Advice re separation buyout and PPOR to I P

[zargonb]

Unfortunately getting a divorce and initially the plan was to sell the house and split the proceeds. (no kids involved; amicable separation; all pretty straight forward). I was going to live with the folks in another town for 12 months and get my head straight. However the more prep work I do to sell the place the more I realise I don't want to leave it. We live in a very sought after location and I honestly would be happy to live the rest of my life in this house. So I'm starting to think about buying out my wife instead.

I make north of $3k pf net and I would have to refinance the loan to about 400k to buy her out. Even factoring in maintenance I could do this but would be slim on savings and it occurred to me that I could turn it into an IP for 12 months and go live with the folks for next to nix for that period and that would subsidise the loan taking the pressure off.

My folks are nearing 80 and we've always toyed with the idea of them living with me. I also just found out about the "granny flat interest" concept so in 12 months we might be able to sell their place, all move back here and covert it back to PPOR and refinance the loan using some the granny flat interest monies.

Just after some feedback on gotchyas that might exist in PPOR to IP to PPOR conversions. Should I talk to an accountant about the issues?

Thanks

 

[Terry_w]

The interest on the loan used to buy out your wife won't be deductible even if the property becomes an investment.

What granny flat interest monies? Are you proposing your parents will pay you some money and/or pay for the construcction of a GF on your land?

Don't do anything without legal advice.

 

[Greg Reid]

It is possible and I suggest you talk with both a tax accountant and legal person especially regarding your folks taking up the granny flat option to safeguard their interests.

Presuming you have the borrowing capacity by all means refinance the loan and if it assists, say it will be an IP so you can add rental income in for servicing. Most lenders will take a notional $650 a month as board expenses into their servicing equation. That presumes you have sufficient equity in the property. Get yourself sorted out for 12 months or longer and plan the move back getting council approvals, plans costs etc. done in those 12 months.

Once you have the loan (suggest 5 year IO with 100% offset) approved, you do not need to do anything further with the lender if you move back into the property. There may be a potential capital gain for the period while it is an investment property, but if you plan to live there long term, not an immediate issue and talk to your tax accountant about the issue.

Sorry about your divorce but good to hear an amicable separation.

 

[Jess Peletier]

The interest on the loan used to buy out your wife won't be deductible even if the property becomes an investment.

Why not, Terry?

 

[Terry_w]

Why not, Terry?

If it is transferred due to a family law settlement then the ATO considers that any payment doens't relate to the purchase of the other spouse's property but to a property settlement.

 

[zargonb]

thanks for the replies

Terry,
re granny flat interest. Yes I was thinking that they could give me a few hundred k from their house sale to refinance my loan to make repayments lower. I may have misunderstood the rules and maybe you have to have an interest that is "self contained". It is very easy to live separately in this house but there is only one kitchen. I will check it out further. I have a colleague who has recently done this.


I'll go see an accountant. In any case I'll be investing in a property somewhere, whether it's this one or another. Maybe it's just time to let it go and move on.

 

[thatbum]

re granny flat interest. Yes I was thinking that they could give me a few hundred k from their house sale to refinance my loan to make repayments lower. I may have misunderstood the rules and maybe you have to have an interest that is "self contained". It is very easy to live separately in this house but there is only one kitchen. I will check it out further. I have a colleague who has recently done this.\

Haha Terry is having a legal version of a heart attack now. The legal implications of such an arrangement could be considerable, to put it mildly.

I have to say, as a family lawyer and also one with some experience in granny flat family arrangements - you're essentially hopping out of the frying pan into the fire.

 

[zargonb]

Haha Terry is having a legal version of a heart attack now.

whats an illegal version look like...boom chk


okay well that why it's good to post here...red flags get raised and plans get honed

 

[Terry_w]

There are many aspects - legal and tax.

See my post above about potential problems. What if there is a dispute with your parents and they want to move out and want their money back? Who owns the granny flat? You legally, but they have a non legal interest too. What if both parents die and the executor of the estate sues you to get the money back? If you are exeutor you may have to refuse the role because you also owe money to the estate.

What if you die and your spouse inherits (new or ex, or both, not to mention the mistress) and the spouse kicks the parents out? considered powers of attorney and appointment of guardians?

Allegations of elder abuse - even though it may not be your intention a family member/friend could later argue they didn't know what they were doing and your tricked them into giving you $100,000.

You need to work out some basics and then go and see a lawyer. You and parents would needd separate legal advice and various agreements drawn up.