Getting settled

Each week during the spring property season, Money's team of experts will come up with strategies for getting the best result before and after the hammer falls.
By · 4 Dec 2013
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4 Dec 2013
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Each week during the spring property season, Money's team of experts will come up with strategies for getting the best result before and after the hammer falls.

Divorce dilemmas

Deciding what to do with jointly held properties is key to most divorce settlements, but it's not always a straightforward affair, particularly if there are children in the mix.

For some divorcees, staying put in the family home and buying out their ex's share makes financial sense, while others elect to sell up and get something smaller or join the rental market.

Brisbane paralegal Nina Rees, 52, toyed with the first option when her marriage ended in early 2011.

Keeping the sprawling family house with pool and large yard in Brisbane's west, where she had lived since 1995, appealed for sentimental reasons. It was also the preferred choice for her children, Jordan, 21, and Kirsten, 19, both students who live with her. "The kids," she says, "loved that house."

High upkeep costs and the prospect of having to take on a mortgage or be left without a cash cushion prompted her decision to sell and downsize to something smaller and unencumbered.

"I just didn't want to be without some cash - being a single parent for the first time, having some money in the bank added a sense of security," Rees says. "And it was too big, the gardens were huge."

She considered building on land she and her ex-husband had purchased shortly before their split but was deterred by the expense and the prospect of having to oversee the project while working full-time.

Rees eventually elected to take over a modest four-bedroom rental house the couple owned in the same suburb and receive a cash settlement from the sale of the family home, as her share of the property pool.

There were 48,935 divorces granted in Australia in 2011, a decrease of 2.6 per cent compared with 2010, according to the Australian Bureau of Statistics.

The highest percentage of divorces were granted to those aged 40 to 44, with 16.7 per cent of males and 17.1 per cent of females in this bracket. The median age at separation was 41 years for men and 38 years for women.

Buying their former partner out of the marital home is the preferred course of action for many women with dependant children following a split, according to Melbourne financial adviser Steve Enticott. It's a wise choice, provided they can service the mortgage solo. Some are spooked by the prospect of doing so and, as a result, commit the classic divorcee's property mistake, Enticott says.

"She'll sell down and get a cheaper place but with all the transfer costs may not be a whole lot better off, as doing so will rip through 50 grand," he says.

No stamp duty

By contrast, buying out an ex's share of a principal place of residence incurs no stamp duty or transfer costs. The property is likely to have been valued conservatively by the courts, which helps keep a lid on the price.

"It's often better to stay put if at all possible," Enticott says. "Go to interest-only if you have to, it will still be cheaper than rent and you have an appreciating asset." Those who choose to sell up and rent can find it difficult to crack into the property market again, Enticott says. Prices may rise in the interim and finance can be hard to come by on a single income.

It's excellent advice - to a point, Nexia Australia financial planning partner Craig Wilford says. He's observed the opposite issue: women who are desperate to keep their family homes for emotional reasons, but have to cut it too fine to do so.

Those who don't meet normal credit criteria may turn to specialist lenders which charge higher than bank rates, making it an expensive exercise.

Accountant and mother-of-three Richelle Hampton, 51, concluded that trying to hang on to the encumbered marital home on Sydney's upper north shore made poor sense in her settlement three years ago. She downsized to a northern beaches house.

"I did feel quite happy to make a fresh start. Once I sold the family home, the mortgage was manageable," Hampton says.

Take your time and strive to make sensible choices, she counsels those in similar circumstances.

"Many people are so caught up in the emotion of it all, they can't think it through rationally as a business decision," she says.

"If you can afford to keep a house with an affordable mortgage, great. But if you're living beyond your means, it's not a wise decision to stay." Sylvia Pennington

Back on the market? Get some advice

Practical help

Seek professional advice before signing a binding financial agreement.

Understand your tax position before taking on a former rental property. Making it your principal place of residence does not wipe out prior capital gains tax liability.

If you're in the market for a new home, take your time looking - transfer costs account for around 7 per cent of total purchase price so it makes sense to find somewhere you'll be happy long term.

Don't sell up too quickly if you meet someone new - rent together until you're confident the new relationship will last.
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