The house we share with our partner at the moment of the separation has both a financial and emotional value. From an economic point of view, keeping it could look more accessible than it is; my experience showed me that numbers sometimes could be deceiving. But also, emotions will try to get a voice in this decision. We might feel inclined to keep it or get rid of it; it will depend on the happy or sad memories housed there. In this episode, I explain to the detail the elements we need to consider when deciding what to do with the family home at this difficult time. 

Let’s get into it

 

Timestamps

 

A real bugbear [00:01:00]

Is it possible to win at divorce? [00:03:00]

Is not easy to give up on some things [00:06:00]

Thinking twice before moving [00:09:00]

Why is it important to get a legal document? [00:11:00]

Can one partner take over the mortgage? [00:13:30]

What happens if the house sells for less than the value of the mortgage?[00:16:30]

The best way of moving on with your life [00:18:00]

Links

 

15 Min Clarity Call:

https://msgsndr.com/widget/bookingcalendar=kcpWfO0ij7Aq2u4TzFEk

Divorce Roadmap Session:

https://tanyasomerton.com/divorce-roadmap/

My book: The Jelly Bean Jar – Empowering Independence through Divorce

https://tanyasomerton.com/shop/the-jelly-bean-jar/

Join my Free Facebook Group here:

https://www.facebook.com/groups/divorceangel/

 

Transcription

Hey there everyone. And welcome back to this week’s podcast. I wanted to talk today about something very near and dear to my heart, and that is properties. So as you will have known if you’ve been listening for a while, when I got my financial separation from my husband, I purchased three investment properties with that money.

And I still have those properties. And I just loved the thought of capital growth and, you know, money working for me. When I go to bed at night, my money is working hard for me. I’m not a financial advisor. I’m nothing like that. Everyone needs to do their due diligence and looking at what they want to do when it comes to investing their money.

But that’s not what I want to talk to you about today. What I want to talk about is keeping the family home.

It can be a real bugbear and a point of contention for the majority of people going through a divorce. The family home is not only the most significant asset the couple might have, but it also has an emotional connection that people are not willing to give it up.

And in a lot of cases, it’s what most people fight over. 

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What I’ve noticed dealing with all of the people that I help is that people don’t fully understand firstly, the consequences of keeping the family home, secondly, they think that it’s just merely a swap. They think, well, if the other person is going to take X amount or I’m going to get this percentage from our split, I should be able to keep the house, and it doesn’t work like that. 

I see a lot of people getting frustrated when I sit down and explain to them; it doesn’t, that’s not how it works.

There is so much more that has to happen before you can keep the house. And not just that. You need to understand if it is the best decision for you.

What do I mean by that? Sometimes people just want to keep the family home because they want to say, well, I got the house, or, I won. 

Some people could perceive that the person that keeps the family house won the divorce. Those are the sort of person that thinks that divorce is about winning or losing. I can honestly tell you it’s not. 

I’ve spoken here about the law of reciprocity. If you do not give your ex-spouse what they are entitled to, or you try and trick someone, the universe will come back and bite you on the bum.

Now, whether you believe in this or not, you don’t have to, but I’ve watched it time and time again. I’ve seen people that have tried to do the nasty to their partner. And something has always happened to make them regret the decision. I had a guy ring me this week, and he said, look, I want to be fair with my ex-wife.

I want to look after her. I want to give her a house, and I want to make sure she and the kids are okay. I’m always talking to him. I was thinking, wow, this guy seems to be kind and caring. And then as I was going through my conversation, asking him some other specific questions, I realised by the hair standing up on the back of my neck, he was doing the complete opposite. And I had to say to him, I’m sorry, I don’t work with people that do not want to be fair and equitable to both parties. He was trying to make it look like he was looking after her best interests. He was trying to make it look like she [00:04:30] was essential to him.

But actually, he was protecting his self-interest, and I’m not interested in that. I want both parties to make sure that what they get is fair and equal. So let’s talk about property and divorce. People have strong emotional ties and big visions of renovating it. Or they’ve recently finished building it and putting a lot of work into it. Maybe sometimes that’s been the crack of the relationship breakdown because building or renovating puts a lot of stress on a relationship. But if there’s a relationship that’s already a little bit fractured, it can be enough just to send it over the edge. 

The lost vision of what their life was going to be, plus the uncertainty of a future without that house could unleash a fight.

They’ve got the vision of, “I’m going to live in this house, my children have their unique bedrooms, we worked hard to get this asset.” You fought so hard for all that, so to give it up is not easy. 

Do you sell it, or what should you do? The truth of the matter is you need to first and foremost understand if you can afford to keep the property and maintaining the property isn’t as simple as just your ex handing over the title. 

You need to understand if it is necessary to refinance the loan and if you can service the loan. Once it’s refinanced, and people think that it’s just as simple as a spousal to spousal transfer, but every property has a title, registered at the land titles office. That title specifies the names and percentage of ownership that every person has on the property.

So, for instance, if one party has a business, the other party might own the property as a protection mechanism, if they were to get sued. So let’s assume that a wife holds a business and they put the family home in the husband’s name. So their home might be 100% in the husband’s name.

What that means is the husband can sell the house at any time because the wife is not on the title. Legally, he is the actual owner of the property when it comes to selling it. To the family court, both parties are entitled to the equity or the split of ownership within the house.

What you might do, though, if you’re the person that is not on the title of the property, and you’re worried that your partner might sell it, it might be a good idea to take a catered out. So you are notified if something happens in the property is put on the market to be soaked.

But upon separation, immediately selling might not be the best idea. I did have a client like this once. Three months after they divorced, the house was on the market. The husband had then gone and bought her a unit for the kids. And eight months later, when I finally spoke to her, she said, I don’t even like where we’re living.

I would never, ever have chosen this. This client found herself in a precarious position because if they’d gone and spent stamp duty on this unit, where she did not want to live. She found herself in the worst position. 

My advice always is before you go and buy something new, you should consider renting for some time, getting your life sorted out because you might not want to leave in the same area that you live in right now.

But back to the question, should you sell right away upon separation? It’s probably best to understand what you’re entitled to first and foremost. So you can understand what financial your future looks like and weigh up if keeping their house is the best idea for you. You make it work by holding the property and selling it at a later date. There’s so much to consider because you know, it costs us so much. Getting a property stamp duty is expensive, and what a lot of people don’t take into consideration is when you’re paying back a mortgage, you’re paying it back with interest on top of it.

The majority of times we are paying double for a house than what we initially pay for it only because of the interest on the loan. So, you want to make sure that you aren’t getting capital growth, and it is in an area where it will continue to get capital growth. Selling a property is not always the right thing to do.

You might be able to keep it and rent it out, but there are so many things to wire up, like tax implications, and so forth. So it’s not just as simple as saying, I want to keep the family home. Some people have said, you know, can we both live in it? And that all depends on the relationship and how amicable you both are.

But if you guys both want to stay in your house and it fits for what you want in your life, you can do it. It’s up to you because the law says that you’ve got to get this sorted out and finalised. If you weigh up the consequences of why you both want to continue to live in it, and it makes sense for you, go for it.

You can have a binding financial agreement with both leaving the house to a specific date, and then put it on the market. Or one of you can buy the other one out. Any amount of possibilities needs to come up with it. And whatever works for you can most probably be written into a legal document. 

You might want just to have a share handshake agreement between the two of you, but you do need to be careful when you do something like that. Because if one of you outgrow the other or meet someone new or want to move on and you can’t because you have nothing to fall back on, it can make it a little bit difficult.

Those situations need to be weighed up and looked. 

I think I’ve spoken about a client that put a wall in the centre of the house. She lived on one side of the house, and he lived on the other one.

And she finally decided that she wanted to sell and move out of the house and he was so comfortable there; he did not want to move. And she couldn’t get him to move. They’d lived like that for 20 years after they had divorced. So it was tough for her to get him to move. And I think in the end, if I remember correctly, she had to get a court order to be able to sell the property. And that’s what you’ve got to weigh out. 

It might work right now, but if you don’t have anything to fall back on, it can get complicated.

Can one partner take over the mortgage? The answer is, unfortunately, no. I’ve seen this happen very regularly where people think, “well, no, my partner’s moving out. Um, I’ll keep the house, I’ll just keep paying the mortgage. I can afford to keep paying what we’re paying right now.” It doesn’t work like that.

The banks will not allow you to take over a mortgage on a property, especially if your partner is also on that loan, they will want to make sure that that loan is refinanced into your name only. Now, if you can’t service that loan, unfortunately, you’re not going to be able to keep the house. And that’s why it’s essential to make sure you have a strategy.

It’s so important, mainly because it’s one of our business pillars of the divorce roadmap, we do the strategy. And this is all part of what we do. We want to make sure that the client that we’re working can keep the property because if you can’t, you’re wasting your time on legal fees, arguing over a property.

That is something that you’re not going to be able to keep. And I see often, and it frustrates me how lawyers don’t get this part of it. It’s essential to understand what it is that you can and can’t achieve. Can I change the title of the property from joint ownership to sole ownership? The answer is yes to this question, but it can only occur when the family court has stamped either your binding financial agreement or your consent orders. The reason is when you refinance the property; the bank will want to see the consent orders where you support that the transfer is taking place.

The other thing is, especially here in Australia, if you do it this way, there are no stamp duty implications because it’s a spousal transfer. The next question I sometimes get asked is, what happens if the house sells for less than the value of the mortgage? And unfortunately, especially in this current environment that we’re living, where the world is going into recession, and if property markets decline, and your mortgage is at a very high, the property will get sold for less than what your mortgage is. Now, if that happens, you need to make up the difference in the lease, which is nothing. 

That’s not a good thing to happen. You don’t want it to happen, but you might have to sell other assets to pay back the shortfall in the mortgage.

You might even need to borrow money, and what could happen? The debt that you have with the bank when the house sells, unless you’ve got something to cover that, the bank can force the sale of other assets to make up the difference.

Now, if the loan is only in your name, you are the one that is responsible for paying back that debt. That’s, why is so important you get legal advice. 

What happens if the mortgage isn’t paid? Unfortunately, the consequences are poor credit ratings.

And when you become independent, you need a good credit rating. Whether you need to get gas or electricity or water or a phone bill or take a car out on hire purchase or alone, they will always want to look at your credit rating. So you want to make sure, no matter what, that you continue to pay your mortgage.

Now, if you are struggling, you need to ring the hardship department in your bank and let them know what’s going on. They might even just take it from a principle and interest repayment and make it an interest-only repayment, but at least you’re paying something, and you are keeping in contact with them.

And so make sure that you do that, make sure that they are right across what is going on. 

Some clients might ask if I’m going to pay back the mortgage and I’m not living in the house, can I get that money back later on? And the answer is maybe you can add that back into add-backs when all of the assets sold, but it depends on your specific circumstances.

And it depends on what are the assets, income, ages of children. All of those things need to be taken into consideration when we’re talking about add-backs. 

What I’m trying to say here, the fastest way that you and your ex can reach a financial agreement and create a court order and the real value of what your net position is as a couple, then the quicker you’re going to move on with your life.

A lot of people do not want to sell the family home. If it is inevitable, my advice to you is taking a deep breath, and even though you are emotionally attached to the property, if the timing is right in the market, or if the market’s not moving, if you have to do it, just do it. The quicker you can get it done, the faster you can move on and untangle yourself from the financial relationship that you have with your ex-partner. 

If you’d like to know more about how we help clients with this, a Divorce Roadmap is a smart way to do it. It’s where we work out a lot of the stuff that we’ve spoken about today.

And as I said, it’s one of the pillars of our business to make sure it’s evident in our strategy. And we’d be more than happy to help you out. Just get onto my website www.tanyasomerton.com and have a look, or you can contact me via the site as well, and we can have a chat about what’s best for you.

All right. That’s it for today. I wish you a great week, and I’ll talk to you soon.

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