There is often a question between partnered couples – who should be on the title of any property purchase?
The key points to note when making these decisions are:
From a finance perspective, when incomes are similar between spouses, this makes little/no difference in borrowing capacities. It may have marginal impacts on borrowing power where there are different taxation rates applied to individuals.
They key advantage to purchasing in individual names while in a partnered relationship is:
One common way to set up purchases is:
Self employed scenario:
Self-employed workers have the ability to split their income between spouses more seamlessly than PAYG workers. Using this flexibility, they can maximise their borrowing power by having one borrower as the ‘family home’ purchaser and the other borrower as the ‘investor’ purchaser.
This works best where one borrower is earning far more than the other borrower.
Imagine one high income household earned $1,000,000 a year in total, split 80/20. Borrower A earned $800,000 from their business and the Borrower B $200,000 from their salary job. This type of income situation is most commonly a self-employed situation where you can control the distributions of income between spouses.
In this scenario, the $200,000 income earner (Borrower B) can purchase the family home in their own name and as a single borrower. They may not have enough borrowing capacity on one income alone to do so. Should they require more borrowing capacity, they can restructure the distributions of the self-employed profit made in prior years to increase the income of this borrower.
Borrower B is the ‘purchaser’ of the family home.
Borrower A, who earns $800,000 a year in business profits is now left to be the ‘investor’. The ‘investors’ lives in the Borrower B’s home rent free. This means that the investor no liability is listed against them for their family home. That is, the investor has no owner occupier mortgage.
This can greatly increase the overall borrowing capacity, and offers some protection to the family home which is owned solely by Borrower B (not self employed).