How to Finance Your Family Home after a Break-Up Presented by Owen Hodge Lawyers
Overview Introduction Emergency Relief Property Settlement Context The Buyout Next steps
Introduction
The break-up of a marriage is a diďŹƒcult time, at best. Trying to work through the details of how to keep your family home and ďŹ nance the transfer of title can seem overwhelming, however, it need not necessarily be so when you understand the issues and your full range of options. The ďŹ rst step may be to seek some emergency relief while you negotiate with your bank and your former spouse. The second step involves an understanding that the division of interests in the family home will take place within the context of a larger property settlement, which may give you more choices than you initially thought. Finally, it is important to be prepared for negotiations with your mortgage lender.
Emergency Relief
Emergency Relief
If only one party remains in the house it is generally wise to seek an interim order regarding payment of the mortgage. As far as the mortgage lender is concerned, if both parties' names are on the mortgage then they both remain liable to keep up mortgage repayments regardless of who lives in the house, and what other obligations they each have such as rent or child support. -
Emergency Relief The person remaining in the family home, who is often a mother with children, is obviously at risk of losing a place to live if mortgage repayments fall into arrears, and both parties are at risk of damage to their credit ratings if the repayments are not made. For a brief period, while divorcing couples are in negotiation about a property settlement, some lenders may also be willing to take reduced or interest-only payments if either or both parties make a formal application on the basis of ďŹ nancial hardship.
Property Settlement Context
Property Settlement Context In a property settlement, all marital assets, including the family home are divided between the separated couple. Courts evaluate settlements using a four step process.
1.
Identifying and value all the assets, liabilities and ďŹ nancial resources of either or both parties. If you are considering buying out your ex-partner's share in the home, it is essential to determine the value of the home either by way of market appraisals from real estate agents or through a formal valuation.
2.
Consideration of the ďŹ nancial and non-ďŹ nancial contributions of both parties towards the assets and debts. The role of either or both parties as homemaker and parent are also included as contributions to the pool of assets.
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Property Settlement Context In a property settlement, all marital assets, including the family home are divided between the separated couple. Courts evaluate settlements using a four step process.
3. 4.
Consideration of the future needs of each party such as their age, state of health, comparative earning capacities, and whether one party will have primary care of children under 18 years.
The Court will consider whether the eect of the above three steps results in a just and equitable outcome in all the circumstances.
Property Settlement Context The application of the second, third and fourth factors means that the assets and debts may not be divided evenly between you and your ex-partner. This may open the door to some asset "swapping", so that the party interested in remaining in the house may be able to trade an interest in some other asset in order to reduce or eliminate the amount of the payment they need to make to the other party in order to keep the house.
The Buyout
The Buyout
Once the buyout amount has been calculated, unless you have the money to pay out your partner without borrowing the funds, then it is time to talk to the bank to determine if you can get the necessary ďŹ nance to take over the mortgage and pay out your ex-partner. If you formalize your property settlement by executing the necessary paperwork (either Consent Orders or a Binding Financial Agreement) then the transfer of the home from your ex-partner to you will be stamp duty exempt, and generally a family home does not attract a capital gains tax liability, however, to be sure about this you should obtain advice from your accountant or ďŹ nancial advisor.
The Buyout When applying for a reďŹ nance you should also bear in mind that the interest rate may not be the same as it was on the original mortgage, especially if the circumstances of the divorce have damaged your credit rating.
formal valuation.
If it is not possible to ďŹ nance the buyout amount, your former spouse may be willing to take installment payments on the buyout amount.
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Next Steps
Next steps
If you are concerned about how to ďŹ nance your family home after a divorce, please contact us to schedule an appointment to speak with one of the family lawyers at Owen Hodge Lawyers. Each situation is unique, however, we will help clients navigate their options in order to retain the family home wherever possible.
1800 770 780 ohl@owenhodge.com.au
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