Buying Out An Ex-Partner
Are you getting divorced or separated?
Around half of Australian marriages end in divorce and many more de-facto couples separate after buying their family home. So what can you do with your home and investment properties when you go your separate ways?
The pitfalls of buying out your partner
Separations and divorces are messy processes! This means that even if you agreed to property division, you may still encounter difficulties.
- You may have trouble agreeing on the property settlement figures.
- You may have credit blemishes from unpaid bills as a result of a the divorce.
- You and your partner may have stopped paying the mortgage under the advice of your lawyers.
- You may not have been expecting the separation, so you may not be ready to apply for a home loan.
These are just some of the challenges you may face when you decide to buy out your partner’s share of the home or investment property. Read on to find out how to overcome these challenges.
Mortgages to pay out your partner
Getting a home loan to pay out a divorce settlement, property settlement or separation agreement is assessed by the banks as both a purchase and a refinance. For this reason, lenders will assess your loan application in a different manner, applying different lending criteria:
- You will need to prove that you have the funds to pay out your partner, if there is not sufficient equity in the property. This is just like a loan for a purchase.
- Unlike a purchase, you do not need to prove any genuine savings.
- You must have good repayment history on your current home loan. This is just like a loan to refinance a property.
Our mortgage brokers are experts in the policies of a variety of banks and specialist financiers. We know which lenders will approve your mortgage, to pay out a divorce or property settlement.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will call you to discuss the loans that you are eligible for.
Can you just "take over" the home loan?
You may choose to buy out your ex-partner’s share of the property, they may decide to buy out your share of the property or you can sell the home and share the sale proceeds. This is one of the easiest ways to divide assets after a break-up.
However you cannot just “take over” the mortgage! Whilst other countries may allow you to take over the mortgage of another person or remove someone from a mortgage agreement, in Australia this is not permitted.
You will need to refinance the loan to a new loan that is solely in the name of the person who will retain ownership of the property.
What if you have missed repayments on the loan?
It is quite common for people going through a divorce or separation to miss some of the payments on their mortgage.
In some cases this is because of disputes over who should pay, and in others, it is due to emotional turmoil that may cause people to forget about the repayments entirely.
Unfortunately, some lawyers actually recommend that their clients refrain from making mortgage repayments during a divorce! This is because they believe that the ex-partner is likely to get a larger share of the equity in the property and so any payment on the home loan is money down the drain!
While this advice makes sense from a legal point of view, the partner that buys out the other partner will have difficulty applying for a home loan to complete the settlement, as they do not have a perfect repayment history on their current home loan.
Most lenders require a six month history of perfect repayments before they will refinance your loan.
So how can you get approved if your partner hasn’t made their repayments and the loan has been in arrears?
Can I get approved if my loan is in arrears?
One of our lenders can accept just a three month history of clear repayments, if you have no other credit blemishes.
We also have access to specialist lenders that can consider your situation, no matter how many payments have been missed! However, you must prove that were able to afford those repayments, despite having not made them. You must also identify another mitigating circumstances.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will go through your repayment history and let you know what your options are.
The bank valuation is critical!
As with any mortgage application, if the bank valuation comes in low, then the loan may be declined. This means that you may be unable to complete your divorce settlement and successfully divide the property.
So how can you control the bank valuation? The simple answer is that you can’t. However, as a mortgage broker we have the ability to order valuations with several lenders, before submitting a full application. You can then apply with the lender that has the most favourable valuation.
This is fantastic news! In the past, the only way to obtain multiple valuations was to put in multiple applications at the one time.
As such, you loan application would ultimately be declined. We know which banks will look favourably upon your application. Please call us on 1300 889 743 or enquire online to find out how we can help you to obtain a bank valuation up front.
How much can I borrow?
As a general rule, if your repayment history has been perfect and you meet all standard bank criteria then we can help you borrow up to 95% of the property value.
If you are borrowing over 80% of the property value then Lenders Mortgage Insurance will be applicable.
If you need to borrow more than 95% of the property value then you will need a security guarantee, with what is known as a guarantee mortgage.
Will you pay stamp duty?
In most cases, you will not pay stamp duty to buy out the share of the property owned by your ex-partner. This is not just for the family home, but also for investment properties that are bought out from the divorce settlement.
Note that you may still be liable for capital gains tax on the transfer of ownership for any investment properties.
This is a complicated area of law, so please talk to your solicitor or conveyancer to confirm if stamp duty will be applicable to the transfer of ownership.
Do you need a separation agreement?
If you and your ex-partner were married then a conveyancer can type a basic agreement and then stamp the transfer as exempt from duty. A contract of sale is generally not required.
If you and your ex-partner were in a de-facto relationship then you may need to see a solicitor to get a separation agreement completed, otherwise you may be required to to pay stamp duty.
An application for an exemption from stamp duty will need to be assessed by the state government. It must be fully completed and have all supporting documents attached.
A transfer is a document that is lodged with the government to register the change of ownership. This will need to be signed by both parties.
There are a variety of agreement types that can be drawn up between the parties to initiate the transfer process. These range from, a Separation Agreement or Consent Order, to a Financial Agreement. You can complete your own agreement if you and your ex-partner choose to do so. This agreement can be found in the Separation Kit that is on the Family Law website.
Seek legal advice
You should seek legal advice from a qualified solicitor who specialises in family law, before you apply for a loan to buy out your ex-partner or before you enter into any agreement with them.
We have tried to ensure that the information on this page is accurate, however family law is a complex area. For this reason, you must seek professional legal opinion, in order to obtain specific advice on your transfer of ownership.
Apply for a home loan
Do you need a home loan to pay out your divorce settlement? Our mortgage brokers are experts in divorce mortgages and can help you to get approved at a great interest rate.
Please call us on 1300 889 743 or enquire online to find out how we can help you.