Sometimes, two people who once thought they were in love realise it’s not the “happily ever after” life they expected. Other times it’s because they got married for the convenience and now that convenience is no longer necessary. Whatever the reason, the marriage is over and it’s time to end it, legally. While you already know divorce will affect you financially, we want you to know exactly what you can do about it. Here’s what you need to know about keeping your property after the divorce, especially if it’s not fully paid.
1. Getting the court documents
You don’t just get divorced the second both parties agree to end a marriage. There is a legal process that will take months. First, the judge needs to decide that there is breakdown of the marriage. When that happens, you will get an Interim Judgment (Divorce), which is a court document that allows you to start making decisions regarding children, property and other matters. When it comes to deciding to keep the property, it is at this stage that an agreement must be reached on how to split the property between the two parties.
However, no action can be taken until both parties get the Final Judgement, officially known as the “Certificate of Making Interim Judgment Final”, which will take at least 3 months from receiving the Interim Judgement (Divorce). We’ll be reminding you of this later, once we get to it.
2. Coming to an agreement
This is arguably the trickiest part of the divorce proceedings, because there’s a lot of factors to consider. For example, say both parties shared the cost of the initial downpayment equally, but the wife has been paying the majority of the home loan instalments, then it may not be fair to split the cost of house equally.
On the other hand, if the husband has not been paying for the home loan instalments because he’s been paying for all the household expenses instead? That might change how the house gets divided. Ultimately, both parties will have to agree how to split the ownership of the house, and if they can’t, then as a last resort the judge may be obliged to step in and make the decision for them.
3. Calculating if you can afford to keep the property
Just because you’ve come to an agreement on how the ownership of the house should be split, that’s not the end of the story. Let’s look at a case study where the wife intends to keep the house.
Let’s assume that the property is valued at $600,000 and ownership of the house is divided equally. That means the wife needs to buy over the husband’s share of $300,000. Also assume that the house is not fully paid and there’s still an outstanding loan of $300,000, which is to be split equally.
Let’s look at her financial situation.
|Firstly, let’s see how much she needs to loan.|
|80% of purchase price (i.e. husband’s share)||$240,000|
|Total loan amount||$390,000|
|Now, let’s calculate her downpayment|
|At least 5% of the purchase price in cash||$15,000|
|15% of the purchase price in cash/CPF||$45,000|
|Additional Buyer’s Stamp Duty (ABSD) and other charges if applicable|
|Total downpayment (cash/CPF)||$63,500|
So, there are at least two issues that she needs to consider here. Firstly, and perhaps most importantly, can she afford the downpayment? If she doesn’t have at least $15,000 in cash, or can’t make up the difference with her existing CPF, then she’s already in trouble. This is especially difficult if she’s not had steady employment, and therefore doesn’t have enough CPF set aside.
Assuming she can afford the downpayment, then she needs to ask herself if she qualifies for the total loan amount of $390,000. There are a handful of eligibility factors she must meet – her income, the 30% Mortgage Servicing Ratio (for HDB) or the 60% Total Debt Servicing Ratio (for private properties). If she doesn’t qualify for the total loan amount, then she has to take a smaller loan. That means she’ll need to come up with the difference through cash or CPF and include it in her downpayment.
4. Deciding whether to keep the property or not
What happens if you just don’t have enough to buy over the house? Well, one option would be to agree to sell the house, and have the proceeds divided according to the court’s Final Judgement. This would be the simplest, logistically, but probably not the easiest decision, especially since it means uprooting both parties instead of just one.
The other option would be for an agreement to be made regarding the ownership, and to reduce the amount that the buyer has to take over. That is why it would be best to obtain an Approval-in-Principle (AIP) with a bank first. This document helps you to know how big a loan you are actually eligible for and how much it will cost you monthly.
By doing this after you get your Interim Judgement but before getting your Final Judgement, you will be better prepared to decide if you can afford to take over the property or not. It may also be a good idea to contact our Mortgage Specialist at this stage if you need more help.
5. Getting the Final Judgement and obtaining the bank loan
Ultimately, though, once you have agreed on how the ownership of the home will be split between both parties, you will receive the Final Judgement from the court. With this document, you are now eligible to apply for a new bank loan. This is essentially the same process as getting a new home loan. As seen in the calculations above, the amount that you expect to borrow from the bank is the sum of your share of the outstanding loan, as well as 80% of the “purchase price” or the amount that you’re buying over.
Divorce isn’t an enjoyable process for anyone, but hopefully with these 5 steps, you’ll be able to get through it able to focus only on what’s important and not waste your energy worrying about finding a loan to keep your house.
Do you think it’s important to keep the property after a divorce? We want to hear from you.
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Tags: Home Loans