Couples and finance

Hello,

Bit of a long winded multipart post but curious on this subject.

I am curious about how girlfiends/boyfiends/partners/wives/husbands/defacto/lovers are treated regarding loans and tax.

If a couple keeps their finances separate and one is getting a loan does theother person need to be put on the loan? Can they put they are single or must the put defacto on the loan? If they have to put they are a couple will this impact on their lending capacity if the person is not dependant and uninvolved in the deal (ie their own income, separate finances)? If they put down they are a couple what details does the bank want about the other person? Are you required to put A&L and income details for the partner? Say the partner is bankrupt or mortgaged to the hilt can this impact on the deal? What about if you partner doesn’t want to share their details with the bank?

When does one become a couple/partner/defacto in the view of banks or ATO? I would imagine if someone is claiming a centrelink benefits the government would be very keen to label people defactos and cut their benefits but do they care if you are getting nothing from them?

Cheers,

Smallbuyer.

 

The very broad general answer is that it makes little difference in most tax and lending situations. As in your partner is just another 'normal' person and you can choose to borrow and buy with them - or choose not to.

That's just a general statement though, and there's lots of smaller nuances where it does make a difference.

 

You should never have a spouse on the loan if they are not on title as an owner – the one exception is for serviceability reasons.



The main reasons for not putting the non-owner on the loan are:

a) Added risk – what expose them to risk if not needed,

b) Serviceability – them being on your loan will mean they qualify for less loans in their own name.

Any person going on the loan will have to provide full financials and declare income and liabilities. This could improve serviceability, but it may also hinder serviceability if they have credit defaults or large amounts of debt.



In the eyes of a bank a defacto is someone you say it is. No evidence is needed usually. For the ATO a spouse is defined at s995-1 ITAA97:

"spouse " of an individual includes:

(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a * State law or * Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

.

Note that spouse is defined differently in different situations – family law, succession etc.

 

Thanks for your replies.
So when the loan has a section that says marital status you can put single or defacto/married and provide no further details without it making any difference? No increased living expenses if you choose married/defacto?
If you put defacto on your tax return and single on a loan is this likely to be an issue?
Does the ATO actually do anything to people who put single on their tax return even though they maybe considered defacto (but claim no govt benifits)?

 

No, it makes a big difference. If you are married or a defacto there are higher assumed living expenses when applying for a loan.

 

Highly inaccurate - it has heavy implications for lending requirements.

Let's say a lender has for a certain income bracket a minimum living cost calculation of $2000/month per single and $4000/month per couple.

In an example where someone is a single they would then of course get the $2000 living expense per month attributed.

If instead the sole borrower is a couple but is noted as being in a couple - the living expense would be for the ENTIRE couple of $4000, even if they're not on the application.

 

Yes fair enough in terms of living expenses calculations - but that's just a factor in serviceability. I'm talking big picture - borrowing and buying when you're in a relationship is much more like borrowing and buying individually than not.

 

If you are responsible for your defacto then they MUST go on the loan application. You can't have a partner and 2 kids that you support on your income but come application time you leave them off.
You just include them and take the massive hit on servicing.

You can only leave your defacto/wife of the application for the sake of living expenses if they are self supported. Still have to include the kiddies though.

 

There are a couple of lenders who will let you use a single living expenses with income docs and a privacy form from the mrs. Haven't done this lately. Policy may have been APRAed.

 

Kind of. I know what you're getting at but it needs some clarification.

What you're saying implies they need to be a co-applicant, which isn't the case. A spouse (married or defacto) needs to be disclosed in the application, but they don't need to be a co-applicant.

Adult children don't need to be disclosed. For some it's wishful thinking, but they shouldn't be financially dependant as they're adults.

 

Thanks for your replies.
So the short answer regarding finance is, if you are defacto and only one of you is applying for the loan (providing financials) you generally drop a lot of serviceability. That seems harsh.
With regards to the ATO, if you put single and consider yourself single but would be considered defacto under the criteria above what is the penalty, if any? Im talking someone who has claimed no tax benefits or centrelink payments because they put they are single.

 

@smallbuyer you're over thinking it a little (and we're all to blame). Finance as a single verses as a couple is essentially the following:

A couple's borrowing power is greater than the sum of it's parts. This is because certain things such as living expenses are somewhat shared. If an individual uses $100 of electricity a month, two people under the same roof probably only use about $130 per month, not $200. Lower living expenses means higher borrowing capacity.

This really isn't something that most people need to spend a lot of time worrying about. If you can do things separately, that will give you lots of benefits, but less serviceability. At some point you may need to do things together. Get advice from a good mortgage broker around what you can do separately and what you can do jointly, based on your specific circumstances. Trying to figure it out for yourself isn't going to work.

 

The lenders definition of 'defacto' isn't the same as the ATOs.

 

ATO issues with couples are really limited to private health insurance etc. If you both have private health no mischief arises unless you start claiming Centrelink and then the word fraud comes out.

 

Private health insurance rebate is means tested on family income, so having PHI but not reporting your spouse income on your tax return could still be an issue if your joint income is above the relevant thresholds.

 

Very relevant for me.

You mentioned
You should never have a spouse on the loan if they are not on title as an owner

Why is that? I have put my wife on the loan, as I need her income to improve serviceability.

What's the benefit of adding her name to the title?

 

Asset protection on bankruptcy
Someone going on the loan will be fully liable for the debt,
Since they are on the loan they will be a repayer of that loan so even though they are not on title the property could still be treated as theirs for bankruptcy, family law, and succession (and other reasons).

It will also hurt their serviceability.

The only exception to 'never' is if you cannot service on your own. But take the non-owner spouse off the loan as soon as it is possible to do so.

 

Assuming she is on the loan, is there any implication for putting her (or otherwise) on the property title?

 

heaps - she will be a joint owner of the property.

 

Any impact on borrowing capacity for both of us?