The break-up of a marriage is a difficult time, at best. Trying to work through the details of how to keep your family home and finance 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 first 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
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. 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 financial hardship.
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.
The first step is identifying and valuing all the assets, liabilities and financial 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. The second step is consideration of the financial and non-financial 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. The third step is 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. Finally, the Court will consider whether the effect of the above three steps results in a just and equitable outcome in all the circumstances.
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
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 finance to take over the mortgage and pay out your ex-partner. If you formalise your property settlement by executing the necessary paperwork 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 financial advisor. When applying for a refinance 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.
If it is not possible to finance the buyout amount, your former spouse may be willing to take instalment payments on the buyout amount.
If you are concerned about how to finance your family home after a divorce, please call 1 800 770 780 or contact us via [email protected] 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.