Separation or divorce can be a messy time, particularly when it comes to dividing your assets and the family home. If you are going through a divorce or separation, it’s vital you take stock of your day-to-day finances and work out a long-term plan to ensure you’re set up for a financially secure future. To help you get started, ask yourself these 3 questions.
1. Can you afford to keep your home?
While it makes sense from an emotional perspective to keep the family home – particularly if there are children involved who are likely to be unsettled by a divorce or separation – it’s important you view your decision from a practical, financial position. Not only do you need to consider whether or not you can afford the repayments on your home, you’ll need to factor in things like insurance, repairs and maintenance as well as monthly utilities and other expenses.
To keep your home, it’s likely you’ll need to buy out your spouse’s share of the equity in it. Equity is measured by the value of the house less any mortgage debt still owing. The Property (Relationships) Act requires all relationship assets and debt be divided 50/50 if you’re married, in a civil union, or have been in a de facto relationship for more than three years.
New Zealand law defines a de facto relationship as being between two persons (whatever their gender), who are both aged over 18 years old, who are not married to or in a civil union with each other and who live together as a couple. An equal division will only not apply if you have previously entered into a Pre-Nuptial Agreement.
You may be able to refinance your home for a larger amount to pay your spouse out for their share of the house or you may be able to negotiate an asset swap, giving up half of some other assets to make up for your spouse’s share of the home. Either way, there are some serious financial implications which will need to be factored into your decision.
2. Is it worth selling your home?
In most cases, selling the family home and splitting the equity will put both parties in a better financial position. However, that may not always be true. If you’ve recently bought a new home or re-mortgaged your existing home, or the property market has dipped and is no longer favourable for selling, you could be left worse off.
Once you sell your home and split the proceeds, you’ll still need to halve that amount so each party gets an equal share. Will that be enough to set you up financially? Can you realistically buy a new home with the amount you’re left with?
3. Could joint ownership work?
It might make sense for both parties to continue co-owning the property following a divorce or separation and for one party to live in the family home for a fixed period of time. To safeguard against any disputes, it’s vital both parties plan and agree the repayment terms of the joint loan – how much each will continue to contribute, the type of bank account you’ll use to pay the mortgage - either single or joint, as well as the length of time both parties will continue to be responsible for the mortgage repayments. This can be a tricky option, particularly if the divorce or separation is not amicable, so it’s important all agreements are clearly documented and that you seek advice from a family lawyer or a professional who has experience in dealing with these types of agreements.
If you are considering selling your family home and buying a new home following a divorce or separation, contact a Mortgage Express mortgage adviser to find out the best financial option for your situation.
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While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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