Tenants In Common - How This Can Affect Your Divorce Settlement
When a property is purchased by more than one party, there are two main types of property ownership in Australia: joint tenancy and tenants in common. Tenants in common means that two or more individual parties own separate property shares.
While joint tenants own an undivided and equal share of the property, tenants in common can own varying proportions, for example, 35:35:30, 40:60 or even 2:98 if that is what the parties decide.
How are property settlements affected for tenants in common?
When a married couple or a de facto couple formally separates, their property should be divided in a way which is just and equitable for both parties depending on the contributions and future needs of the parties.
Where property owned as tenants in common is concerned, the first thing that will be considered is each party’s share in the property. This may not be the only determining factor, though. For example, if a couple bought a property in a 20:80 split early on in their relationship but the party who owned 20% became the stay-at-home parent as the relationship progressed and children were introduced, that party may not necessarily walk away with just a 20% share of the property. A court will factor in each party’s earning capacity, lost opportunities for career progression and their contribution to running the household, for example.
Is it possible to buy an ex-spouse’s share of the property if we are tenants in common?
Yes. If both parties agree, then it is possible for one party to purchase the other party’s share in the property. Typically, a valuation would be undertaken of the property as a whole, so that the value of the shares can be ascertained. The buying party will then pay the selling party for their portion.
What can I do if my ex-spouse refuses to sell our property when we are tenants in common?
When one owner wants to sell but their co-owner does not (and the co-owner does not want to buy the other owner’s share) an Initiating Application can filed in the Federal Circuit and Family Court of Australia seeking orders for the title to be transferred to one owner or for the property to be sold.
How does a Binding Financial Agreement affect the division of assets where the owners are tenants in common?
If a Binding Financial Agreement (BFA) is in place and it was prepared after the property in question was purchased, it will typically include a clause that outlines that the share each party held in the property is intended to inform the division of the asset upon separation.
While BFA’s are binding and can be helpful in establishing the intentions of the parties before they seek a divorce, if the couple’s circumstances change then the BFA may no longer be suitable. For example, if the couple now has children, if the financial situation of one of the parties has changed and the circumstances surrounding the divorce or separation.
A BFA will also only be valid if both parties sought independent legal advice prior to signing, neither party was forced to prepare and/or sign the document and both parties were truthful about their financial situation.
How can a will or estate plan affect the division of assets where owners are tenants in common and are seeking a divorce?
If a divorce has not yet been finalised at the time a party dies, their most current will dictates how their share of the property is distributed. So, if a couple is separated but has not yet legally divorced and their will directs their share of the property to go to their spouse, they should seek to amend their will as soon as possible.
Couples who are separating or divorcing and who own property as tenants in common should seek the advice of a family lawyer in Cairns as soon as possible to help them secure their fair share of their assets.