What happens to the family home when you get divorced?

The early months of the year tend to be the most popular time for couples to decide to divorce, and what happens to the family home is one of the tricky sticking points.

There’s a range of options available to couples, from selling immediately to transferring it to one party. The right approach will depends on the couple’s circumstances.

Former financial planner Melinda Houghton runs Insider Out, which helps people navigate the financial advice realm.

She says there are many variables to take into account when deciding what to do with a property during a divorce, and whether the couple has children and their ages is one. The couple’s income and ability to pay a mortgage while one party pays to live elsewhere is another.

“Take into account the wishes and priorities of both sides when deciding what to do with the family home,” says Houghton. “Proximity to work, the kids’ schools and other family members should also be taken into account.

“The total value of the assets and the ability to get a mortgage in a single name to pay the other party out are also considerations,” she adds.

If the couple can’t agree what to do, the home will usually be sold and the proceeds will form a part of the asset pool to be divided.

Devil in the detail

Whether the property is held in one person’s name or in joint names is a factor that determines what happens to the family home after a separation or divorce, says Shaya Lewis-Dermody, principal solicitor with The Family Law Project. “Most couples hold the property’s title in a joint tenancy,” she says.

Dermody notes you don’t have to immediately sell the property or transfer it to one person. “There’s a misconception you have to get a divorce order before you can deal with the sale of the family home. In fact, you can’t apply to the court for a divorce order until you have been separated for 12 months. But you can sell or transfer the family home at any point.”

But divorce doesn’t automatically trigger a sale and often people will wait to sell the house until they have a binding financial agreement.

Buy you out

A popular option is for the property to be transferred to one party as part of the binding financial agreement within the divorce agreement. The person who keeps the house will generally assume responsibility for the mortgage.

“This is subject to the lender’s approval, which is why it can be difficult and ill-advised for the non-working partner to take over the family home,” says Jordan Vaka, a financial adviser with Make a Financial Difference.

Holding the property and selling at a later date might be an option, especially if the divorce hasn’t deteriorated into acrimony, says Vaka. “The legal agreement will generally dictate a deadline for the sale of the house. You would also only delay the sale if both sides don’t urgently need the funds.”

Dermody notes it can take time to negotiate a property settlement, which can delay the sale. “I often encourage a couple to go ahead with the sale if they have agreed to sell the property but the overall property division hasn’t been settled.”

This can be a sensible path if the market is good. Then, the sale proceeds can be placed in a trust account until the settlement is finalised.

A left-field possibility may be for both sides to own the property but only one person live in it, but this usually isn’t advisable.

“I doubt a lawyer would include that option in a binding agreement,” Vaka says. “Having your home even partially within your ex’s control isn’t a great idea. But it could be done if you haven’t legally divorced and are just separated – although very few people can afford to have equity locked up in the house their ex is living in.”

Dermody says a risk in this situation is if one person dies and the title automatically transfers to the survivor, despite the parties having updated their wills so the surviving spouse is no longer a beneficiary.

In the red

One issue to consider is if the house sells for less than the value of the mortgage.

If this happens before the division of assets, the mortgage will probably need to be discharged using other funds out of the matrimonial pool.

“If that can’t be done, the couple will have issues getting the loan discharged. It could follow them until it’s repaid or they may want to look at a hardship application to the lender,” says Vaka.

Separation and divorce are very emotional situations. Staying calm, considering all options and consulting professionals to come to a fair settlement is essential so everyone can move on.