While there are many reasons for the ending of marriages and de Facto relationships, financial pressures are often cited as a contributing factor. It can be very hard juggling the family budget when household expenses have increased and income has reduced or stayed the same. The latest figures available from Statistics New Zealand state that 8279 marriages ended in divorce in the last recorded year (2013) with around half of those dissolved being relationships lasting 13 years or more. These figures don’t even cover those whose long term de Facto partnerships came to an end.
When a couple has been in a relationship for three years or more (this includes living together prior to marriage) then the Property (Relationships) Act, which was established to recognise the equal contribution of partners to a relationship, states that any assets brought into the relationship should be divided 50/50, (This is regardless of whoever paid for the assets). Unless you have signed a pre-nuptial agreement or have the property held in a trust, then in most cases the home will probably be the largest asset to be divided.
This can be done by the sale of the property and a division of the proceeds of the sale after all expenses and liabilities are accounted for, but in some situations where house values have fallen, there are insufficient funds to pay the bank the money owed on the property so this is not an option. However, one party often wishes to retain the home. This can sometimes be the case when there are children involved in the separation and the decision is made in order to avoid additional upheaval in their lives. But it can also be that one party has formed more of an attachment to the home. If the desire to retain the property is the case, the person wishing to keep the property will be required to “pay-out” their partners share of the value of the home.
The value of the property will be determined by the ordering of a Registered Valuation to find the property’s current market value. Any debt held against the property is subtracted and the remaining figure (Equity) is the amount that needs to be halved as part of the PRA agreement. This is the “pay-out” part, but it should be remembered that there is also any existing home loan existing under both parties’ names which will need to be repaid and registered solely against the new owner. Consequently, the size of home loan that was against the house originally may often have to be increased to accommodate the costs of settlement. It is therefore; very important to find out whether the ownership of this now higher loan is possible when there is only one person left to service the debt.
A loan which may have been originally approved based on two people’s incomes, may not fit the lenders current servicing calculators when reduced to one person being responsible for the debt, as monthly living expenses between one or two adults vary very little. Although one of the providers of repayment funds is no longer available it pays to check whether, due to your changed circumstances, you may now be entitled to additional income which you previously may not have qualified for. This can take the form of Family Tax Credit, accommodation supplements and even child support payments, although these are often not able to be used as a source of income for loan servicing purposes.
Your solicitor will be able to guide you on most of the requirements regarding the smooth settling of the division of property, but it is also vitally important that you obtain independent advice regarding all of your financial affairs. Not only with the right structure of the borrowing for you to maintain your property without it crippling you financially, but also to cover your Insurance requirements which may have previously been co-owned by your ex partner. Many people often forget that when they took out their Insurance it was with a partner as a joint policy owner. When that relationship has come to an end (as with any change of personal circumstances), it should be time to get your Insurance needs reviewed as well.
The break-up of a long term relationship can be a very stressful event to go through, therefore working with an adviser who can approach a range of lenders and providers without the emotional pressures of being directly involved will make sure you get the best option for all your home loan and insurance needs as you move forward
