SINGAPORE – A couple divorced over a decade ago, but they ended up in court again after facing financial problems in paying over $12,000 in monthly mortgage for their matrimonial home.
Instead of having a clean break and selling their home, they agreed to keep the property until the youngest of their three children turns 21 in 2031.
But what they did not expect was the man feeling the strain of shouldering the high monthly mortgage by himself, especially when he had remarried and needed to support his new family.
The former wife used to foot half of the mortgage payment of $6,000, but this stopped some years ago after her CPF Ordinary Account (OA) ran dry.
When the man could no longer continue the mortgage payments alone, he applied to the court to change the terms of the settlement deal by allowing them to sell the house or making his former wife pay half of the mortgage.
The case highlights a very important financial gap that many people tend to overlook, which is to plan for substantial and compulsory expenses that will continue to deplete their savings in the future.
The failure to set aside funds for such recurring expenses will become a major problem because all debts must eventually be paid.
In this case, the couple parted amicably by agreeing to a “consent order” that mandated the husband to pay $2 million as maintenance to his former wife and children.
Doing so meant the man was spared from disclosing his other assets, which included an apartment, and putting them into a matrimonial pool to share with his former wife.
In addition to the payment, the couple also agreed to sell their existing home only in 2031 so the woman and their children could continue to live there.
The couple had neglected to consider who should continue to pay the monthly mortgage because both were using their CPF funds to pay. But the situation changed when the woman had insufficient funds in her OA.
The couple clashed three times over this issue, all the way to the Appellate Division of the High Court.
Appeals Judge Debbie Ong found the couple had not paid attention to the significance of servicing the mortgage for 18 years when they postponed its sale during their divorce in 2013 until 2031 when their youngest child would reach 21.
As a result, they did not share any common understanding or reach any agreement on the mortgage issue.
The judge noted the couple’s consent order did not cover the mortgage payment and rejected the former wife’s argument that the man alone would pay for the home loan.
As the evidence showed they were making equal contributions from their CPF accounts prior to the divorce, the court ruled that it would be “just and equitable” for the former wife to bear half the mortgage repayments from July 2023 when the case was first heard at the Family Justice Court, as she would receive half the sales proceeds when the property is eventually sold.
But she did not need to pay the mortgage immediately because she could reimburse the former husband for her portion of the mortgage repayments from her share of the sale proceeds.
Here are three financial lessons from the case that everyone should know.
If you are making a huge financial commitment, such as buying an expensive property, it is vital to ensure you have the means to keep up with the mortgage payments in the long term.
In this case, the couple agreed not to sell their home for almost two decades so their children can live there.
However, they forgot to consider who should be responsible for paying the monthly mortgage of $12,000.
The court ruled that both parties should pay this equally but that the former wife would need to reimburse her share only when the home is eventually sold.
But in making the ruling, Justice Ong urged the woman to consider that if the man were unable to meet the monthly mortgage instalments on his own, the bank may foreclose the property. If this happens, it could be sold at an auction for a lower price than they would have obtained if they were to sell it on their own.
This was the reason why the former husband went to court to seek its consent for his former wife to share the mortgage payments. As the wife would be entitled to half of the net sale proceeds, the judge noted that it would also be in her interest to prevent a forced sale from occurring.
You should always think twice before you give out a loan because it is all too easy for the borrower to just deny it, especially when the arrangement is not put in writing.
In this case, the former wife had already received her $1 million lump sum maintenance from the man but she later transferred a similar amount back to him, presumably because he had cash flow problems.
She later claimed this was a loan and she wanted the court to order the former husband to return the maintenance sum to her.
But the court found no basis to make such an order because the former husband had long paid the $2 million maintenance for her and their children. So the woman cannot ask the court to make him pay a further $1 million in maintenance.
If she had given the sum to the former husband as a loan, which was not paid, she would need to file a separate lawsuit to reclaim the debt.
What this means is that couples cannot view their divorce proceedings as a one-stop forum that will resolve all personal disputes that are unrelated to their marriage.
The question of who should pay the mortgage instalments is usually not an issue in the majority of cases because most divorcing couples would either sell their properties, or have one party to buy over the homes.
Justice Ong noted that the difficulties and disputes in the present case largely arose from the exceptionally long period of time between the date of the order and the intended date of the sale of the matrimonial home.
As the parties had to hold the property for 18 years, the mortgage repayments could total up to very significant amounts and such financial matters should have been considered earlier when they were working out their settlement.
So for future cases, Justice Ong advised all parties and their lawyers who are working on similar longer-term arrangements to “apply their minds” to financial expenses that can affect the parties’ ability to pay.
“It is important that the parties think through with care all the key matters and the workability of their agreements addressing their financial matters after divorce,” she added.
So the lesson here is simply this – if you want to plan for financial freedom, you must first work out a feasible plan that will enable you to pay for all debts and expenses for the long term.
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