We are often asked the question “Can I buy a new property before getting divorced?” In a booming property market, people who are separating often want to take advantage of opportunities that may come up. Many people do not wish to rent and, if they have the funds to do so, would prefer to buy another property as they see rent money as ‘dead money’.
The question, however, is not so much whether or not you can buy a new property before finalising your divorce, but whether or not you should.
Divorce or Property Settlement?
The first thing we need to do is make sure that we are all speaking the same language. Often when clients speak with our family lawyers with questions about buying a house after separation before getting divorced, they are talking about buying a property before they finalise their family law property settlement. Divorce is the term used colloquially by people separating to refer to their family law matters, but technically a divorce is the legal end of a marriage, not a property settlement which is a separate legal process.
There is no legal barrier to purchasing a new property before getting divorced. Many people finalise their property settlement and buy a new property before they are even eligible to get a divorce. The real issue is not whether you should buy a new property before your divorce is finalised, but whether or not you should do so before your property settlement is finalised.
Should I Buy a New Property Before My Property Settlement is Finalised?
The answer to this is, of course, it depends. Everyone’s situations are individual and unique and this is certainly a situation where there is no one size fits all approach.
However, as a starting point the question of whether or not you should buy a new property before your property settlement is finalised is best answered as: only if you are happy with that property to form part of the property pool to be divided between you and your former partner. If that is enough to make you reconsider then you could stop reading now.
But let’s delve into that a bit further.
Why is a property purchased after separation part of the family law property pool?
A fundamental principle in the Family Law Act is that all property of the parties is included in the property pool available for division, regardless of when it was acquired (purchased/gifted/inherited) and who is the legal owner or holds the title.
For more information about this check out our property settlement FAQ.
Will my ex get the property I bought after we separated?
This is a question that frequently flows from the answer above. However, it’s important to understand that, just because a particular property is included in the property pool, doesn’t mean that the other party will have that transferred to them or that it will have to be sold or in some way divided between you.
The inclusion of the property in the property pool is only one step in the process of determining which assets, liabilities, and superannuation each party is to receive in a family law property settlement.
This means that while your new house purchased after you separated forms part of the property pool, it does not mean that it will necessarily be transferred to the other party or sold if the other party can receive their just and equitable property settlement from other property available.
My ex didn’t put any money into the new property so why should it be included in the family law property pool?
Good question! This is where the contributions-based assessment of the property pool (discussed in our property FAQ) is important. Just as property owned before a relationship or inherited during a relationship can be given special attention when assessing what contributions have been made to the property pool, so is property purchased after separation.
But this is where it becomes complicated. In some circumstances, a court might consider that a property you have bought after separation is entirely contributed by you. In other situations, they might consider that you should not receive full credit for the contribution. Examples of the first scenario are where parties are each independently wealthy and able to support themselves without needing to rely upon the other and finances are kept separate. The opposite example is where a spouse is financially reliant upon the party who purchased the property and the income used for the purchase of the property after separation was as a result of an earning capacity built up throughout marriage with support from the other party. In between, there is a spectrum of scenarios.
Should I buy a new property now or wait until my property settlement is finalised?
There are many reasons you might choose to purchase a property before your property settlement is finalised, despite the issues set out above. However, doing so is at your own risk and adds a level of complexity to your matter which will inevitably increase your legal fees. If you use any funds accumulated before separation or if the other party is financially reliant upon you, this increases your risk considerably.
Ultimately, you should seek financial advice and legal advice before this decision, and always have a conveyancing lawyer look at any contract before you sign it.
What if my property settlement is nearly finished?
We’ve frequently had situations where a client’s property settlement is close to being finalised and they’ve come across a property of their dreams. They might have an agreement in principle with the other party or have lodged consent orders with the court, but we haven’t yet received the sealed orders.
In either of these situations, it is critical to speak with your specialist family lawyer before signing a contract for the purchase of any property. Many things can go wrong even if you have an agreement in principle. Until your court order has the court seal on it, it is not final. This does not mean you can’t sign a contract to purchase a new property, but your family lawyer can help you include an appropriate clause to protect you if something goes wrong with your family law property settlement and it doesn’t go ahead. Being held to a contract to purchase a new property, only to have your consent orders rejected by the court, or your former partner pulls out of the deal, would leave you completely exposed to settle the contract without having the funds to do so.
Specialist family law advice is critical before purchasing a new property before you are divorced
As the above examples illustrate, purchasing a new property before getting divorced is something that requires careful consideration and both financial and legal advice. Property purchase contracts are usually the largest transactions we make and they should not be done so lightly – especially when family law issues exist. Contact us for an appointment with one of our Brisbane and Gold Coast family law team to discuss your situation.
The information in this article is general information only. It does not constitute legal advice or financial advice.