Separating from your husband or partner is an emotional time and the division of property assets can add to the stress.
This insight into the basics of family law and how asset splits are typically determined can help reduce some of that stress by helping you set realistic expectations – and understanding your options. By following some basic tips, you can understand how to refinance to hold on to your property – and when it’s best to let go and start again.
Statistics from the Australian Bureau of statistics, reveal that around 50,000 divorces occur in Australia each year.
For many of those numbers, the unfortunate reality is that financial complications follow, with issues around property settlements and division of assets being an important detail to finalise.
If it happens to you, it’s good to know there are a number of options available:
- Buy the property share owned by your ex-partner
- Sell your share of the property to your ex-partner
- Sell the home and divide the profits
Legal advice is always recommended but if you need to access finances, talking to a trusted mortgage broker is also an important step to understand what your best move might be.
Buying Out Your Ex
Separating or divorcing? Here are some facts about your mortgage.
Around half of all marriages in Australia ending in divorce (and many more de facto relationships) end after a property had been jointly bought.
So what happens to your property assets, post-breakup?
Removing your ex-partner
Yes – your ex-partner can be removed from your home loan.
But…this can only work if you have the financial stability to qualify for a loan on your own. If this is you, you may be able to:
- Refinance and extend your mortgage.
- Increase your home loan to fund your divorce settlement pay-out.
- Find a better interest rate while you refinance.
You will need:
- Your partner to agree AND sign a transfer form to you.
- To meet the standard bank policy, without your partner.
- To factor in the payment of Lenders’ Mortgage Insurance (LMI), if you borrow more than 80% of the value of the property.
Dividing financial assets can cause massive stress, which leads to bitter fighting and legal drama. Be prepared and make sure you have the emotional support you need.
Troubles can occur if:
- You disagree about the property settlement figures.
- You have a bad credit rating, due to financial stress following your break-up.
- You are not in a position to apply for a home loan.
In many cases, you will not have to pay stamp duty to pay out your ex’s share of the property. This applies to the family home but also for investment properties that you may want to buy out within the settlement.
It’s important to realise that you may still be liable for Capital Gains Tax (CGT) on the ownership transfer for any investment properties you owned together.
Because this area of the law is highly complex, be sure to seek professional advice from a lawyer or conveyancer to understand your position.
Using a Mortgage to Pay Out your Ex
Getting a loan to pay out your post-separation settlement is assessed by the financial institution as both a refinance and a mortgage.
Because of that, the lenders assess your loan application differently and apply different lending criteria.
- If the equity in the property is not sufficient, you will be asked to prove that you have the funds to pay your ex out.
- Unlike a purchase, though, you won’t need to show any savings history.
- A solid track record of repayments on your current home loan is critical – just as it would be if you were applying for a loan to refinance.
Experienced mortgage brokers have access to a variety of lenders – including some who are happy to approve clients with less positive credit histories. Having a consultation with a trusted finance broker is a positive step to understanding your options.
Seek legal advice
Getting binding financial agreements related to property settlement and division of other assets is very important in any separation or divorce, so it is imperative that you talk to a family lawyer or family mediation specialist to help you negotiate.
When it comes to your finances, the specifics of what can be achieved depend on your individual circumstances, financial resources and assets. By talking to experts in the field, you’ll have the peace of mind you need to help you agree on a fair division – and the best way to manage it.
Remember – if you need emotional support, find an experienced counsellor to help you cope during this stressful time.
Tips on relationship separation
A good resource is at your fingertips via The Australian Securities and Investments Commission (ASIC) MoneySmart website – including checklist on what you need to know about separation.
The tips include:
- Open a new bank account (just in your name) before closing your joint bank account,
- Think about cancelling your redraw facility – or ask your lender to set up joint signature approval for any withdrawal.
- Talk to staff at the Department of Human Services to assess potential for payments and services you may be able to access – especially if there are children involved.
If you have any questions about your finances, either personal or business, please do not hesitate to contact Lending Specialist on (03) 8805-1800 or email firstname.lastname@example.org