Divorce in 2023 could be painful for homeowners. While falling markets make it easier for one or both partners to afford another home, rapid changes can make divorce settlements more fraught, say divorce lawyers and real estate agents.
Under the Property (Relationships) Act, homes and other property are divided between married couples, civil union partners and de facto couples when relationships end. The starting point is 50/50 to recognise the contributions of both parties. That can vary if there is economic disparity, and couples should always seek legal advice.
Determining the value of homes in a falling property market can be difficult. Barrister Jeremy Sutton says that when the property market is rising and mortgages easier to qualify for, there may be less pressure to settle. In a falling market, delays can lead to lower prices and it can also be a difficult process for one or both to qualify for finance.
“[When] the property market is cooling or gone down, as we saw in the second half of last year, it's much more intensive for divorce lawyers because the couple are wanting to sort things out quickly, mortgages are going up, the cost of living is going up,” says Sutton.
Start your property search
“[Where] one wants to get financed by the other it takes longer and there are more conditions on that.”
In recent months lawyers have seen more cases of family helping one party to keep the house in a split, he says. “In other words a loan from the parents to be able to keep the house.”
Family law specialist Kesia Denhardt, a partner at Stace Hammond, says economic booms and busts affecting the property market inevitably have an impact on separating couples because it affects each party's willingness and ability to consider the available options.
“Market changes have the power to delay or hasten settlement depending on whether it is burgeoning or withering,” she says. “That is because value is determined at the current time. In a seller's market, it is easy for couples to agree to sell as both reap the reward of peak prices. Plummeting house prices can pose significant difficulties.”
She adds: “A lack of certainty in the market means that whilst a separating couple may agree to sell their real estate property and share the sale proceeds, it may fetch far less than what they expect. [That] could impact on the couple's willingness or ability to fulfil other parts of their agreement. Or [the home] may not sell at all.” In the latter case it can mean back to the drawing board.
New Zealand house prices have tumbled 12% in the last 12 months. Photo / Fiona Goodall
“Where one party is buying out the other's share, a fast moving market, either up or down, can mean that it is necessary for many updated valuations to be obtained throughout the settlement process.”
She adds: “In an uncertain market, there could be considerable difference between a number of valuations which can lead to disagreements.”
Some couples will move faster when there are plummeting prices that are predicted to continue to do so, which can speed up the process, she says.
On the other hand, where one party remains in the house, as is often the case, that party may have an incentive to delay the resolution, says Denhardt.
“This can manifest itself by impacting negatively on negotiations,” she says. That could be in setting a realistic reserve for an auction, or agreeing on valuations.
“Where one party is resisting sale, purely on the basis of the uncertain/softening market, the other may seek an order for sale from the court.” The court would also consider undue pressure being put on one party."
Sometimes it’s not economically viable for a couple to sell and they wait for a more optimal market. One party may stay in the home with the children, or both parties bird-nest, where the children stay in the home and the parents take turns to live there.
Ray White Manukau co-owner Tom Rawson says a delay of one or two months in a falling market can mean "a big drop in property prices". Photo / Fiona Goodall
Or the couple may let the home to a third party, although with the climbing interest rates currently, this is less appealing, Denhardt says. They may agree in principle as to what is to occur such as a sale or buy-out, and build into the agreement the timing for the sale to be realised.
Divorcing couples can be a nightmare for real estate agents. When OneRoof contacted Ray White Manukau business owner Tom Rawson, he was busy replying to an email from a divorcing couple where one party was looking for six figures more for the property than it was probably worth in the current market. In another case he contacted one party after the other had signed a listing agreement just to find out that the partner living in the home knew nothing about the impending sale.
Selling a home after a split can be tricky for real estate agents and the longer it takes in a market like this the more problematic it can be, says Rawson. “Often it takes a little while before they appoint an agent and [we] can get access to the properties in a state that we can take people through. That could be one or two months and in a falling market a month can be a big drop in property prices.”
Settlement may then be three months out and be complicated by caveats and disputes before the parties know how much money they will get, says Rawson.
With a separating couple, it’s important for the agent to document everything in writing and where possible have both parties present for all meetings, he says. “That can be awkward when it is not an amicable split.”
