Jonathan West, head of family at law firm Prolegal, explains how Mesher orders can help divorcing couples for whom selling the family home is no longer a viable, “clean break” option.

Jonathan West, head of family at law firm Prolegal, explains how Mesher orders can help divorcing couples for whom selling the family home is no longer a viable, “clean break” option.

For the first time in a decade divorce rates are on the rise again.

Many believe that the current economic climate is to blame. But has the economy affected the way in which people are approaching their separations and ultimate divorce and division of assets?

We are painfully close to the dreaded double-dip recession. Quantitative easing appears to have been spectacularly ineffective; standard variable mortgage rates are on the rise and property prices continue to fall (by nearly 20 per cent from their summer 2007 peak).

In the last few weeks we have seen a new president take the helm in France who seems to believe that spending out of recession is the way forward, contrary to the more popular belief that austerity is the order of the day. And we have the “Greek tragedy” too.

The stock markets continue to feel the strain – and we all feel poorer for it.

Property ownership – no longer a panacea

So what has been the effect on those people who also add into the mix a crumbling marriage?

The short answer is many are finding that the panacea of property ownership has become a weight around their neck.

We are seeing an increasing number of couples, from every walk of life, who are either stuck in their property or, if they have separated, finding it difficult to release their equity. The difficult economic environment is making the aim of a clean break in divorce tricky to accomplish. If we look back just a few short years, bankers felt secure that they would be guaranteed substantial cash bonuses. Yes, the cost of divorce was a bitter pill, but they would make up the costs over the course of a few years and get back on track.

However, as we are all aware both quantitatively and qualitatively the nature of bonuses has changed – they are smaller and locked in for longer. Large cash sums are no longer (or not as readily) available. It is no surprise that we have seen children being removed from private education and restaurant closures back on the menu.

Over the course of recession we have witnessed a return of something called a Mesher order. Mesher orders were prevalent in the 1980s, out of favour by the mid 1990s and have now had a resurgence.

The basic principle of the Mesher order is for the sale of a property to be postponed and for the home to be held on trust for sale upon certain specified events. These events are commonly the death of the occupying party, that party’s remarriage or the youngest child reaching a certain age.

Resurging popularity

The return of the Mesher can possibly be attributed to stagnation in the housing market and mortgage providers toughening up on lending criteria. Traditionally, couples have used the proceeds of sale of their property to equitably split their finances. With the consequent reduction in equity levels (or negative equity) houses have become harder to sell and newly-separated couples are left with more limited resources to enable them to rehouse.

Add to this the fact that most lenders see maintenance payments as a commitment (therefore reducing affordability for the payer) but at the same time not always taking them into account as income in the hands of the recipient.

The case for Mesher orders is strong in the current climate: more effective than ordering a sale of the property, they can be seen as reflecting the sharing principle more closely with a much larger share of the matrimonial pot being given to the spouse who will be caring for the children. They can also solve a problem where the cost of a sale would mean there is not enough left in the pot to ensure both parties can purchase similar alternative accommodation, but only enough for the parent with care of the children.

Potential pitfalls,

However, they fell out of fashion for a reason; they are not without their problems. These include:

·        There could well be tax implications, and advice would need to be sought as to possible inheritance tax and capital gains tax issues. In particular, the non-occupying spouse should be aware of a potential CGT charge when finally receiving their payment, if they have purchased a new principal private residence

·        The occupying spouse facing considerable uncertainty as to whether they will actually be in a position to rehouse themselves suitably from the proceeds of the eventual sale

·        For the non-occupying spouse, waiting for extended periods before becoming entitled to their share, whilst often having to remain paying for the privilege of not having occupation of the property

·        Keeping the couple bound to one another for an extended period

·        Possible conflicts as issues such as mortgage payments, payment for structural repairs, building insurance etc. arise

Clearly, there are advantages too…

Mesher orders certainly satisfy the requirement of courts to give first consideration to the welfare of children and can also ensure family stability at a time of great upheaval and stress. There can be some sound arguments to remain in the marital home, whether child-related, practical or emotional.

Immediate moving costs involving legal fees, stamp duty, refurbishment costs and so on can be deferred – perhaps to a time when the property market has recovered and more equity is available for distribution

There was a time when those of significant wealth and capital were effectively immune from considering a Mesher type resolution but times have changed.

With the erosion in bonus payments colliding with a period of falling savings interest rates incomes have been hit hard. The optimism in the 2000s that the house price boom would continue led many people to highly gear.

Fiscal fragility has now become apparent in this economic climate, even for high earners. While incomes may still be good and one may still own the multi-million pound property, come divorce the school fees still need to be paid and two households need to be maintained. When mortgage lenders look at affordability criteria and levels of equity it is no longer such an easy task to get that mortgage for the high-end City property.

In this context, the Mesher order solution, even understanding the pitfalls within it, offers a potentially attractive proposition. Given the choice of remaining in an unhappy marriage, or separating within the same home under some form of house sharing arrangement, it could make the most of an unfortunate situation.