Birdnesting and mortgages in divorce
Joanna Newton observes how rising mortgage rates intensify property disputes in UK divorce cases.
Property and assets have always been central to family law and the divorce process. For many couples in the UK, the home is the most substantial asset within the relationship and can become a point of serious contention between a separating couple.
However, the complexities of this process are worsening with the hike in mortgage rates over recent months. Mortgages taken out many years ago can have interest rates as low as 2 per cent, but with interest rates rising and the ongoing impact of the cost-of-living crisis, rates for a typical five-year fixed mortgage deal can now exceed 6 per cent.
Mortgage rates in the UK are having a profound impact on families and relationships, with millions facing the remortgage trap as old deals expire, and exponential increases could see rates reaching 8 per cent, a number not seen since the year 2000.
Responding to a survey conducted here at Stowe Family Law, 54 per cent revealed they are experiencing friction in their relationship due to increased rates, and 66 per cent worry that this additional financial pressure could cause friction down the line and potentially lead to a relationship breakdown.
A new divorce battleground
For divorcing couples, mortgages are becoming a considerable point of contention, as holding onto a historic lower mortgage rate could potentially save one party thousands of pounds.
For many couples, housing is the first priority during divorce, particularly if they have children together.
The house and the mortgage are considered a matrimonial asset, whether owned jointly or solely in the name of one spouse.
The legal starting point in divorce is that marital assets should be divided equally, but this can be debated if there are insufficient funds in the matrimonial pot to meet the needs of the ex-spouses and any children. Discussions around unequal division based on individual needs and differences in earning capacity can be entered into if this is the case.
The ongoing financial instability due to the cost-of-living crisis is exacerbating this dilemma. Uncertainty about money means that many are facing even more difficult decisions when it comes to the division of assets, particularly when considering that the financial resources which once supported one household now needs to support two individual ones.
Reaching a financial settlement can take months and disputes about mortgages can delay things even further.
For couples debating their mortgage, one of the most pressing matters is how the mortgage will be paid while the divorce process is still ongoing. Should the mortgage be in the names of both spouses, each is legally responsible for paying it, even in the case if one spouse has moved out.
Any missed payments can negatively affect credit scores and limit future potential purchases or rental opportunities.
Who gets the mortgage?
As part of the larger financial settlement, mortgages are usually dealt with in one of three ways.
The approach chosen by most amicably splitting couples is to sell the house, pay off the mortgage, and agree on the division of any equity. For couples with children, this option usually works well, as down payments can be made on two separate homes that can be purchased with the individual portions of the equity.
Another option is for one ex-spouse to buy out their partner’s interest in the house, which then releases the other from the mortgage and means sole ownership.
This option depends on whether one party can afford to fund the buy-out of their ex-spouse and maintain the home as a sole owner.
For many in the current economic climate, this may not be a viable option. Respondents to the survey conducted by Stowe Family Law on the impact of mortgage increases on relationships highlighted that many people cannot afford to leave their relationship, with one third (32%) of those polled unable to separate from their partner because they would struggle financially alone.
The third option, and an increasingly popular way of managing the house and the mortgage in divorce, is to maintain both in joint names and agree that it will be sold at a later date.
This does keep the couple financially tied together and is usually only considered when one party is unable to obtain a mortgage or rehouse themselves on their own.
One of the primary ideas behind this is to keep any children the couple has in the family home 100 per cent of the time, rather than moving them between each parent. Instead, the divorced couple split their time in the family home on rotation, sharing childcare and house costs in what is being termed ‘birdnesting’.
In the survey run by Stowe Family Law looking at the effect of mortgage rates on relationships, 73 per cent said that they would consider birdnesting as a way to co-parent if needed.
That family lawyers are seeing an increased prevalence of birdnesting is no coincidence considering the unstable economic climate. Protecting a low-rate mortgage is a key concern for many divorcing couples and keeping the family home is a way of doing this.
Generally, each ex-partner alternates between the family home and a second, lower-cost house or stays with friends or relatives in their non-childcare time. In some cases, the divorced couple shares the second home.
For some families, this can be a great way of managing divorce and ensuring that the children have stability during a turbulent time. Maintaining a consistent structure for children during the divorce process helps them to handle the situation. Normal activities like school, out-of-school clubs, seeing friends and family as usual reassures children that while there is considerable change, many important aspects of their lives will remain the same.
Birdnesting, as noted, can also be a way of reducing financial pressures on a divorcing couple.
Maintaining the family home, particularly if the mortgage rates are low, and running a smaller, separate accommodation may well be more financially realistic than attempting to cover the costs of two fully functional houses suitable for a family.
Furthermore, it means that the couple can continue building equity in the house.
However, there are potential downsides to the concept of birdnesting. Remaining financially tied to an ex-spouse can be emotionally difficult, as there is no closure. Moving forward after divorce can become tricky.
Practically, there are challenges to birdnesting, too. The day-to-day running of the home can be grounds for argument, alongside how to handle shared finances after divorce, and who should pay for what.
For children, birdnesting aims to provide consistency as they stay in their familiar environment. Nevertheless, it can be confusing, especially for young children. Proper child arrangements must be in place, either in the form of a formal agreement, approved by the court, or a parenting plan.
It is also important to consider how long to keep the property for the purpose of birdnesting. It may be that the family home is kept until the children have moved out, but this could well be some years away.
A clean break?
With the complexities surrounding rising mortgage rates, handling property and finance when getting divorced has reached new levels.
While there are options for splitting couples, financial uncertainty can mean that they do not achieve a ‘clean break’ and the divorce process can be elongated, causing additional stress, tension and costs.
Further, co-parenting possibilities are leaning towards more positive ways of ensuring children have consistency and security, but these rely on an amicable break up where both parties are willing to compromise.
The impact of rising mortgage rates on relationships, and relationship breakdown, should not be underestimated and the role of the family lawyer is essential in ensuring the best outcome.
Joanna Newton is a Partner at Stowe Family Law