Separation and mortgages

Hi all,

Unfortunately I'm staring down the barrel of a marriage separation and am starting to think practically about what this means financially.

Over the years we've purchased property in joint names as well as individually, although most of them have both of us on the mortgage. ie some are in my name with both my name and hers on the motgage docs, and likewise some are in her name with her name and mine on the mortgage docs. Some are also owned 50-50.

If a property is in her name but both mine and her name are on the mortgage docs, what is required to get my name off the mortgage? Would the bank need her to reapply for the mortgage to see if she meets serviceability? Obviously if it is in her name there would be no stamp duty issues here?

Likewise, Im guessing that if we are joint owners and I wished to buy out her share of a property, I would need to pay stamp duty on the half I am purchasing? Ie if a $400000 property is owned 50-50 and I buy her half, I would be required to pay stamp duty on the $200000 I buy. Is that right?

I'd appreciate any advice here,

Thanks guys.

 

I have done a few divorces over my time. For the divorces I have dealt with they received a stamp duty exception (Victoria) and they receive a roll-over for capital gains tax (Marriage or relationship breakdown and transferring of assets), but you should seek specific advice.

The general process is:
1. Have consent orders agreed upon and put through the family court - this will set out who gets what assets and liabilities.
2. Engage a broker or bank (I would suggest having a single broker handle both sides, but this does not have to be the case). Hope that you each have the borrowing power to service the debt you have agreed upon in the consent order. If not start thinking about putting properties on the market.
3. Apply for finance and have it approved.
4. At settlement a bunch of people will have to coordinate, your existing bank/s, any new bank/s, both your solicitors/conveyancers. I once had seven parties at a settlement - I went along to that one to make sure everything went smoothly!

From the finance side, the banks treat it as a discharge and application for new finance. Think of it as a refinance where the names on the title are also changing (and your situation is also greatly changed). From my experience if you stick with the same bank they will waive any discharge or application fees. You may still have to pay state government registration of mortgage of ~$250 per property depending on the state.

 

You can't be on the mortgage if not an owner but you can be on the loan. Most banks will need to reassess serviceability to remove a borrower but it may be possible to get it done without servicing in separate instances

 

All the best, hope it works out ok. Another issue you might want to think about is getting agreed valuations for all the properties that will be involved in the separation of assets. Agreed valuations can save some grief when it comes to the divvying of assets.

You also might want to think about future values of the property and who would be liable for capital gains tax i.e. one party might end up with all the IPs but also become liable for all of the capital gains whereas the other party may be exempt from this if they end up with the family home.

Consent orders are a much better option IMHO than slugging it out in court where only the lawyers win.

Be prepared psychologically to re-assess what you might consider a 'fair' outcome. In one example I know well 'fair' resulted in a 55:45 split of assets irrespective of which partner had taken the financial risks etc etc.

 

Need to consider the tax side as well. Factor in any inherited cgt and consider the may budget may increase this.

Change of ownership will also result in deductibility of interest issues. E.g. if partners owned property was transferred to your name and you borrowed for this then the interest would not be deductible at all.

 

If only people were so reasonable

 

I'm in the middle of this at present. The ex and I have agreed on who gets what and we're about to engage a lawyer to get the court order stamped so we are exempt from stamp duty when changing the ownership of each property.

 

And presumably you've checked that the relevant banks will allow you to do the settlement as agreed?

 

No not yet. I'm basing it on having to refinance everything. But no harm in asking I guess

 

Well you should check that your mortgagees will allow it before getting consent orders that you might not be able to carry out.

 

I think there's a possibility to make the settlement at a future date, ie when serviceability improves.

So mrs gets the house in 5 years time at either the current value or an agreed value until then she is responsible for paying the shared mortgage.

 

Some scope for the limited "future" in orders, but nothing like 5 years time normally.

It offends the 'clean break' principle which is the main point of getting property orders - to give each party financial certainty moving forward.

 

No I'm not intending to make long terms with him. I'm fine to sell a few properties that I won't service the loans for. Yeah I'll pay some tax but it's a clean break then

 

Thanks everyone for the advice. I will talk to our broker about our financial position and determine my next step.

@beachgurl Im sorry to hear you're going through something similar.

 

So does this mean that if I was to buy out a property that is in both names I wouldn't have to pay stamp duty? What if it's in solely her name but we're both on the mortgage, would stamp duty still be exempt if I buy it from her?

 

If it is done as part of a family law settlement then generally no duty (or nominal).

 

Great, thanks Terry.

 

In NSW See s68 Duties act
DUTIES ACT 1997 - SECT 68 Exemptions-break-up of marriages and other relationships

 

If she will be taking over the full mortgage then yes will need to service.

If children involved can be as high as a 75/25 split.

Unfair IMO if one person created the wealth while the other was passive but this is not considered at all.