Divorce and the family home
When it comes to divorce and the family home, it’s one of the biggest decisions you’ll face post 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?
There’s lots of elements to think about when it comes to deciding what to do about divorce and the family home. Much will depend on which option makes the most sense financially for you. 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.
Sometimes, it really is best if one party moves out immediately and the home is able to stay neutral ground. So, what are your options for what to do about the family home after separation?
1. Keep things as-is.
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. 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, when it comes to divorce and the family home, 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.
Technically, you can keep the status quo as far as your mortgage goes after divorce. However, you and your ex will need to reach a rock-solid agreement about how monthly payments will be handled. This option really requires you to be able to trust your ex, so you don’t end up with a damaged credit score if they fail to meet their obligations!
And bear in mind the possible ramifications of keeping your mortgage if you intend to buy a new property after separation – this is best discussed with a mortgage professional.
2. Divorce and the Family home: Sell the property and discharge the mortgage.
This is the often the simplest way forward. You take the proceeds of the property sale, pay off the mortgage, split any profit, and 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.
It doesn’t always suit everyone, though. Sometimes one party still wants to keep living in the family home. Or it might not be a good time to sell in the current conditions.
3. Buy out your spouse
Sometimes when if comes to divorce and the family home, one party may want to stay in the family home, while the other party would prefer to cash out on the investment. In this case, a buyout could be the solution. The staying party pays the moving party cash for their percentage of the home, and full responsibility for the mortgage is transferred to the staying party.
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).
Transferring the home to one party as part a property settlement agreement is a popular option. But it is subject to lender’s approval, which can sometimes be hard to get for a non-working partner. And ultimately the big question if you’re assuming the mortgage is: can you afford the mortgage repayments after divorce?
You’ll basically be running the same household on a much tighter budget, so 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.
4. Refinance the mortgage
First, with divorce and the family home, you need to understand that by moving out, you are not giving up your entitlement to the property. You also remain liable to continue your obligations such as making mortgage repayments, if you and your spouse were co-applicants on your mortgage.
If one party wants to stay, they will have to refinance the mortgage into their name alone. This requires applying and being approved for a new loan, which can sometimes be hard on a single income. If approved, the staying spouse becomes the sole borrower and is liable for all payments going forward.
This strategy may appeal, but do bear in mind that refinancing a mortgage means creating a whole new mortgage loan, with new terms, new values and rates.
And be aware that sometimes, one party having moved out can encourage the remaining spouse to delay 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.
5. You 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.
6. Bird-nesting
One of the more creative modern options, this is where the kids stay in the family home while the parents alternate staying there, sometimes sharing the cost of renting a nearby home that both also use.
7. 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. These final two options do depend on the degree of amicability or civility between you both.
When can you sell or transfer the family home?
Ultimately, when it comes to divorce and the family home, you have to decide if you should try to keep the family home or let it go. S0 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. And 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 (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.
Just as a footnote, if you are divorcing in the ACT, you can get a stamp duty concession on a new purchase – a significant saving. Make sure you talk to your lawyer because this must be included in your property settlement consent orders.
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.
Further general information is available from the Family Court website.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.
