Marriage and homeownership are two significant life milestones, and they’re often closely linked. But as relationships evolve, circumstances can change and when two people who co-own a property decide to go their separate ways, it raises various financial and legal considerations.
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“It’s not something most people consider when they first take out a home loan, but with the average loan term spanning 20-years, jointly owned property often becomes a major factor when dividing assets and ensuring that ongoing financial responsibilities are handled fairly,” says Gavin Lomberg, CEO of ooba Home Loans.
Lomberg clarifies that while this scenario is commonly associated with separation and divorce, it may also be applicable to business partners, friends or even amicable partners who simply want to clarify their individual responsibilities.
Every Co-Ownership Agreement Needs a Formal Contract
“While asset division is usually addressed in a marriage contract, individuals entering into joint ownership agreements (outside of marriage) should also seek legal advice and have a formal contract in place to safeguard their interests,” advises Lomberg.
He recommends that the agreement include the following key elements:
- The shared objective behind purchasing the property.
- Provisions for what happens if one co-owner wishes to sell their share.
- How decisions related to the property’s management will be made.
- Designation of responsibility for day-to-day property management.
- Each party’s financial contribution.
- Terms regarding the home loan, including access to the bond.
- A well-defined exit strategy.
When it comes to a contractual agreement between a legally married couple, the type of marriage contract plays a key role in determining how property is dealt with and who remains responsible for the home loan on the property. Lomberg unpacks the three types of marriage contracts – and their impact on property ownership – as follows:
- In Community of Property
This is the default marital setting in South Africa when no antenuptial contract is signed. All assets and debts acquired before and during the marriage are shared equally. Under this contract, both partners remain equally liable for the repayment of any outstanding home loan/s after divorce, regardless of who stays in the property.
- Out of Community of Property (Without Accrual)
Each spouse retains ownership of the assets and liabilities they bring into – or accumulate – over the course of the marriage. If only one spouse is named as the legal owner of the property, they bear sole responsibility for the home loan after divorce. However, if both are listed as co-owners, they’re jointly liable, even after the relationship ends.
- Out of Community of Property (With Accrual)
This hybrid system protects assets acquired before the marriage but shares those gained during the marriage equally. If a home was purchased jointly after marriage, it’s considered part of the shared estate, and both parties are responsible for the home loan.
“Depending on your marriage contract and the agreement that you have in place, you may choose to sell the property and split the profits accordingly, or alternatively, one co-owner may choose to buy the other co-owner out and have property solely transferred into their name,” says Lomberg.
“Important to note is that in the case of Out of Community of Property (With Accrual) contracts, in a case of death or divorce, the spouse who has accrued less net worth in assets during the course of the marriage can claim against the spouse who has accrued the greater amount, for 50% of the difference.”
In rarer cases, one of the parties may in fact be entitled to the property (as per a contractual agreement or court order) and the property will need to be transferred into their name.
What happens if you choose not to sell
Gavin Lomberg, ooba Home Loans CEO
If one of the parties chooses not to sell but rather to retain the bonded property in their name, then the now solo applicant will need to apply for a ‘Substitution of Debtor’. “When reapplying, the bank that holds the home loan will need to reassess the applicant by re-examining their affordability and checking their credit score prior to re-approving the home loan,” explains Lomberg.
“If the bank is not confident that the applicant can manage the home loan independently, the request may be declined. Therefore, prior to applying, it’s strongly advised that one makes use of a free online tool like the ooba Bond Indicator to gain a clearer picture into their affordability.”
If the home loan takeover is approved, the property must be legally transferred into the sole applicant’s name. “This requires the assistance of a conveyancing attorney to cancel the existing title deed, register a new one and update the records at the Deeds Office,” explains Lomberg. “It’s also worth noting that while transfer duties may be waived if the transfer forms part of a divorce order, the applicant will still be responsible for legal fees and bond registration costs.”
In amicable separations, Lomberg adds that some couples may want to continue co-owning the property if the market conditions aren’t favourable or if neither party is in a position to enter into a buy-out.
What happens if you choose to sell
If the decision is made to sell the property, both parties remain jointly liable for the home loan until it is fully settled. “The proceeds from the sale will first be used to settle the outstanding home loan, followed by costs such as the estate agent’s commission, compliance certificates, legal fees and, in some cases, capital gains tax,” explains Lomberg.
“After all the costs and debts are paid, the net proceeds are then divided according to the settlement agreement or court order.”
Regardless of the final decision, understanding how different marriage contracts and agreements affect homeownership will help navigate this process with more clarity and less conflict. “Whether you’re entering into a marriage, co-owning a home with someone or facing a separation, expert advice is key to protecting your future,” concludes Lomberg.
