Divorce Advice for Landlords

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Divorce Advice for Landlords isn’t the cheeriest of subjects I’ve ever written about, however, this article was inspired by a lady who sent me a readers question article to consider and with whom I subsequently had a very long conversation with over the telephone.

We agreed that I would not post her Readers Questions article, but that I could use the outline of her story and the advice I provided to her as the basis of an article which might prove useful to other landlords in a similar position.

Background

In this example there are no children involved so that makes things a lot easier. The agreement to divorce is amicable and both are in agreement to share everything equally. It’s when the solicitors get involved the problems usually start.

In this case there are 4 rental properties and a business to be divided. Mr Landlord had agreed to resign from the business and to sign it over to his wife. This is the potential first problem. The business will have a value, either positive or negative. It would be highly unusual for a business to have a value of exactly zero. Therefore, I have suggested that the business is valued and can be used in evidence at a later stage. Same for the four rental properties. You will need to prove to a judge that everything has been shared fairly. Your own estimates may not be accepted so prepare a package of documentation, which you both agree upon if at all possible, to present as evidence.  Divorce Advice for Landlords

Unless you’ve been through a divorce before it’s unlikely that you will understand the processes.

I feel well qualified to write this article having worked as a mortgage broker, financial adviser, at a law firm and having also been through a divorce myself whilst owning a business and a buy to let property portfolio. However, I must point out that I am now retired from giving professional advice and this article should be read as guidance only. Please seek professional advice from a practising and fully insured and regulated adviser.

Where to start?

It’s best to agree as much as possible before instructing solicitors as it saves arguments and fees later, for example:-

  • Who will be divorcing who? You must choose
  • What the grounds for divorce will be
  • How will assets and liabilities be divided
  • How will personal possessions be divided

Choosing solicitors

I recommend the Collaborative Law process as it avoids much of the correspondence from solicitors which can often be misconstrued and cause arguments. Instead, both parties meet around the same table with their lawyers to agree the deal which will be put to the court. This is called a 4-way meeting. The job of the lawyers is to mediate and to advise whether a judge is likely to agree that what has been agreed is fair. If a judge doesn’t agree then a divorce settlement will not be granted.

My advice for choosing a law firm is to avoid those offering legal aid wherever possible. They tend to carry heavy case-loads and churn though matters very quickly. I don’t think collaborative law is available on a legal aid basis either. Obviously you may not have a choice, but if you do then these are the criteria I recommend for choosing your lawyer

  1. Must be a registered collaborative lawyer
  2. Must not accept legal aid clients
  3. Must be a landlord or have worked with other landlords who will provide a positive testimonial

The process

The person applying for the divorce will hand over the marriage licence and a divorce petition will go to the Court explaining the grounds for the divorce. The other partner will receive a copy of that petition. Assuming all is agreeable in terms of the grounds for divorce a “decree Nisi” will be issued by the Court. The grounds for divorce are a sensitive issue for most people so make sure your ex agrees with what’s being sent before it is sent if at all possible. Nasty surprises of any nature can damage an otherwise amicable split so easily, therefore, be extra careful and considerate if you are the one filing for the divorce.

Both partners will then have to complete a very long form declaring all income, assets and liabilities. These will be presented to your respective solicitors and copies will be exchanged between your solicitors.

If you do choose a collaborative divorce process that’s when a meeting will be arranged between both partners and both lawyers, this is the 4-way meeting mentioned above. They will document what’s been agreed in terms of who gets what, this is called a draft consent order. If the lawyers think a judge will not accept what you have agreed they will explain why. When both parties agree to the consent order this is referred to a judge.

Splitting assets

I do not recommend doing this until the consent order is agreed by the judge and a court order is subsequently granted. A court order  may well involve ordering mortgage lenders to take names of mortgages which ordinarily they might not agree to. The judge will also order equity in properties to be transferred as per the consent order. If these aspects of separating assets are court ordered the transactions will not attract Stamp Duty and may well be far more efficient than refinancing in terms of fees and retaining favourable mortgage conditions, especially those arranged pre-credit crunch. Court orders deal with future liabilities for CGT on sale very efficiently too.

A judge will usually grant a period of time for his order in respect of dividing assets to be executed. It is possible but not advisable to obtain a decree absolute until all assets and liabilities have been dealt with in accordance with the order of the judge.

General considerations

Solicitors make more money when you disagree with each other. They are very good at creating mistrust, intentionally or not, but either way it racks up their fees rather nicely if you do fall out half way through the process. Please bear this in mind, especially if when your lawyer tells you that you might be entitled to get a bit more out of the divorce than you have agreed. If when they do this, ask them to raise it at the 4-way meeting, that’s possibly the last you will hear of that suggestion. Remember, the solicitor acting for your spouse is probably telling his client exactly the same thing. Draw your own conclusions from that! The bottom line is that if you are both happy with what you have agreed and a judge can be convinced it’s fair there is no need to fall out. Easier said than done, trust me I’ve been there! Also remember that the wheels of justice grind very slowwwwly.

The final step is that either of you applies for decree absolute, when this is granted you are then divorced and legally entitled to re-marry.

I make it sound so easy don’t I?

Sorry, it isn’t!

We are human beings and we have emotions, good and bad.

Good luck if you are going through this and I hope the above helps in some way.

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Comments

I am not sure about splitting the assets later..........Are the rental properties in the business or are they held jointly as a partnership? If the divorce is amicable, and the property assets are jointly owned It may be prudent to divide the property before separation. Afterwards such a division may attract CGT?

Mark Alexander

4 years ago

Reply to the comment left by "Mark Crampton Smith" at "04/11/2013 - 14:22":

Perhaps I wasn't clear enough Mark.

I am suggesting that division of assets should be Court ordered based on the agreed Draft Consent Order, then actioned prior to a Decree Absolute being applied for.

There are many advantages of doing things this way and no disadvantages I'm aware of. There are, however, many potential disadvantages of separating assets prior to a Court Order by the judge.
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DC

4 years ago

"The agreement to divorce is amicable and both are in agreement to share everything equally. It’s when the solicitors get involved the problems usually start."

Simple question - why get involved with solicitors at all??

Mark Alexander

4 years ago

Reply to the comment left by "DC " at "05/11/2013 - 18:51":

For people with little if any experience of how the Court system works I think this is even more stressful than employing a solicitor, although I do understand your point. When I got divorced I wanted to represent myself as I felt confident enough to do so. It was a bad idea as my ex wasn't so confident and her solicitor initially played on that big time.

The reality is that at least one side will usually want some legal advice and reassurance that what they are doing is the right thing. I've seen many disaster stories unfold when both sides have agreed not to involve solicitors and to represent themselves and then one decides to seek reassurance and professional advice when they begin to get cold feet. Best to start off in the right place unless you are two solicitors in my opinion. Then again, it has also said many times that a solicitor who represents himself has a fool as a client LOL
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DC

4 years ago

I do understand that people experience different situations at this difficult time but I assumed from the background picture you painted that it was more straight forward than the average divorce. Thankfully my divorce was amicable and our agreement on how to settle matters was acceptable to both of us so we saved ourselves further pain and expense and conducted the process ourselves, without the need for solicitors.

There is no problem with getting the correct advice and there are many places where this advice is freely available but of course there is no problem with obtaining that advice from a solicitor either, so long as you are aware of the costs involved. I would think that good unbiased advice from a specialist regarding how to split the ownership of the business and properties would be equally advisable in these particular circumstances and an accountants advice, together with somebody that understands property investment is more appropriate than a solicitor. I assume this is why you were approached?

Mark Alexander

4 years ago

Reply to the comment left by "DC " at "05/11/2013 - 23:13":

Please don't think I'm saying it can't be done without the involvement and expense of solicitors, clearly it can be DC. You and your ex are living proof of that. However, from reading your comments here it is clear that you have a good working knowledge of the law and the Court systems, perhaps your ex did too. Most couples are not blessed with that knowledge and experience.

I would have been quite happy to work with our accountants but my ex wasn't. When one side get's a solicitor it's becomes virtually impossible for the other side not to do so, regardless of how uncomplicated or amicable the separation is. That's all I'm saying. I'm an advocate of the Collaborative Law process having used it.
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Eloise Hillman

3 years ago

Hi Mark, interesting article. Can I ask what the 'many potential disadvantages of separating assets prior to a Court Order by the judge' might be?

Mark Alexander

3 years ago

Reply to the comment left by "Ellie " at "21/07/2014 - 10:21":

Stamp duty is an obvious one, double expense may be another if the judge doesn't agree with what's been done.
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