Relationship breakdowns are hard, and sorting out the financial implications when you go through one is probably not the first thing you want to get your head around.
However, sorting out the status of your property early can be a good move financially, as well as being a weight off your mind in difficult times.
But what should you consider and how does it work?
A Separation Agreement is a good first step
The first step to sorting out your property situation when going through a relationship breakdown is to consider organising a separation agreement. This is a binding financial agreement that sets out the division of a couple’s assets, and for most people their biggest asset will be their family home.
There is a lot to be negotiated in a separation agreement, with multiple potential scenarios. Working out if the family home will be sold or whether you retain it so one of the parties continues to live there is usually the first step.
Either way, you need to work out the percentage split of the asset so that everyone knows who is entitled to what financially. Getting yourself a family lawyer to help you navigate this (and other aspects of the separation agreement) is definitely a good idea.
Other things to consider are whether the property currently has a home loan in place, and how much equity is available if you sell. If a decision is made to retain the property, will one party remain living in it, and if so will they take over the loan repayments? They may need to refinance if they do so.
As you can see, there is a lot to work out – and if can get even more complicated if investment properties are involved – but taking those first steps with a separation agreement will help take some of the stress out of the situation.
A good resource if you need further property advice for family separations is the Government’s family relationship site, which you can access here
Transferring property between ex-partners
One thing that often occurs if a property is not being sold after a relationship breakdown is a transfer of ownership from both parties to just one.
This is normally covered in the separation agreement, but it’s useful to know the financial implications and what you may be exempt from in terms of fees.
The good news is that, generally, no stamp duty applies for spousal property transfers involving the family home when the property is transferred due to a relationship breakdown.
The rules on this can vary from state to state, but in our home state of Victoria no stamp duty is payable on this type of transaction – as long as it’s the principal place of residence.
Other states tend to have similar rules, but it’s worth checking with your lawyer or mortgage broker to clarify as stamp duty exemption can save you thousands on a property transfer if you are eligible. More information on such transactions in NSW for instance, can be found here
It’s also worth knowing that the family home (or principal place of residence) is also exempt from Capital Gains Tax (CGT) when being transferred between the two parties due to a relationship breakdown.
This is useful information if your property has appreciated in value since you purchased it as a couple, which in Australia is highly likely!
However, bear in mind that transfers of investment properties between parties previously in a relationship will still be classed as a CGT event by the ATO, so get advice from an accountant on this before proceeding.
How a mortgage broker can help
You might not think a mortgage broker would be a ‘go to person’ when going through a relationship breakdown, but when it comes to property matters relating to this, they can help. Here’s how and a few reasons why:
- A good mortgage broker will help you assess the feasibility of various scenarios from a lending perspective during this difficult time, helping you realistically weigh up your options. This often includes an assessment of how much you could comfortably borrow on your own if you are the person moving out of the family home.
- If you are the one staying in the property, you might want to increase your home loan to pay out your ex-partner, and a mortgage broker can help with this process.
- This is a specialised area, and it’s important to seek advice from an experienced broker to guide you from a property perspective and help inform your decisions.
- If possible, it’s worth speaking with your broker early in the process, as everyone’s situation is unique. Things can get complex quickly if you don’t have the information you need to hand, and the transition to your new situation will be smoother with good help.
The bottom line is that the more financial (and legal) advice you get when going through a relationship breakdown, the easier this painful process will tend to be.
No-one ever plans for a breakdown in their relationship, and it’s never an easy time.
But with the right advice you will be better prepared to make financial decisions that are likely to have a major impact on your next chapter. Doing this early in the piece may even give you some free headspace to handle the other elements involved.
Loanscope has helped a significant number of our clients manage their property affairs when going through a relationship breakdown. We understand the challenges and are there to help you make the right decisions when needed.
Contact us for more information.
