Have I lost out in my divorce settlement? Unexpected expenses were added to my share

10 January 2020

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?

From
VB/via email

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.

Jane Keir is a family law and divorce partner at Kingsley Napley LLP

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