Dealing with your bond

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.

A joint bond when you live together unmarried

Joint bonds are popular, says Steven Barker, head of home loans at Standard Bank, accounting for at least 40% of total home loan applications.

“We find the majority of joint bond applications are by married couples, but there are also numerous applications that come through from unmarried couples,” he says.

In this scenario, you need to be fully aware of the risks of a joint bond.

“The main risk is that you are not responsible for only 50% of the debt.

You are jointly and severally responsible, which means that if anything goes wrong, you could be held wholly responsible for 100% of the debt,” Barker warns.

This would be the case if the other bond holder dies or absconds – leaving you holding the debt.

If you are going to enter into a joint bond agreement, you should have a legal document drawn up to protect yourself financially.

You should also take out life cover that will settle the bond if either bondholder dies.

“A joint bond may seem to be the answer for affordability issues, but many people fail to realise that unwinding a joint bond, for whatever reason, is never simple,” Barker says.

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