How to ease the pain of managing property after a divorce.
One in three marriages in Australia ends with divorce and 70% of us will own a home in our lives, so dealing with property after a divorce is a common issue.
What happens when two people decide to separate but are financially linked by a major asset such as property?
Read on to learn more about what your options when you and your ex-spouse decide to go your separate ways.
Property title transfer
If one person decides to keep the property then the property title will have to be amended to reflect the new ownership structure. A title transfer typically involves removing a name from the title deed and this can be done by completing and lodging a transfer form which can be accessed from your State Office of Revenue.
What are my options?
Garth Brown from Brown and Brown Conveyancers recommends that you speak directly with the bank who issued the mortgage to check out what your refinancing options might be prior to the divorce. You'll need to consider whether you will pay out or buy out your ex-spouse, and what the best loan will be to fund the property thereafter.
Ben Herden, mortgage broker with Mortgage Choice, says that after a divorce, the lender will look at the refinanced mortgage basically as a purchase starting from scratch. The refinanced loan has to meet the same credit criteria as a new borrower.
Things to consider
Retaining the home for the kid's inheritance
"What we see a lot with couples going through a divorce is that if they have kids, people think of the family home as their kid’s inheritance — this includes keeping it as an investment property," Herden says.
"Quite often one party will want to retain the family home as an investment property to protect this inheritance. As there is no stamp duty payable on the property transfer and no real estate fees involved, it can be a lot cheaper than selling the property and buying another (as long as the applicant can afford the ongoing payments)."
Agreeing to keep both names on the title
"If both parties agree to keep the home with both their names on the title, the existing loan can remain as it is. It may be wise for the couple to treat this new arrangement as a business agreement and have a written agreement drawn up by a solicitor clearly setting out the 'rules' of the new arrangement," Herden says.
Finance must be sorted by the divorce deadline
"If the divorce process has commenced and there are signed papers, then organising the finance for the property will have to be done by a certain date — there is a deadline which must be met. It is best to arrange finance prior to signing any agreements to minimise the stress caused during this period of time and to minimise any potential penalties or further legal action."
Financial support from the lender
"Lenders will help their clients through a tough period, although not for long. If a divorcing couple are unable to maintain their mortgage repayments the inevitable will eventually happen — the bank will sell the property to recoup the debt. It is quite common for one of the divorcing parties to be unaware of the 'family finances', so it is highly recommended people get on top of this as a matter of priority," emphasises Herden.
A black mark on your credit history will make it tough to obtain future finance.
Brown also notes that even though the period of separation is an unsettling time, people need to have good attention to detail when it comes to preparing and organising the paperwork.
"Ensure you provide a copy of council, water and strata levy notices for the property in question. Prepare all the later documents required to be lodged to change the title, loan number and bank on title for the existing property for your conveyancer and the address for the future notices to be forwarded to and the identification of both parties via a passport, drivers licence and birth certificate," Brown says.
You will need the help of a solicitor to assist with the paperwork.
Only a solicitor can prepare the ‘Divorce Decree’ — this is a court-directed document outlining who gets what from the assets and liabilities of both parties.
’The Divorce Decree (original plus copy provided by a solicitor and approved by the court) must be provided with a title transfer document,’ Brown says. ‘This will cut any stamp duty that is payable when a title is changed from two names to one. Once this is done, have the bank ready to settle the existing mortgage and the new mortgage ready to go.’
Ben Herden’s guide to making things easier with the banks
- Contact your mortgage broker to see how much you can borrow, then do a budget. You need to know you will be able to meet the repayments comfortably and still have a quality lifestyle.
- Agree on a property price (or a transfer price). Speak with your mortgage broker about getting a pre-approval. You'll want the finance ready to go.
- Speak with a solicitor specialising in family law. A Separation Agreement will need to be drawn up which clearly defines the split of assets as well as the rights and obligations of both parties involved. It also allows the transfer of property ownership to be made with no stamp duty, a savings of thousands of dollars.
- The solicitor will prepare a ‘Transfer’ document, transferring ownership of the property from joint names to the single name, in line with the Separation Agreement.Once the lender has the Transfer, the Separation Agreement and a valuation they will issue their full unconditional loan approval (normal credit criteria will apply, which is why it is so important to have a pre-approval before you sign anything).
- Once the loan is approved and the client has signed the formal loan and mortgage documents the lender will be ready to "settle" — that is, register the mortgage and Transfer documents and give you a brand new loan in the individual name only. The property is now in your name.
Name change after divorce
Keep in mind that if you have changed your name following a divorce, you will need to notify your lender and your state government department of Land and Property Information. In NSW, for example, you need to complete section 3 of the statutory declaration on the "Change of Name" form detailing that you have changed your name due to divorce, and you will also need to provide the date of divorce.
You will also be required to provide two forms of evidence such as your Australian birth certificate and your current Australian drivers license, among other forms of identification.
In Brown’s experience the best advice he can offer is that: "With a divorce try to be as amicable as possible (both parties if possible) and avoid unnecessary litigation. Try and work it out yourselves and then head off to a solicitor to prepare the Divorce Decree."
This means seek out mediation before legal advice if you’re going through a divorce. Concerning matters of property title, you might want to contact the office of revenue for your state to find out more.