I was contacted recently by a couple currently going through mediation in an attempt to amicably finalise the financial details of their divorce.
They were, however, unable to agree on the amount of Spousal Maintenance payable by the ex-husband (Mr P) to the ex-wife (Mrs P) and the disagreement threatened to derail the whole mediation process. They needed to know how these payments would affect their mortgage capacity which they hoped would then resolve this final issue.
After having 4 children, the youngest now 6 years old, Mrs P has only recently returned to work part-time. She also receives Child Benefit, Child Tax Credits and Working Tax Credit payments. Currently Mr P is making the mortgage payments on the family home where the 4 children and Mrs P reside. It has been agreed that the family home will be sold, the sale proceeds split 50/50 and both parties will then buy separate homes. When the family home is sold Mr P will also pay an agreed amount of Child Maintenance. The couple have previously enjoyed a comfortable lifestyle with the family owning 2 horses and going on regular holidays. However, they do have Credit Card debt of over £20,000.00 which Mr P has agreed to assume so that the entire sale proceeds from the family home can be used for future housing.
Mrs P argues that without Spousal Maintenance she will not be able to take the children on holiday or afford to keep the horses. Whereas Mr P argues that if he were to pay the amount of Spousal Maintenance requested he would not be in position to purchase a new home big enough to house himself and his 4 children when they stay with him.
The couple agreed that they wanted a mortgage Capacity Assessment carried out for each of them based on Mr P paying 2 different amounts of Spousal Maintenance, 1 lower and 1 higher amount. The results were quite surprising.
My findings confirmed that from a mortgage perspective both parties would benefit from the minimum or no Spousal Maintenance being paid and the main reasons for this are as follows:
1. Mortgage Providers will not lend to individuals who rely heavily on State Benefit or Maintenance income. As a general rule no more than 50% of a person’s entire income can derive from State Benefit or Maintenance. In this case if the higher amount of Spousal Maintenance was payable it would mean that almost 80% of Mrs. P’s income would derive from State Benefits and Maintenance income and that she would be declined by Mortgage Lenders.
2. Although Mr P is a high earner and was able to provide his family with a comfortable lifestyle, upon separation his outgoings will increase substantially based on the entire joint debt repayments, Child Maintenance and Spousal Maintenance payments. If the higher amount of Spousal Maintenance was payable he would not be in a position to afford the required mortgage amount to purchase a home suitable for him and his 4 children.
It is important to ensure that before making any financial decision, particularly for divorce purposes, that you are fully aware of the consequences. In this couples case, understanding how the amount of Spousal Maintenance affects their ability to obtain a mortgage ensured their hard work during Mediation wasn’t wasted. They were able to stay on track and come to an amicable arrangement and settle their divorce fairly.