There’s nothing more emotional than ending a relationship and having to sought out property ownership. In fact, home loans and divorce can be quite messy. But, the good news is that just because you and your partner are no longer together this doesn’t have to mean the end of property ownership for you. Let’s look at your options now.
Surprisingly around 50% of Australian marriages end in divorce and de-facto couples often go their separate ways. So, what happens to the family home and investment properties when this happens? Well, typically in any relationship longer than 12-months old each party is entitled to a share of the assets. How the division of assets occurs depends on a number of factors such as:
- Whether or not there is another agreement in place such a pre-nuptial.
- The contributions made by each party – the deposit, stamp duty and legal fees.
- Ownership contributions such as payment of the mortgage, home improvements, lumps sum payments – gifts and inheritance – as well as earnings.
- The future earnings of each party.
- Non-financial contributions in the relationship such as staying home to raise children.
- The number of dependent children.
- The relationship length.
What’s the bottom line? Well, if there’s no other agreement in place and assets are divided 50/50, then you have two options regarding property split. Here’s the deal:
Option 2 – Buy your partner’s share and remain in your home.
Let’s look at these options in greater detail and also answer some fundamental questions.
Now, if you elect to sell the property and divide the proceeds, then it’s important to seek legal advice. This strategy ensures asset division is fair. Next, you will need to hire a realtor and then decide on a price for property sale.
- Clean break – Both parties get to start afresh using proceeds from the sale of property.
- Reduced emotional baggage – By selling property once shared, neither party feels they have lost out.
- Sizeable deposit – If you’ve owned the property for many years, then chances are you will have a considerable deposit for the purchase of another property after the division of the proceeds.
- Emotional turmoil – If you’ve lived in the home for a number of years, then selling the property can be disturbing. You may even grieve over the loss.
- Working together – You and your ex-partner will have to collaborate on the sale of the property and agree on a real estate agent and price. You may even have to prepare the property for sale together.
- Rushed selling – If you and your ex are not on good terms, then you may want to sell faster. This move can lead to selling the property for a reduced price, so you can move on.
If you elect to buy your partner out, then this means refinancing your home mortgage to pay your partner for their share, and to then purchase the property yourself. To do this you will need to prove you have:
- A sound repayment history on your existing home loan.
- Enough income to make mortgage repayments, after paying out your partner.
- Enough funds to pay out your partner, if there’s not enough equity in your home.
Some people have asked experts a number of questions on divorce and property ownership. The most frequently asked are as follows:
- Is it possible to just take over the home loan? Unfortunately, Australian law does not allow this. Why? Well, lending laws stipulate you must be able to prove you can manage the mortgage.
- Will I have to pay stamp duty? If you were married to your ex, then ask a conveyancer to write-up an agreement so that the purchase is stamp-duty exempt. Want to know the best part? You will also find that a sales contract for the property is not required. Here’s the kicker: if you were in a de-facto relationship, then you may have to apply to the state government to have stamp duty exempted.
- Can I remove my name from a home loan with my partner? Getting your name removed from a home loan can be difficult. The process named an assumption or novation, will only apply to some loans, not all. To get your name removed from a mortgage, your ex will need to prove that they can manage the loan repayments by providing their financial information and credit history, and you will need to supply your divorce decree.
- How much can I borrow? The amount you can borrow will depend on the size of your deposit, and on your level of A lender will also consider how many dependents you have, and your outgoing costs. Plus, they’ll carry out a serviceability calculation to see if you can afford higher rates – 7% is typical. If you can, then it’s highly likely your loan will gain approval.
- What sized deposit will give me the best rate? A 20% deposit will allow you to get the best deal from a lender. Plus, you’ll also avoid paying Lenders Mortgage Insurance (LMI), which can be costly.
- Will I have to pay stamp duty? If you’re selling your family home and buying a new one, then yes, you’ll need to allow for stamp duty. However, if you’re paying out your partner and keeping the family home, then you may find that this transaction is stamp duty exempt.