may decide to make a ‘transfer of property order’ which imposes a court decision regarding property transfer. However, this type of order is quite rare and will normally only be intended to protect the interests of any children under the age of 18.
Removing a name from the land registry
A transfer of equity solicitor can draw up a title deed transfer that effectively transfers the property to one of the divorcing parties and removes the name of the other ex-spouse from the deeds.
Alternatively, this can be done directly with the Land Registry, which involves removing a name from the land registry using the following process:
Did you know?
The division of property during a divorce can be complex. Who gets the house is often the first question divorcing couples ask. But, outside of this question, you need to know how a house can be divided in a divorce. Legal advice is always recommended as family law solicitors know the law and can advise on issues such as property owned before marriage and how that is treated.
Transferring ownership of a house with mortgage
If a property still has a mortgage, permission will need to be sought from the mortgage lender before ownership of the house can be transferred.
In this case, the mortgage company will assess the ability of the ex-spouse who wishes to take on the entire mortgage, subject to certain affordability criteria.
Any property intended to be transferred as part of a divorce settlement should be transferred as soon as possible in order to avoid potential tax implications (see below).
Transfer property to spouse capital gains tax
In the UK, a “no gain/no loss” transfer refers to the transfer of assets between spouses or civil partners without triggering a Capital Gains Tax (CGT) liability.
Transfers of assets between spouses or civil partners who are living together are treated as “no gain/no loss” for CGT purposes. This means that any gains or losses on the transfer are deferred, and the receiving spouse inherits the transferor’s base cost of the asset.
What counts as ‘marriage separation’ can be subject to interpretation, but government guidance refers to circumstances where “the marriage separation is likely to be permanent”.
Separately, Principal Private Residence (PPR) relief can normally be claimed for a certain period of time.
If one party moves out and transfers the home to their ex-spouse, the party moving out can only claim relief from CGT if the transfer is agreed upon within a period of 9 months after moving out.
Transfer of equity legal considerations
A transfer of equity, or transfer of property ownership, will generally form part of the overall financial settlement.
On its own, a financial settlement just outlines the terms of the agreement between the divorcing parties and is not legally enforceable (although it can be used as evidence in court).
From a property law perspective, to give a financial settlement legal standing, a consent order is required – this will allow any agreement regarding property transfer and other assets to be enforced in the courts.
A financial consent order also prevents one party from making financial claims on their former spouse at some point in the future, providing a clean break.
Clean Break Consent Order Service – £399
This Clean Break Consent Order service will help you legally split any properties you own, whether that is solely or jointly. Using solicitors to obtain this type of agreement will often cost over £1500 + VAT.
