Transferring a relationship asset to your former partner – is there stamp duty to be paid?
Demi Baldwin and her former partner Paul Markle commenced their de-facto relationship 5 years ago. At the time, Demi asked her parents to assist with the purchase of a property as they had just received an inheritance. Demi’s parents, Clare and David agreed and gifted $250K to Demi to assist with the deposit on the new property. Due to the bank requirements, Paul and Demi purchased the property as joint tenants.
After the property was purchased, Paul started a successful accounting practice and made a majority of the mortgage repayments. On the other hand, Demi had to change careers due to changes in her industry, resulting in a significant salary decrease and inability to contribute significantly to the mortgage.
Demi comes to see you out of concern and tells you that Paul has decided to leave her but has said to her that he is happy to transfer his 50% interest in the property below market value, considering the monies gifted by Demi’s parents. Demi’s parents are concerned as they did not think of loaning the money to Demi or placing a registered mortgage or caveat over the property at the time. Demi’s parents have told Demi that they will assist her with purchasing Paul’s 50% share. Demi is concerned as she only has $20K in savings and has a credit card debt, which has made it difficult to seek a refinance of her 50% interest.
What are the factors that Demi needs to consider?
When transferring property, even within the family in exchange for little or no money, stamp duty on the current market value generally becomes payable.
For those like Demi, the payment of stamp duty can be a difficult additional payment requirement. For example, the transfer of a property valued at $1 million would leave the purchaser or transferee liable to pay $40,490.00 in stamp duty.
The Benefits of Financial Agreement and Family Court Orders?
If parties are separating, an exemption from stamp duty may apply when transferring residential land between a married couple or de facto partners if they enter into a Financial Agreement or Consent Orders pursuant to the Family Law Act 1975 (Cth). By entering into a Financial Agreement or Consent Orders, Paul and Demi may apply for a stamp duty exemption on the transfer of Paul’s interest in the main residence to Demi. They will also be able to formally finalise all their respective financial interests, including Paul’s business interest and their respective assets, superannuation balances and outstanding debts and liabilities.
To seek the stamp duty exemption, it is a requirement that the only parties on the title of the property are either the married couple or de facto partners, and no other third party. If the property is transferred in portions, for example to someone’s partner and brother, the exemption will not apply. De facto partners must also be prepared to prove that they have lived together as a couple in the relationship for at least two years before the date of transfer.
The property being transferred must either be the ‘family home’, being the principal place of residence, or vacant land which is intended to be used as the site of the family home.
It is important to make the distinction especially when married or de facto couples try to transfer investment properties, holiday homes or homes that are also used for non-residential purposes such as conducting business during property settlements without considering the stamp duty or tax implications.
If there remains a mortgage over the property at the time of transfer, the transfer will need to be discussed with the bank to find out whether they will allow for the partner’s name to go on the title for the property.
Stamp duty exemptions will only apply if the property is to be transferred to the parties of a marriage or de facto relationship that is dissolved or annulled, or in the opinion of the Chief Commissioner of State Revenue has broken down irretrievably. For example, if the property is transferred to the partner and their sibling, the exemption will not apply, as the sibling was not a party to the marriage. Similarly, the exemption will similarly not apply for individuals wanting to transfer the property to a company or entity. There is a further requirement that the transfer or agreement must be accompanied by either a Financial Agreement or Court Order made under the Family Law Act 1975 (Cth).
Separation and divorce are times of enormous stress for most people and it is difficult for those involved to have the right frame of mind to deal with practicalities such as property and stamp duty.
At MistryFallahi Lawyers, our family lawyers can assist with any questions in terms of whether stamp duty exemptions are applicable and ensure that the proper documentation is prepared to allow for a smooth transfer of the property interests.
Bhavesh Mistry is a principal with expertise in the areas of asset protection, estate planning, litigation and commercial law. He also has experience in family law matters that involve complex financial issues, including property settlements.