It’s one of the biggest decisions when going through a separation—what to do about the family home. Who should stay in it? Should you sell immediately and both move? Should you buy out the other person’s interest and transfer the mortgage to one party? Or perhaps trade an interest in other marital assets for the home?
When it comes to a property settlement, it’s necessary to arrive at an agreement that is fair and equitable, in order for a court to sign off on consent orders. But if you don’t agree with your ex on the best course of action with regard to the family home and head to court to finalise a property settlement, you might find that the court will order the house to be sold. The proceeds then form part of the overall matrimonial asset pool, which will be divided fairly depending on each party’s needs and contributions.
No matter what the ultimate decision will be about the home’s fate, who gets to stay in it in the meantime? It’s important to know that whoever stays in the house after separation will not necessarily get to keep it. Also, unless there is a court order that specifies that one of you may not reside in the home, then neither of you has to move out. However, it may simply prove too emotionally fraught to both remain in the home after deciding to divorce. And if there is ongoing conflict it may be in the children’s best interests for one of you to move out.
There’s lots of elements to factor in when it comes to deciding what to do with the family home. Much will centre on which option makes the most sense financially–what you can or can’t afford. So you’ll be looking carefully at your income, assets and ability to pay the mortgage on your own (and whether that party can actually get the mortgage in their sole name). It will mean looking at whether there are assets that can be traded to pay the other party out.
And it means assessing the property itself as to whether it presents an opportunity for good potential capital growth and therefore may be particularly worth hanging on to, so you don’t give up future capital gains. Issues like tax liability and protecting a home’s capital gains tax exemption will come into play so it’s crucial to get legal advice on the impact of transferring the home into one name.But it also means assessing what you can handle emotionally, given you’ve often built a life in the home and it is full of memories you are reluctant to part with. It means thinking hard about what is going to be best for the children (such as if your home is very close to schools, extended family and so on). Sometimes, it really is best if one party moves out immediately and the home is able to stay neutral ground.
- Living separately under the same roof
In Australia, couples can split and continuing living together while separated, which is known as separating under the same roof or separating under one roof.. This means that the process to divorce can already start, even if no-one has physically left the home. In Australia, it’s necessary to be separated for 12 months before applying to get divorced, and for practical reasons, many couples opt to remain living together for the duration. Of course, this only works if there is sufficient civility between you and your ex, and your home is structured so that you can keep out of each other’s way as much as possible. This way, both parties can continue with mortgage payments and household expenses and don’t have the expense of doubling up households immediately and paying rent elsewhere as well as meeting mortgage payments.
- One party moves out
Remember that by moving out, you are not giving up your entitlement to the property. You may also remain liable to continue to make mortgage repayments. Sometimes, moving out might encourage the remaining spouse to delay the resolution of the property settlement, since they have sole occupation (sometimes rent free) of the home pending final settlement. If you are the party moving out, it’s a good idea to make an inventory of all physical property before you leave. Take any personal items needed at the time of moving, as it may be difficult to re-enter afterwards.
- Both move out and rent the property
You could reach agreement with your ex to both immediately move out and rent the property so that the mortgage repayments can be made from the rent.
- Sell the property and discharge the mortgage
You could agree to immediately sell the home, discharge the mortgage and both go your separate ways. If you agree to sell the property, you can do so even if overall property settlement hasn’t been determined. Your legal agreement may also dictate a deadline for selling the house.
Proceeds after the mortgage is paid can be put in a trust account until the property settlement has been worked out. You can then also agree to release partial amounts of the proceeds of sale until settlement too.
- Buy a party out
Transferring the home to one party as part a property settlement agreement is a popular option. The person who keeps the property takes on responsibility for the mortgage. But this is subject to lender’s approval, sometimes hard to get for a non-working partner. The big question is, can you afford house repayments after divorce?
As you’ll basically be running the same household on a much tighter budget, this is where it means being very realistic, making budgets and ideally, seeing a financial advisor. You’ll need advice on the tax liabilities of selling or keeping. A cash out refinance can create a larger debt on the property than what was jointly held. If staying in the family home means forfeiting other liquid assets, you might end up with a difficult mortgage obligation and a cashflow crisis.
You can sell or transfer family home at any point, even before you get a divorce (noting to get a divorce you have to have been separated for 12 months).
Other creative short term options
These naturally depend on the degree of civility between you both.
The kids stay in the family home while the parents alternate staying there, sometimes sharing the cost of renting a nearby home to both also use.
- House splitting
This is when exes divide a former shared home into separate areas of occupancy, sometimes with common areas or a schedule for use of shared areas.
When can you sell or transfer the family home?
Ultimately, before you decide if you should try to keep the family home or let it go, ask yourself some important questions. Why do you really want to stay in the home? Do you believe that staying in the same environment will make the divorce seem less of a massive change, and how realistic are you being? Staying in your home for fear of ruining your kids’ current routine could actually cause far more disruption than starting over in a new home. Going broke in order to stay in the family home is just not going to end well for you or your kids. Instead, it may be that you simply need to work out how to explain your new financial reality to your kids in an age-appropriate way. And help them understand how a move will let them create new memories. Plus, you can dwell on the upsides of a move—if you get excited about a new start, chances are they will too. Don’t forget, most children are remarkably resilient and may not fear the change in the way that you do.
There’s a lot of consider before deciding whether or not to stay in the family home after separation or divorce. Take the time to assess all your options and call on available resources (eg. family lawyers, accountants, financial planners). Although it can be an emotional decision, make sure you have thought it through before deciding what’s truly right for you.
If you need family law advice, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.