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  1. Law
April 30, 2012

Are Mesher Orders Over Splitting Property Becoming More Useful Today?

By Spear's

As most people are aware divorce rates are on the rise again for the first time in a decade. The economy has hit the dreaded double dip recession. With quantitative easing apparently ineffective; standard variable mortgage rates increasing and property prices continuing to fall (by nearly 20% from their summer 2007 peak), how has this impacted on those people seeking to get divorced from one another?

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

We are seeing more and more couples, from all walks of life who are either stuck in their property or, if they have separated, finding it difficult to release their equity. The harsh economic climate is making the goal of a clean break in divorce tricky to achieve.

Over the course of recession we have seen a return of the Mesher order. Mesher orders were prevalent in the 1980s, were out of favour by the mid-1990s and have now had a renaissance.

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

There is a strong rationale for using a Mesher order to resolve financial disputes. They can be said to reflect the sharing principle more closely than ordering a sale of the property and the spouse with care of the children to receive a far greater share of the matrimonial pot. They could also be useful where selling the home would fail to realise sufficient capital to fund the purchase of other suitable accommodation, or, after taking into account sale costs would only produce a sum enabling the parent with care of the children to purchase somewhere equivalent to that being sold.

They fell out of fashion because they are fraught with difficulties. Those difficulties came in various guises:

•    They kept the parties bound to one another for an extended period;
•    It forces couples to discuss some difficult issues including payment for structural repairs, building insurance and mortgage payments – leading to possible conflict situations;
•    The occupying spouse is faced with considerable uncertainty as to whether they will actually be in a position to rehouse themselves suitably from the proceeds of the eventual sale – a degree of crystal-ball gazing has to be employed – but the risks are significant in such an approach;
•    For the non-occupying spouse, they have to wait for extended periods before becoming entitled to their share, while often having to remain paying for the privilege of not having occupation of the property;
•    There could well be tax consequences, and careful advice would need to be taken as to possible Capital Gains and Inheritance Tax implications. The non-occupying spouse should particularly be alive to the possibility of a Capital Gains Tax charge when finally receiving their payment, if they have purchased a new principal private residence.

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Obviously there are advantages too. The courts are charged with the duty to give first consideration to the welfare of children of the family who are under 18 and Mesher orders certainly satisfy that requirement. They also ensure stability of the family unit 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.

At a time when finances are possibly stretched to the limit with legal fees, the need to maintain two households and the payment of maintenance, at least the immediate moving costs (legal fees, stamp duty, refurbishment costs) 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 income and capital were effectively immune from considering a Mesher type resolution but times have changed.

We have seen in the past few years an erosion in bonus payments colliding with a period of falling savings interest rates. Incomes have been hit hard. In the Noughties there was optimism that the house price spiral would continue leading many people to highly gear.

The current climate has seen many fall foul of their fiscal fragility. Yes, incomes may still be good and yes, one may still be living in a multi-million-pound property, but 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 a mortgage.

When faced with the prospect of divorce, if given the choice of remaining in an unhappy marriage, or separating within the same home under some form of house sharing arrangement, the vista of a Mesher order solution, even understanding the pitfalls within it, may seem like the more attractive proposition.

Perhaps your dream home has just become a millstone.

Jonathan West is head of Family at law firm Prolegal

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