When a marriage or a de facto relationship ends and it’s time to divide up the property, one of the most frequently asked questions we hear is “can I keep the house?”
It's a natural question. Sometimes a client may simply wants to avoid the hassle of moving. Where children are involved, keeping them in the family home will provide the children with stability in a time of transition. It may also mean keeping an appreciating asset and a good investment. Increasingly though, this question takes on much more prominence now that we are in a market where buying or renting another property is not as easy as it used to be. Having to find another place to live in the same area may not be an option.
There are no firm rules as to who can keep the house in the property division. It depends on;
1) each party's entitlement in property settlement and the value of the equity in the home; and
2) if they can practically afford to keep the house.
The Law
The Court goes through 5 distinct processes when deciding who keeps what from the property pool. If the Court decides it is just and equitable for there to be an alteration of property rights, the Court will
determine the property pool to be divided between the parties (with values)
determine the percentage each party should receive based on;
each person's contributions to the pool (both financial and non-financial);
future needs or s75(2) factors.
consider whether the final outcome is just and equitable overall
We have more detailed information on this process in other articles on our website or contact us for more information.
Practical Issue #1: the size of the equity in the home
The family home can be the biggest asset some separating couples own, followed by superannuation. Often that means the party looking to keep the family home is keeping a large percentage of the total net property pool.
If the person seeking to keep the home is entitled to a percentage of the property pool (based on the factors above - contributions and future needs) which is greater than the value of the house, then this may be an option.
Where keeping the family home means retaining too much value from the property pool, then there may need to be an adjustment from another asset or cash payment to "buy out" the other person to make it a fair outcome for both parties.
Practical Issue #2: the home loan and any buyout figure
If your home is subject to a home loan and the lender has a mortgage on the house as security for the loan, this is attached to the title deed of your property. This means that changing the ownership from joint names to the sole name of one de facto partner or spouse will have to involve your home loan lender.
In most cases, you will need to refinance the home loan into the sole name of the de facto partner or spouse who is retaining the property in order to change the ownership of the property. The lender will need to be satisfied that the de facto partner or spouse keeping the property will be able to pay the loan, i.e. that person must meet the borrowing criteria for the bank or lender. If you can borrow enough to cover the entire home loan in your sole name, that’s the first step. Without that, there’s probably nothing a family lawyer can do in property settlement if your bank or lender refuses to allow a refinance to happen.
If you can’t, then you some options are;
a) Look at ways of reducing the home loan to an amount you can borrow in your sole name; or
b) Consider whether there is a relative or new partner who would assist to secure the loan. There are various options such as becoming co-owners as well, second mortgages or loans, having a guarantor. You will need further legal advice to determine how this would work best.
Buy outs
If the partner or spouse keeping the home needs to make a cash payment to the other party to make the property division fair, then one option to obtain the money is by borrowing enough from the bank or lender when you refinance to cover both the home loan and cash payout amount.
If you can borrow enough to cover the loan, but not to make a payment to your former de factor partner or spouse, talk to a lawyer about making the necessary adjustment from a combination of a smaller cash amount and some other aspect of the property pool e.g. superannuation splitting.
Practical Issue #3: Documentation
If you can borrow enough to cover the existing home loan and make a payment to your former partner or spouse, and they agree to the proposal, the bank or lender will probably insist you provide them with a court order or a Binding Financial Agreement.
You should formalise your proposed property division first before proceeding with the transfer of the property so that:
1. You lock in the arrangements with your former spouse or partner. Once property settlement has been formalised in a legally binding way, then there can be no re-negotiating the buyout, or further claim from your ex for more in property division at all; and
2. You can access an exemption from paying transfer duty or tax when transferring the title deed of the property from joint names to the sole name of one partner or spouse (*these rules vary between States so make sure you check with a lawyer in your State as to exactly how this will operate).
An agreement regarding property division can be formalised in one of two ways, either by a Consent Order or Financial Agreement (sometimes called a “Separation agreement”, “Binding Financial Agreement” or “BFA”). See our website for articles specifically about these documents or discuss this with us.
First steps in this process?
If you are wondering whether you can keep the family ho me, the first steps we recommend you take are;
1) See a lawyer about your property division and payout
See a lawyer to find out if this means you are keeping too much of the property pool and if so, talk to them about how much a fair split would be and how much you are looking at to “buy out” your former de facto partner or spouse.
2.) Find out about your borrowing capacity.
Talk to your lender about refinancing and how much they are prepared to lend in
your sole name. You are looking to refinance the existing loan into your sole name
and potentially borrow further funds to pay out your former de facto partner or spouse.
TOP TIP: Shop around!
Use this as an opportunity to see a mortgage broker or similar to find out if there is
a better deal available on the market..
3. Will your ex agree?
If so, talk to your lawyer about Consent Orders or a Financial Agreement.
If you get stuck, don't struggle, go back to your lawyer again for help!
Contact Us
If you would like to discuss this further we offer free 15 minute telephone consultations, or if you would like to know about your entitlement in property settlement, we can schedule an Initial Consultation for you to see a lawyer for a one-off appointment for a fixed fee to provide you with detailed advice.
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