Over the last few days there has been a sharp exchange of opinion on the blog between readers, about the impact of Mesher orders. The Mesher order has been a popular option at times but it is not without its disadvantages and in this post, I would like to take a closer look at the implications of Mesher orders for former spouses.
Divorce and loss always run hand in hand. When a husband and wife finally decide enough is enough, that decision can be financially painful for both.
I don’t know anyone who walks away from a divorce without wincing.
A wife whose husband has left her, will have to come to terms not only with the loss of her husband, and the devastation caused to the children, but will also have to face the unpleasant and often unarguable fact that hers and the children’s home will most likely have to go. She is adamant that will not happen not least because the children will have to be uprooted and it isn’t fair to them. They love their home, their garden, their bedrooms. But a financial settlement on divorce isn’t about emotion.
Where there is plenty of equity in the marital property, the needs of both parties can be met and they can move on with their lives. Big problems occur when there isn’t enough equity to go round. What happens then? The easy option is to go for a ‘Mesher’ type order, to avoid an immediate sale.
Such an order is made when one party wants to stay in the home, but it wouldn’t be fair and reasonable for the other to lose all their interest in the equity. So, the party who wants to stay may do so, and in the meantime, the payment of outgoings in relation to the property is footed by the parties on terms agreed or ordered. Then on a given date, the property is sold and the proceeds divided between them, as may be agreed or ordered by the court.
A typical case might involve a couple with children, where the immediate sale of a house would produce no obvious benefit to either party because the house is not worth enough to finance new homes for both.
The person who stays in the house, usually the wife with the children, might not be able to manage without an income contribution from her husband. So in return for continuing maintenance, she agrees not to sell and to stay in the house until, say, the youngest child reaches 17, or leaves school or university.
A sale could be triggered earlier: for example, if the wife remarries or “permanently cohabits”., There are frequent arguments as to what “permanent cohabitation” does mean, because there is no legal definition. However, that’s another post!
For the purposes of this discussion, let’s assume that the husband is to receive say 25 per cent of the equity on the sale of the house and the wife the balance. The house is to be sold when the youngest child is 17. The wife thinks she can breathe easily for at least seven years. She gets on with her child rearing and keeps on with her part time job, blissfully ignorant of what is waiting her round the corner.
The cost of living is rising but for most of us, the value of our properties has not rocketed spectacularly, so even if the youngest child is only ten, and the house must be sold in seven years, we can safely assume, that in real terms, the parties will be no better off.
The husband will receive his share of the equity and if he has a new ‘principal residence’, he may find himself paying capital gains tax on his share unless a fixed sum has been agreed at the time of the order. However, with the relief available for capital gains tax he may still be okay.
But what of the wife? With her share, 75 per cent of the equity, she will still be unable to afford anywhere else to live. Her 75 per cent may be enough to ‘put by’, but will not enough to re-house her without a substantial mortgage that she cannot afford.
So eight years on, while the wife has borne the brunt of the child rearing and seen her own income remain much the same, the husband has seen his share of the property increase in value, providing him potentially with a tax free return on his investment. The wife, meanwhile, is left homeless.
That is the situation facing Claire, who described her troubles on the blog. Family lawyer Andrew, meanwhile, has been telling her in no uncertain terms to get real, and face the music.
So is a Mesher order ever a good idea? I’ve never been a fan and would view it always as a last resort. It might seem like a good idea to someone who at the time wants to stay in her home without uprooting herself and the children. But if she isn’t going to increase her own income, so she has a realistic prospect of paying off her husband on the due date, then all she is effectively doing is taking on a second, big, mortgage with a deferred repayment date. And like everything deferred, that date will, eventually come.
I would therefore always advise a client to tread warily if offered a Mesher order. Instead, go for all the capital in the house even if that means substantially downsizing, since the investment will still be yours and only you will benefit from that growth. But if a Mesher order is your only realistic choice, make sure your maintenance claims against your husband are not extinguished during the period of deferred sale and, most importantly, afterwards, when you are likely to struggle.
It is important to remember when negotiating a financial settlement to think not only of the here and now. Always have an eye to your future. How are you going to manage? How are you going to improve your standard of living? How are you going to save for that rainy day when payback is demanded?
Financial orders on divorce are intended to be certain, permanent and for life. And if not fully thought through, they can have very destructive long-term consequences.
As I advise all readers of this blog, your own circumstances are completely unique to you and your partner and the law is designed to fit all shapes and sizes. Therefore you should always, always (!) take legal advice before settling.
Experienced family lawyers know what is coming for you down the line. Claire writes that she couldn’t afford legal help at the hearing, while her former husband was represented by a solicitor and a barrister.
With such inequality of arms it’s no wonder, perhaps, that Claire is now writing in desperation to the blog.