How to Transfer Property in a Marriage Separation

Many people believe that when separating from your de-facto partner or spouse, you can mutually agree to an asset split arrangement. Perhaps one party agreeing to pay the home loan and then transferring the property to the other party. This is done without any formal Family Court Orders in place.

Issues to consider with these ‘informal’ arrangements:

1. When real property (land and buildings/improvements) is purchased in joint names, both owners are equally responsible to repay the mortgage to the bank. This means that if one party does not repay the mortgage, the bank will still require the other party to repay it;
2.  When one party chooses to individually repay the mortgage, the bank will consider this to be a new loan application, requiring that party to go through the finance process again; and
3. Absent any ‘formal’ Family Court Order governing the marriage separation:
   • The transfer of the property will attract stamp duty on the one-half share despite no money changing hands. In some situations, the stamp duty can run into thousands of dollars. (For example, if you are transferring a property valued at $1 million, the stamp duty for transferring 50% could be over $10,000);
   • Any ‘informal’ arrangement cannot be enforced against the party agreeing to repay the mortgage if he/she fails to fulfil his/her promise. (For example, if the party agreeing to repay the mortgage fails to do so, the bank will still require the other party to repay it and the courts cannot enforce any ‘informal’ arrangement between them).

The Benefits of ‘formal’ Family Court Orders:

• • Property transfers in a marriage separation will attract only nominal stamp duty in each State, which ranges from $20 to $100;
  • The ‘formal’ Family Court Order can be enforced against the party failing to fulfil his/her promise to repay the mortgage. (For example, if the party fails to repay the mortgage as set out in the Family Court Orders, the court may direct the bank to pursue the debt only against that party and not the other party).
  • ‘Formal’ Family Court Orders do not mean the parties have to go through acrimonious disputes between themselves, they can come to a mutually acceptable agreement referred to as Consent Orders by the Family Court of WA.

A separation may lead to people considering the following options:

1. Refinancing the mortgage to a single name in place of both names. – However, with the changes in the lending landscape, the bank may require significant information from and assessments of any party before agreeing to any refinance.
2. Selling the real property as part of the separation process. – The current property market conditions are such that you may not receive the value for the property that you expect/wish, leaving you to decide how to deal with any shortfall.
3. Updating or setting up a Will and/or an Enduring Power of Attorney/Guardianship

The key takeaway message is to seek legal and tax advice and assistance before agreeing to any division of marital assets post-separation and to achieve an amicable settlement.

Please contact us. if you are in this situation or if you just have questions that we can assist with.