Going through a divorce?

Going through a divorce is a stressful and emotionally-charged life event for the whole family. Instead of battling through lengthy and expensive legal action, if you and your soon to be ex-spouse can agree on a settlement agreement, it will save you both time, money and a whole lot of heartache. It also allows each party to start the new phase of their lives sooner.

The divorce settlement agreement can be structured in one of these three ways:

But what happens to the home loan if the house is not paid off? This depends on whether you were married in community of property or out of community of property. In community of property is the most common marriage regime in South Africa and basically means that you both own all your assets equally. In divorce you are each entitled to 50% of your assets. Dealing with a home loan when you are married in community of property is generally simpler and less costly.

Out of community of property means that each spouse fully owns anything that is in their name. Getting a divorce when you are married out of community of property can be both simple and complex. If you own the family home and it is only in your name, then the home belongs to you. However, if you jointly own the home and still owe money on the home loan, it gets more complex and costly.

If you jointly entered into a home loan agreement

The divorce settlement agreement and subsequent divorce order does not impact your financial obligations to the financial institution. The bank is not a party to the agreement and both you and your spouse will stay jointly liable for the outstanding balance. In this case, either you or your spouse may consider buying out or selling your share of the home loan.

If you decide to go this route, and you are married out of community of property, you can apply for a a substitution of debtor (SOD). According to Section 57 of the Deeds Registries Act 47 of 1937, when an existing owner takes over the financial obligation of a mortgage bond from a co-owner, “… the registrar may … register the transfer and substitute the transferee for the transferor as debtor in respect of the bond”. Unfortunately the cost to register the transfer is high – for example, on a R1 million bond, the transfer fees are around R30,000.

If you are married in community of property, you don’t pay transfer fees. However, you will be required to pay a conveyancing fee of around R3,000 for a bond endorsement on the substitution of debtor. This is a cost-effective and straight-forward solution that is relatively easy to do.  

Divorce is never a nice experience and many couples don’t plan for this unfortunate ending when they fall in love and decide to tie the knot. If you aren’t married yet, it is always a good idea to speak to a professional about getting married in or out of community of property, taking your unique financial circumstances and assets into account. It could save you both a lot of money if your marriage does eventually take a turn for the worst.