Mortgage brokers, conveyancers & real estate agents

FAMILY LAW ESSENTIALS FOR MORTGAGE BROKERS, CONVEYANCERS & REAL ESTATE AGENTS

Sadly, almost 50% of Australian marriages end in divorce. Happily, the great majority of separated spouses who separate reach negotiated agreements on how to divide up their property. Commonly, family law property agreements will result in one spouse receiving sole ownership of the home or investment property. They will be obliged to re-finance the mortgage and borrow an additional amount to pay to the other spouse.

It can be difficult for the spouse retaining the property to obtain sufficient funds to re-finance the mortgage in their sole name and borrow the required money to pay out the other spouse. Generally, they will need to increase their existing debt levels. Spouses going through separation will commonly seek the assistance of a mortgage broker when considering their finance options.

Shepherds Family Law Specialists have prepared this guide to assist mortgage brokers. It explains the process of negotiating and documenting a family law property settlement, as well as how to re-finance the mortgage and transfer ownership in the properties. The guide will assist mortgage brokers in better understanding their role in the process and to assist their clients during difficult times.

You are welcome to provide a copy of this guide to your clients provided the copy bears our name and claim for copyright.

Property settlements – what’s a fair thing?

There is no standard formula or percentage fixed. The customary approach laid down by the Family Law Act requires three steps:

  1. identify and value the assets (including debts) of both parties;
  2. assess the past financial and non-financial contributions made by each party;
  3. consider the differing future financial needs of the parties.

Negotiating the agreement

Commonly, agreements are reached through informal discussions directly between the parties or negotiations through solicitors. Less commonly, an agreement may be reached during the course of court proceedings.

Spouses should investigate and confirm their borrowing capacity (perhaps with the assistance of a mortgage broker) before commencing negotiations. They should definitely do so before finalising a property settlement. A separated spouse will find their borrowing capacity reduced as it will be based on their individual income. They may need to structure loans over a longer period or initially on an interest only basis. A realistic alternative (to borrowing significant amounts to retain the former matrimonial home) may be to sell the home and borrow to purchase a cheaper home.

Shepherds Family Law tip – You should remind your clients making written applications for finance that the other spouse may be able to obtain a copy. The disclosure of income and financial assets may become relevant to family law proceedings. It is important, therefore, that loan applications not contain information that may be inconsistent with the financial details provided by one spouse to the other or in court documents.

Documenting the agreement

Generally, the parties will document the agreement through consent orders being made by a court. Consent orders have three important consequences:

  1. Finality. If the orders are properly prepared, they are binding and cannot be changed except in exceptional circumstances. Neither party can seek any additional property from the other in the future.
  2. Enforceability. If a party fails to comply with the agreement, enforcement proceedings can be taken.
  3. Tax savings. Further details discussed below.

Consent orders are obtained by lodging an Application for Consent Orders with the Family Court. There is no court filing fee. The application contains financial details for both spouses. It also contains the orders which the parties agree to the court making. The orders will affect all of the parties’ property and assets. They may have various legal and financial consequences – including tax consequences. The orders may also affect the parties’ rights and responsibilities in respect of children. It is important, therefore, that the orders are properly prepared and parties receive proper legal advice.

Presuming the application for the orders has been properly prepared, the court will then make the orders without the need for any court appearances.

Re-financing and transferring title of the properties

Settlement agreements will generally provide for payment within a specified time – commonly 28 or 42 days. It is important that borrowing capacity be confirmed before the application for consent orders is lodged. On the other hand, there is no point incurring application fees for a particular loan amount, which may be subject to a time period until settlement is agreed.

Once the court issues the orders, a transfer can be prepared (generally by the solicitor for the party retaining the property) and presented to the Office of State Revenue (“OSR”). The transfer will be stamped to show no stamp duty is payable. The transfer will then be forwarded to the solicitor for signing by the party not retaining the property. The signed transfer will generally not be provided until settlement in exchange for a cheque in the agreed amount. If the new loan is with a different bank, the old bank will be paid out at the same time.

Stamp duty and capital gains tax

If real estate is transferred between spouses pursuant to Family Court orders, no stamp duty is payable. If there are no court orders providing for the transfer of the property, stamp duty will be payable. It will also be necessary to obtain a valuation to present to the OSR to calculate the amount of stamp duty payable.

Similarly, if an investment property (or shares or any other capital gains tax liable asset) is transferred between spouses pursuant to Family Court orders, the transfer is not a disposal for capital gains tax purposes. The transferring spouse incurs no capital gains tax debt. The receiving spouse will pay capital gains tax when they sell the property in the future. Their future capital gains tax debt will be calculated from the earlier time the spouses first acquired the asset.

Shepherds Family Law tip – The receiving spouse needs to ensure they obtain all documents evidencing expenses (that may reduce their future capital gain) from the other spouse.

Shepherds Family Law tip – In some circumstances, a party may wish to incur (rather than avoid) the capital gains tax liability at the time of the transfer between the spouses. If so, the consent orders should not refer to the transfer of the property. For example, the receiving spouse may have tax losses against which the capital gain can be off-set. Incurring the capital gain at the time of transfer between the spouses will reduce the capital gain when the receiving spouse sells the property.

Property and finance professionals play an important role in resolving settlements between separating spouses.

Here is a guide (and some tips) to make the process easier.

 

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