Seperating with recent property purchase

Hi everyone.

I'm currently in the process of separating from my wife, and I'd like some advice on how to proceed financially. There is a small chance we could work things out but I have to proceed on the assumption that we can’t. That being said there’s currently no acrimony so hopefully we can come to a mutually beneficial arrangement without paying to bring in the lawyers and losing everything.

Here’s our situation:

1 year, 6 months ago we bought a free standing three bedroom house with a pool on the north side of sydney for $620,000. We did this with the assistance of my wifes family who lent us $30,000 towards the deposit/fees. There was no expectation of this being paid back in the short term, and could possibly of been written off as a gift. With the current situation it is important to my wife that the money is paid back although the family have said it’s not a priority.

Our mortgage currently stands at $531,000. The home loan we took was a 30 year owner occupier loan with a five year interest only period included at the beginning (5 + 25). Our interest rate is currently %4.99 variable.

My wife can’t afford to buy me out, but would like to stay living in the house, renting a room out to cover the costs. Even if I could afford to buy her out I wouldn’t want to live there alone, and would probably rent elsewhere and look at it as an investment property.

Comparable properties in the same area attract rent in the area of $600 per week. This means there’s a currently a deficit of $336 per month that we’d need to put in to over the mortgage over the full period (although I’m assuming rent would increase to cover this over time).

I would expect that we can come to an arrangement where we split 50/50 any maintenance or value adding improvements. And also that either can put in extra money to bring down the mortgage for an equivalent increase in ownership on eventual sale / rental once it’s all paid off.

Selling the house now according to my estimates gives us $20,000 to $95,000 after fees and paying back the family. potentially not much, but a clean break.

We’re both in our early thirties and have no children.

I earn $120,000 including super, with no other savings or investments. She earns roughly $95,000 with no other savings or investments. We’ve always had a joint account and pooled everything although she had more saving than me when we met (no idea how much but would guess in the order of $20,000). I don’t think any of this should come into things but you may.

Holding onto the house leaves the door open to working things out, but I’m under no illusion that this probably won’t happen, and that things could get complicated if/when circumstances change for either of us (want to buy a home with a new partner etc).

What I want to know is:

Is it advantageous to hold onto the house and joint own as an investment property.

What are the implications if she still lives there, subletting out one or both of the other bedrooms.

What home loan changes should be looking at to make any of this possible.

Are we better off just selling and starting again from scratch (assuming we get nothing from the sale).

Does anyone here have any similar experience that they want to share things that I haven’t thought of.

Thanks for reading all this. Hope you all have a great 2014.
I'm not. I have a friend who owns with his ex and he says it's do-able. Just need to have strict rules about everything. In the end I may decide against it even if it's financially sensible but I want to gather as much info as possible before making that decision.
Does anyone here have any similar experience that they want to share things that I haven?t thought of.

Well as a family lawyer there is so much I could say about your situation.

But the short version is that you need to have a clean break, and then agree on what split of the marriage assets you are both happy with (hopefully).

How long were you married for?
I would go the clean break now. THink of the future, you would have to have joint accounts, speak to each other, agree on repairs. What if she gets another bloke in there - how would you feel. What happens if you get another woman, could she resent that. What happens if she dies and leaves her half to her new boyfriend? (is it joint tenants or tenants in common?)

Most importantly:
What happens if she stops paying?
We probably can agree on a split. Might be a bit tough but wee can do it. I forgot to mention we have about 30k redraw available in the mortgage. Does it make any sense for me to try and buy her out?
Clean break.
Do you think you can come to an amicable arrangement?
rough numbers 620k sell (don't know current val)
less 531 mortgage
leaves 90k less 13-20 k in sell costs
Leaves 70k
Payback her parents 30
Leaves 40k or 20k each that you both walk away with.

Is she asking for her 20k savings? Did she have to use this to help the both of you make the purchase? If not I would leave this out. This is where things can get nitpicky. Eg you bought a higher income to the relationship, enagagement ring...

With an income of 95k why could your wife not buy you out? She can then rent out the other two rooms to help her with the mortgage. She pays current val less 15k (your half of the 30 k owed to her parents).
My husband and I separated last year. At the time we decided to give things 6 months before dividing assets. We still had a joint account that paid our mortgages. We ended up reuniting which meant we saved the hassle of selling/splitting our assets.

While separated I continued to live in our home with the kids. It wasn't great as it was 'our' home and he had as much right to it as I did. It really wasn't a clean break to sort ourselves out as it would've been had I moved out.

If you think there is absolutely no chance if reconciliation. I'd sell now. As you haven't owned it for very long, consider the deposit gift and any additional funds she out into the deposit as hers. As there are no children in the mix there is no obligation to you to have contunuing ties ie assets or splitting assets in a significant way to her. If husband and I didn't get back together I was moving out of that house and selling ASAP.

I wish you the very best however life plays out for you.
We probably can agree on a split. Might be a bit tough but wee can do it. I forgot to mention we have about 30k redraw available in the mortgage. Does it make any sense for me to try and buy her out?

If the propertywould be a good investment then it may make sense to buy her out as this could be done without stamp duty. bUt this would be means loans and rejigging the numbers.

Watch out for redraw - is it one or both can sign? Credit cards too.
If you buy her out - the benefits

You save half of the selling agents fees
The 30k in redraw pays back the parents (keeps ex wife happy)
It is your PPOR
you can rent out for 6 years - move back and then sell CGT free. Will you make more $ this way than selling it now and taking your 50k (or whatever this fig is) and investing it somewhere else?
Or you could move back in after 6 years for a short period and repeat.
Or use equity accumulated over that time to purchase another
This could work for about 6mths, then guaranteed things will change. If one stops paying the other is responsible for the entire debt but it will still be legally 50/50 on resale. Neither is going to put in extra money once you both realise you are now seperate entities. Onceyou are divorced it used to be that you only have ayear to sort out property, then it reverts to 'you both have to agree on the outcome of any transactions' (this could be different now) but you really need to check this out
Property lawyer we consulted when a family member was thinking of separating said that often couples worked things out and all goes swimmingly, until one of them finds a new partner.

This lawyer said the new partners are very often the ones that upset the fine balance that has been worked out. She also said that once family members get into the ears of the separating couple, they start pushing for "he owes you" or "she owes you". Try to work this out without allowing others to muddy the waters.

I'd also try to buy her out and make it a clean cut. You could repay her family, save selling costs, save buying costs and stamp duty for a new place and either live there or rent it out. Probably your higher salary cancels out her extra deposit - but you need to work this out if it comes up. Perhaps she realises she has had a fair exchange for her deposit in the higher income you have been bringing to the relationship for three years?
If reconciliation is out of the question then I would go for a sale and a clean property settlement.

Sadly, in the couples we have seen separate all goes amicably for a while and then things deteriorate.

Circumstances can change, and until a formal property settlement is done then all assets of both parties are up for division.