To Chargeback or not to Chargeback? That is the question…

Posted:
05-01-2017

Mesher Orders, so called from the case of Mesher v Mesher [1980] 1 All ER 126, are the postponement of the sale of the former matrimonial home allowing one party to occupy the house and remain there. This becomes a realistic option when it is not possible to arrange for the sale of the home or transfer of it out of the joint names of the parties. The non-occupying party then has to wait to realise their interest in the property until some later trigger date or event. The property in question is then held in joint names on trust for sale. Alternatively, the property is transferred to the occupying party and the non-occupying party has a ‘chargeback’.  The non-occupying party can realise their interest in the property upon certain trigger events, such as: –

• The youngest child of the family reaching 18 years of age or ceasing full time secondary or tertiary education;
• The death of the occupying party;
• The remarriage of the occupying party;
• The cohabitation of the occupying party.

The particulars of the trigger events and the extent of the non-occupying party’s interest in the property is a matter for negotiation.

Mesher orders often look attractive on paper to clients; for the occupying party, often wives being also primary carers for the children of the marriage, wanting to ‘stay put’ in the family home, and sometimes for the non-occupying party, often husbands, who will receive a deferred lump sum if the occupying party cannot afford to buy them out straight away.

However, Mesher Orders often produce far than satisfactory outcomes and really should only be considered a last resort in generally modest asset cases where the property is the only asset or the only significant asset. The Court will focus exclusively on the parties’ needs in these circumstances and the Court and the parties may have little option but to enter into such an arrangement where the alternative (for example, a sale of the property) would cause significant financial difficulties for one or both parties and, moreover, for the children whose needs must come first in any financial settlement analysis.

In summary, the pros and cons of Mesher Orders are set out below:

Pros

• Avoids an immediate sale of the former matrimonial home, therefore postpones the stress of a house move at the same time as divorce.
• Can provide stability for the occupying party to remain in the former matrimonial home whilst the children are of minority age under 18.
• Places the welfare of the children first, allowing them to remain in the same home and school.
• Can be suitable where the occupying party cannot downsize or where buying another property would not be possible or cost effective or where the parties may be on a favourable mortgage product which would not be available on a like for like alternative basis.
• If a property is in negative equity it may not be beneficial for the parties to sell immediately.

Cons

• A Mesher Order is only a temporary alleviation of the issue, it will still cause uncertainty for the future particularly for the occupying spouse.
• Depending on the amount of equity at the end of the period of one of the trigger events, there may not be enough capital to allow both parties to buy another property. The children’s needs would however have been met and the parties will need to manage their own future housing plans independently without extending their own housing needs to necessarily immediately cater for the adult children.
• Both parties will likely have a reduced mortgage capacity due to their increase in age by the time the property is sold.
• The non-occupying party will not realise their capital until a later date – possibly a significant number of years.
• There could be a capital gains tax liability (CGT) if the non-occupying party bought another property before the trigger event and it is used as their Principal Residence.
• Parties could be financially linked under such an order until their children are 18 thereby not allowing parties to move on in the same way post-divorce. This is less than ideal if there is an acrimonious relationship between the parties.
• Parties will still need to communicate and agree regarding contributions towards, for example, the building insurance and structural repairs.
• Upon sale, the occupying party can often be shocked at how much they will need to pay the non-occupying party, particularly as chargebacks are often expressed as percentages of the net proceeds of sale and not a fixed lump sum.  It is also upon the current value at the time of the trigger event (which could be many years after the divorce) and not at the value of the property upon divorce which sometimes the occupying party does not appreciate.
• If there is a risk either party could go bankrupt it is not appropriate as the Trustee in Bankruptcy could trigger an early sale.

If you are considering a divorce, and are looking to a Mesher Order as the solution to your problem, you should instead perhaps consider it one of last resort.  Full consideration needs to be given to the above factors and you should seek legal advice at an early stage for tailored advice to your family and financial circumstances.