Separation can be an emotionally charged time. However, building a support team of legal, financial and property experts that can advise you of the future impact of your decisions will go a long way to assist you in making level-headed decisions in the present.
Starting Over After Separation
Along with the obvious strain of the breakdown of a relationship, there is normally an impact on property ownership, particularly in respect of any financial separation that needs to occur. Many individuals are often left with a lump sum and want to get into the property market, or assume ownership of an existing property, usually with an associated mortgage.
These key considerations will assist you in forming a plan for property ownership.
What are your options?
The usual early step is for one party to discuss the "purchase" of the former marital home. This will impact the existing arrangements that may be in place, especially if the property is subject to a mortgage.
If both parties are on the mortgage, the remaining titleholder will need a "new" mortgage in their sole name.
For most people, this can represent a "clean break" and enable a clear path forward. However, this can also be a challenge for many individuals if they cannot easily take out a mortgage in their sole name.
If only one party is on the mortgage, or if the property is held in a family trust, you will need to seek both legal and tax advice on the best way to handle the sale or transfer of the property.
Should you take over the property?
Keep in mind that any property acquired during the partnership will be only one part of the settlement asset pool. In some cases, the sale of the family home may be the best path forward to fund the purchase of another property.
Have a long-term focus, as property is a very illiquid asset. Remember, property doesn’t always just go up in value, so get advice from property market experts.
Allow enough time to decide
To provide financing after separation, most credit providers require a finalised Settlement Agreement before approving a mortgage application. Where dependent children are involved, there must be a financial agreement in place for ongoing care. To avoid making hasty or costly decisions, allow plenty of time for this process before committing too early to a refinancing or property acquisition path.
Confirm what you can afford
A mortgage broker can provide you with accurate information to understand your new financial position. This will include your current borrowing capacity, taking into account any future changes to your circumstances.
Determine your assets and income
Newly single people may be entering the mortgage market for the first time in a while. In addition, some may not have been the prime income earner, or they may not be a traditional employee.
Many people forego traditional employee entitlements and deliver services through contracting or invoicing for their time. Understanding how different banks will view your traditional or non- traditional income situation is important when planning where to apply for a loan.
Get legal, tax & property advice
After you have done your research and decided if you wish to buy a new property or your current property, you will need to check your financial planning, legal and tax situation. Ensure that you properly review all details and that your property ownership interests are represented correctly. It’s okay to ask lots of questions until you understand the bigger picture.
Using Superannuation to buy property
Superannuation is treated as part of the settlement asset pool. As part of a separation process, there will be an agreed split of the total pool, including super.
However, that does not mean it can be accessed as cash or used in a property acquisition. Superannuation preservation laws still apply, and this does not change until you satisfy a condition of release, such as reaching preservation age.
Starting Again
Talking to a finance broker (sooner rather than later) about your borrowing capacity post-separation can assist you in making informed choices.
For more information on this and other property matters, have a look at our MCP Property Guide & Family Property Finance Guide.
Contact MCP
1300 510 816 or your Finance Partner
enquiry@mcpfinancial.com.au
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The team at MCP Financial Services has specialised expertise in structuring complex debt arrangements. We can assist with review and restructuring, refinancing and renegotiating.