Ever wondered why sale expenses are deducted, e.g. estate agent’s commission, conveyancing costs etc., when working out the value of the family home, even though it is not being sold? Jane Keir explains the position in Moneywise.
Q: I feel as if I have been unfairly treated in my divorce settlement.
Following my divorce and dividing of the assets, I learnt that a principle called ‘notional costs of sale’ had been applied to my share, despite the fact that the matrimonial home was not being sold. What concerned me further was that I was not told in advance that it was being applied. I was not given a breakdown of the final figure and it only came to light after it was all too late. A figure of 3% was used on the value of the property. I was informed these costs are ‘always’ applied yet I now learn they are not mandatory and are open to negotiation. How can this be fair?"
A: The practice of deducting notional sale expenses from the matrimonial home can seem confusing and unfair. It comes from the requirement that both parties to the divorce must give full, frank and clear disclosure of all their financial and other relevant circumstances. As the ultimate objective is for the parties to negotiate a full financial settlement of their respective claims and have it approved by a judge, the financial disclosure they make of their assets and income must be net of all liabilities, charges and tax.
In the vast majority of cases, the matrimonial home will be subject to a mortgage, the value of which has to be deducted from the overall gross value of the property and so do the sale expenses, such as legal and conveyancing costs. Sale expenses have been calculated until very recently on a figure of 3% of the sale value of the property, but as the property market has cooled, it is possible to argue down this figure to 2.5% or 2%.
Where it can feel unfair is when one spouse has to either buy a new home (including the payment of stamp duty and legal costs) or rent one, while the other spouse remains in the matrimonial home and appears to have none of this expense.
It is very likely, however, that the spouse who stays in the house will sell it at some point when they, too, will have to pay the entire sale expenses or their estate will have to do so if they die while still owning the property. After an appreciable period of time has elapsed, these expenses are likely to be much greater, so there is a consequence for the spouse who resides in the former marital home, even if they remain there for a long period.
In my experience, the application of notional cost of sale is common practice in divorce settlements. I suspect that had you tried to argue the unfairness at the time it would have been pointed out to you that in the future a sale of that property would be inevitable."
First published in Moneywise on 10 January 2020.
If you have any questions about the issues raised in this blog, please contact a member of our team of family and divorce lawyers or click here to get started online and find out where you stand.
About the author
Jane Keir is a family lawyer and partner in the family and divorce team. She advises on the protection of wealth, both pre and post divorce and her breadth of experience both in negotiating discreet settlements and in taking cases to trial, mean that she is much in demand by individual clients and Family Offices alike.
By reason of its emphasis on wealth protection, much of Jane’s work involves an international element and she enjoys working with other lawyers, accountants, actuaries, financial advisers, wealth managers and investigators in order to provide a thorough and comprehensive service to her clients. In addition, she has immediate recourse to all the other leading teams at the firm, including Private Client, Immigration and Real Estate.
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