Property division in divorce

Who gets the holiday home?

Stories about celebrity couples going through divorce always make the news. Most of us have little sympathy with squabbles over multiple properties and outrageous claims for maintenance. It’s hard to feel compassion for the trials and tribulations of the wealthy when so many South Africans are struggling to make ends meet. But ownership of multiple properties is not that unusual anymore. An older couple, where both spouses have had successful careers, may own a holiday home in addition to the matrimonial home. And as couples marry later, after establishing homes of their own, they may retain one property to generate an income while they move into the other. If the marriage ends, property division in divorce may involve multiple immoveable assets. How are these dealt with in divorce proceedings?

Matrimonial property regime

The first consideration in every divorce case is the matrimonial property regime in place. If the couple were married in community of property, all assets, including both homes, are jointly owned and must be split equally, regardless of who paid for them or whose name they are in. If the couple’s marriage is out of community of property without accrual, each spouse retains ownership of the properties registered in their name. However, they may have purchased and registered the property together, in which case it is jointly owned. If the marriage is out of community of property with accrual, any property acquired during the marriage will be subject to division. If one spouse’s estate grew significantly more than the other’s, the difference – the accrual – will be calculated and shared.

Regardless of the matrimonial regime, all properties will need to be professionally valued to establish fair market value. If one property is worth more than the other, and the couple wants to retain both properties, e.g., as separate homes for each, then adjustments may be needed to arrive at a fair distribution of assets.

Options for property division in divorce

The simplest mathematical solution is to sell both properties (or all, if more than two) and split the proceeds according to the divorce settlement. Cash is easy to divide. However, in our experience this is rarely the preferred option. Usually one party wishes to remain in the matrimonial home, particularly if there are children and it is the family home.

In many cases, one property will be retained while the other is sold. If the holiday home is far from the couple’s main residence, the spouse who does not remain in the family home may rely on the proceeds of the sale of the second home to buy a property near their work and children. The holiday home at the coast may become an unaffordable luxury.

If the couple decides to keep both properties, and they are of unequal values (which is highly likely: a holiday home may be much smaller; alternatively it could be a more generous property while the urban residence is a small flat in a complex), then an equalising payment will be required. This is called asset offsetting. This will depend on the divorce agreement. One spouse may opt for the lower-value property without asset offsetting in exchange for more generous maintenance payments or other assets. In a high-net-worth divorce, negotiations can be complex.

The final option involves one spouse buying the other out. This is only likely to happen if that party wants to keep both properties. If each spouse keeps one residence, then asset offsetting is more likely. However, If the properties are valuable but neither spouse has the funds to buy the other out, in other words if they are asset rich but cash poor, they may be forced to sell one or both properties.

Financial considerations

Capital Gains Tax (CGT) may apply, depending on the option chosen. There is an exemption for one’s primary residence. If a primary residence is sold, the first R2 million of capital gains is exempt from CGT. Holiday homes and investment properties are fully subject to CGT, calculated at a maximum effective rate of 18% for individuals.

Transfer duties are not payable when a property is transferred between spouses as part of a divorce settlement. If there is an outstanding bond, responsibility for repayment must be negotiated and this will become part of the divorce agreement.

If a property was previously jointly owned and one spouse takes ownership in the divorce agreement – and the property is still subject to a bond – they may need to apply for a new home loan in their own name. In this case, the bank will reassess affordability, which could impact approval. If the spouse wishing to take ownership does not qualify for a new bond, the property may need to be sold.

If the property remains co-owned post-divorce, a co-ownership agreement should be drawn up to define each party’s responsibilities and prevent disputes. This might occur if the couple wishes to retain a holiday home for holidays with the children, albeit at separate times.

The value of a property may increase or decrease over time, so divorcing couples need to think about their long-term plans and ambitions when considering the division of immoveable properties Property prices in different parts of the country vary wildly and market trends differ. It may or may not be wise to hang onto a property as an investment for the future.

Consult with a family attorney

This article provides an overview of property division in divorce but does not constitute legal advice. Each situation is unique and requires careful financial and legal planning. Consulting with a family lawyer such as SD Law and a tax adviser can help ensure a fair and tax-efficient outcome.

SD Law is a firm of attorneys based in Cape Town, with offices in Johannesburg and Durban, who are experienced in high-net-worth divorce and property division in divorce. If you are considering divorce and want to discuss your options, call family lawyer Simon Dippenaar on 086 099 5146 or email sdippenaar@sdlaw.co.za for a confidential discussion.

Further reading:

• Protecting high-value assets during divorce
• Dealing with hidden assets in divorce
• Two-Pot doesn’t mean you can hide money during a divorce
• Protecting business interests during divorce

Divorce Attorney Cape Town

http://divorceattorneycapetown.co.za/

View more posts from this author