Financial advice requested - relationship breakup

[whattodo]

Hi all, wonder if anyone would mind giving me some sage advice..

Partner and I are considering an amicable end to our relationship. We have no kids and both have steady jobs with roughly the same income.

We own a house together which we purchased last year for about 500k and have about 200k equity in (again, we put in about 50/50). We purchased at the peak, and I get the 'impression' that if we sold it now we'd probably have to take about a 60-80k loss (ie, market it for 420-440), to achieve a relatively painfree sale.

Would you accept the loss (so, 30-40k each) and move on, or change the mortgage to interest-only and rent it out (perhaps having to top up) until the market improves?

Obviously noone has a crystal ball, but what would you do if you were in my situation?


Thanks for any and all opinions!

[Dean]

Its no good dropping 30 -40 k . I would look to set up an LAQC with yourself and your partner having a 50% shareholding each. The LAQC allows you to offset your PAYE against the losses (presumably) of the LAQC . You will need to find tenants and either manage them yourself or have a property manager. Providing you can maintain this business arrangement with your partner you may be able to ride out this slump. Another option that you could look at in time is to trade the house for something that either of you might want , with one partner buying the other . Take professional advise on both entity structures and rules of any partnership. Good Luck.

[Steve Netwriter]

If I were you I would sell.

Your risks are:
1. Continuing falling prices for a number of years, with a rental income resulting in a continual loss. Why would you chose that option ?
2. That one or both of you lose your job and can't pay the mortgage.
3. Worst case that prices fall enough to put you into negative equity, resulting in a forced sale at potentially the rock bottom of the market.


In investing many people make the mistake of holding onto to losing investments in the hope they will bounce back. It's often better to cut your losses, and put the money to work in better things.

Steve

[SuperDad]

Welcome to PT whattodo.

It's a shame that your first post is on such a topic.

At the moment you claim that the split will be amicable, which I'm sure it will be. However, how will things change when you have new partners, and one of the new couples wants the money out to buy a house but the other doesn't want to sell, on the grounds that the agreement was to keep the property until the market rises? That will likely put a good deal of strain on your new relationship. Something to think about.

Steve Netwriter makes good points to consider also.

I would say sell. Make a clean break.

Of course a much cheaper alternative would be years of relationship counselling.

Paul.

[drelly]

What ever you do... don't stay in "business" with your ex.

[roseneath_rat]

WTT- Have you considered "buying out" your ex's half of the property?

Maybe get some flatmates in to help pay the mortgage).

That way you avoid crystallising the loss on the property, and get the other half ownership at a discounted price.

The purchase price you can negotiate with your partner as to what sounds fair. In this market you may wait 4 months to get what the property is worth... or discount for a prompt sale. Obviously in your interests to buy at the discounted price.

[cube]

No experience in this area, but I would have thought that taking the loss now and allowing each to have a clean break would be far easier in the long run than trying to wait out the storm.

For one partner, staying in the marital home may hold too many memories, and for the other they may be continually reminded how they 'lost' their home.

Having any sort of business relationship is fraught with difficulties - especially if one or other gets a new life partner, decides to move overseas, get bad advice from a 'friend' about how to get "what's owed to them".

Take the loss, make a clean start, would be my advice - but it is similar to taking child rearing advice from a bachelor!

cube

[CJ]

My advice, either one of you or both of you should sell. If you don't, eventually one of you will want/need to sell and that will change the whole dynamic from what it is now.

Make it clean now and selvage the friendship, as keeping it may jeopardize it later on.

[Perry]

A Question (3 into 1)

You are posing the issue for comment.
Are you and your soon-to-be-ex both
behind the question? Just you? What
does the other half think about this?

[Kay]

Current valuation

The first step would be to get a current valuation so you have a basis for discussion.
The cheapest option is an e-valuation from QV, although they are sometimes not very accurate.
If you can afford it, your best option would be to buy your partner out. However, this could lead to ill feelings in the future, as mentioned above.
Good luck,
Kay

[MikeO]

Agree with several other posters recommending you get this sorted sooner rather than later (probably by either selling or one buying the other out). Even if you end up worse off financially than if you kept joint ownership (debatable) at least you can both move on.

[MikeO]

I bought out my ex and rented the place out by the way. I'd originally offered for her to buy me out on the same terms but she decided she didn't want to keep living there.
Things were pretty amicable between us at the time but they can get ugly and are probably more likely to if there is money involved (hence look for a mutually agreed solution sooner rather than later if possible)

[Dunning]

It all depends on how amicable the breakup is.

Personally I would look at either one of you purchasing from the other at a current valuation or selling the house. This way you are not tied to them (and them to you) for the next 20 years.

If you do decide to rent it out together I recommend that you set up a LAQC and place the house in that and have 2 mortgages on the property set up in the LAQC's name. This way you can have ownership of one and your partner can have ownership of the other. All expenses are halved and you can make extra payments/change repayment terms with the least amount of fuss. Please note that each of you will still be responsible for both mortgages.

[Johndoe]

Naaa… the cheapest and the best option is to go see a councillor and get it sorted….nothing is impossible

[ChrisDes]

Hi all, wonder if anyone would mind giving me some sage advice..

Partner and I are considering an amicable end to our relationship. We have no kids and both have steady jobs with roughly the same income.

We own a house together which we purchased last year for about 500k and have about 200k equity in (again, we put in about 50/50). We purchased at the peak, and I get the 'impression' that if we sold it now we'd probably have to take about a 60-80k loss (ie, market it for 420-440), to achieve a relatively painfree sale.

Would you accept the loss (so, 30-40k each) and move on, or change the mortgage to interest-only and rent it out (perhaps having to top up) until the market improves?

Obviously noone has a crystal ball, but what would you do if you were in my situation?


Thanks for any and all opinions!

Hi there!

Sorry to hear about the end of your relationship - it must be a very upsetting and tough time in your life.

I am currently at Law School in Christchurch (3rd year out of a 5 year double degree) and have just done a section on relationship property.

I will give you a broad overview of what your options are under the PRA Property (Relationships) Act 1976.

With all due respect I don't really really see many relationships ending "amicably" - especially when it comes to the division of assets.

Your spouse will get his / her valuation done of your home that will come to $500k and your's will come in at $420k - the problem is agreeing on a price to buy each other out. Somewhere in the middle of the two valuations is generally the accepted practice.

First off some background on the PRA:

-The Act applies to “relationship property,” as defined in s 8 of the Act.
-There is a strong presumption of 50% sharing of ‘relationship property, unless there are extraordinary circumstances that render equal sharing repugnant to justice.

Relationship Property: Property used or created during the relationship, even if it is the name of only one of the partners, some things are specifically defined as this: one of them and biggest item: family home in which the relationship carried on. Family Chattels, jointly owned property is also under this guise, property owned by the partners as tenants in common.

Separate Property: Section 9: all property that is not relationship property is separate property.


-The property regime applies to married couples, civil union and de facto (including same sex) partners alike;

When people in relationship separate, disputes often arise as to what property belongs to each partner, basically the PRA states that relationship property, belongs to two partners in relationship equally – share this ½ and 1/2.


So really it depends what sort of relationship are you in? (I know this is a personal question!!)

I am assuming you are in a defacto relationship of more then 3 years which means it falls under the PRA.

If you have been with your partner less then 3 years it will not fall under the PRA and the entitlement of 50 / 50 does not apply.

Therefore your partner is entitled to 50 / 50 on all of your relationship property - as mentioned above.

So not only will your partner be entitled to 50% of the family home but also 50% of your family chattels - meaning any items that you jointly purchased together whilst in the relationship.

Any investment properties you own jointly - say in a LAQC will also fall under the guise of relationship property so your partner is also entitled to 50 %.

However an investment you purchased before your relationship started is separate property and does not fall under the PRA. As long as you can prove that you did not put any relationship funds into the asset.

A good tip is anything that remains in your own name - which relationship property has not funded and has not been put through the relationship bank accounts remains your own separate property.

Any inheritance received from a relative that has passed away will count as relationship property, unless it has been posted to your own personal account - do not put inherited money or assets through a relationship bank account as this automatically makes it relationship property.

My advice would be to consult a lawyer on these matters and start the ball rolling on drawing up an agreement on who gets what.

My own advice:

In terms of the family home - why not buy your partner out? He / she is entitled to 50 % of the total value.

If you agree on a valuation of say: $450 000

Your partners share is worth $225 000

But remember there is a mortgage on the property of around $300 000 - so your partner is also entitled to $150 000 of the relationship debts.

So why don't you agree to take on his / her $150 000 worth of the mortgage - and then pay out $75 000 cash - being your partners 50% share of the equity in the property.

You may be able to raise the $75 000 on the house by increasing the mortgage. In this way you retain ownership of your own home - to rent it out if you no longer can face living there and your partner is fully paid out of your family home.

This scenario would leave you with a property worth $450 000 , with a mortgage of $375 000 so net equity is your share of $75 000.

It would seem silly to sell the property now at a loss - if you can arrange suitable finance I would buy your partner out of the home and sit tight - the market will come right eventually.

If you cannot afford to buy out your partner then selling is really your only option. The sooner you can sort it all out and settle - the better it really is for all involved to move on with there lives.

I hope this helps!! Obviously I am only a law student - so this is not bona fide advice like you would receive from an experienced lawyer but it is on the right track anyway!

Regards and good luck!

Chris