Deal­ing with your bond

A joint bond can be a great tool to help split the costs and en­sure that both part­ners in a mar­riage have equal own­er­ship rights over a prop­erty. How­ever, un­wind­ing a joint bond if you get di­vorced or one spouse dies is not al­ways straight­for­ward, writes

CityPress - - Business -

Be­cause the in­come of both peo­ple ap­ply­ing for a joint bond is taken into ac­count, you can qual­ify for a higher home loan than you would if you ap­plied to the bank on your own. How­ever, this also means that you are equally re­spon­si­ble for the debt le­gally, re­gard­less of how you may choose to split your fi­nan­cial re­spon­si­bil­i­ties as a cou­ple.

You should also be aware of the le­gal im­pli­ca­tions of split­ting a joint bond if you get di­vorced or if your spouse dies. Note that in the sce­nar­ios below, we have as­sumed that the bond has not been paid off.

DI­VORCE

If you get di­vorced and one party wants to re­tain pos­ses­sion of the prop­erty, you can ap­ply to the bank for a “sub­sti­tu­tion of debtor”. The way that this is han­dled will dif­fer, de­pend­ing on your mar­riage con­tract – whether you are mar­ried in com­mu­nity of prop­erty (COP) or if you have an an­tenup­tial con­tract (ANC).

If you were mar­ried COP, then there is no can­cel­la­tion of the bond, but the spouse who wants to re­tain the prop­erty has to ap­ply to the bank for an en­dorse­ment and must fi­nan­cially qual­ify to take over the loan.

If you were mar­ried ANC, then the bond has to be can­celled and a new bond must be reg­is­tered in the name of the spouse who wants to take over the loan. They will also have to pass a credit as­sess­ment to de­ter­mine whether or not they can af­ford the loan. Note that the spouse who is tak­ing over the loan in this case will be li­able for bond regis­tra­tion costs and trans­fer costs payable to the con­veyanc­ing at­tor­neys.

Ti­mothy Akin­nusi, head of sales and client value man­age­ment for home loans at Ned­bank, says: “In the case of a di­vorce, the cou­ple also has the op­tion to sell the prop­erty and split the pro­ceeds af­ter the bond has been set­tled. How­ever, un­til the bond is set­tled or rereg­is­tered in the name of one part­ner, both spouses re­main le­gally re­spon­si­ble for the debt.”

Monde Motha, chan­nel man­ager at First Na­tional Bank home loans divi­sion, says there are other op­tions.

“Some cou­ples look at how much money has been paid into the home loan to date and one part­ner sim­ply pays the other out.

“For ex­am­ple, if R400 000 has been paid into the home loan, then the spouse who does not want the prop­erty any longer pays the re­main­ing spouse R200 000. The re­main­ing spouse will still have to qual­ify for the bal­ance of the home loan and can use the R200 000 to re­duce the out­stand­ing loan amount.”

How­ever, Motha says that a num­ber of di­vorced cou­ples opt to look at the ac­tual prop­erty value at the time of di­vorce (which is usu­ally a higher fig­ure than the amount re­paid into the home loan) and then one spouse has to pay the other 50% of the prop­erty value.

DEATH

As with di­vorce, the way that a joint bond is dealt with when you or your spouse dies will de­pend on your mar­i­tal con­tract. If you are mar­ried COP, the prop­erty will fall un­der the de­ceased es­tate. This is also the case if you are mar­ried ANC with ac­crual. How­ever, this does not mean that the sur­viv­ing spouse is ab­solved of le­gal re­spon­si­bil­ity. He or she must still meet the full monthly bond re­pay­ments.

If your spouse died with an in­sol­vent es­tate, that is, he or she had more li­a­bil­i­ties than as­sets, then you can ap­proach the trus­tee of the in­sol­vent es­tate to have your 50% share in the prop­erty trans­ferred out of the de­ceased es­tate to your name.

How­ever, Peter Swartz, head of busi­ness devel­op­ment at Absa home loans divi­sion, says this will only be pos­si­ble where there are other as­sets avail­able in the in­sol­vent es­tate to set­tle the de­ceased’s debts. The re­main­ing debt on the home loan would then be­come the re­spon­si­bil­ity of the sur­viv­ing spouse.

Akin­nusi says the sur­viv­ing spouse should con­tact the bank im­me­di­ately to no­tify it that one of the joint bond­hold­ers has died.

“If there is life cover avail­able to set­tle the bond, the bank should be no­ti­fied of this pend­ing set­tle­ment.

“You can also make pay­ment ar­range­ments with the bank so that the bond does not go into ar­rears while you are sort­ing out your fi­nances,” he says.

MAR­I­TAL CON­TRACTS

There are three ba­sic types of mar­i­tal con­tracts you can en­ter into. Each con­tract has dif­fer­ent le­gal im­pli­ca­tions.

IN COM­MU­NITY OF PROP­ERTY

Own­er­ship of all as­sets is split 50-50. If one of you dies, then both your as­sets, for ex­am­ple, your bank ac­counts, will be frozen, even if you had sep­a­rate bank ac­counts.

If your spouse be­comes bank­rupt or racks up huge debts, your spouse’s cred­i­tors can le­gally at­tach your as­sets to re­cover the money owed to them.

On en­ter­ing any le­gal con­tracts, you will re­quire the sig­na­ture of both spouses. For ex­am­ple, you can­not nom­i­nate your child as a ben­e­fi­ciary on a life in­sur­ance pol­icy with­out the writ­ten con­sent of both spouses.

AN­TENUP­TIAL CON­TRACT

Each person’s as­sets be­long to them alone. Your as­sets are pro­tected in the event of your spouse be­com­ing bank­rupt or ac­cru­ing high debt, where cred­i­tors want to at­tach as­sets to re­cover the money they are owed.

Any be­quests or in­her­i­tances are au­to­mat­i­cally ex­cluded.

AN­TENUP­TIAL CON­TRACT WITH AC­CRUAL

All as­sets you owned be­fore you got mar­ried re­main your sole prop­erty. How­ever, any as­set you pur­chase af­ter the mar­riage is owned 50-50 by both spouses.

If one of you dies, you must un­der­stand who has the ac­crual claim and the ex­tent of the claim. The spouse with the greater ac­crual and the one who owns more as­sets will have to take the ac­crual claim into ac­count be­fore you can de­ter­mine what can be left to other ben­e­fi­cia­ries, such as chil­dren.

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