Wondering what happens to a mortgage after a divorce or separation?
With a third of first marriages in Australia failing, and 60 per cent of second marriages ending in divorce, it's a not uncommon scenario you could have to deal with. Read our Q&A article to understand everything you need to know, including your options moving forward and answers to common questions like:
The bottom line is that the home loan still needs to be repaid, no matter the current status of your relationship. If both parties are co-borrowers, with their names on the loan agreement, each has an obligation to meet the monthly loan repayments. Failure to keep up your repayments could harm your credit score, lead to a higher interest rate and could even end up with your property being sold by the lender.
In Australia there is no predetermined formula for allocating or dividing assets - such as property, after a divorce. Instead a range of factors are taken into account by the relevant court, with the aim of a ‘just and equitable’ outcome. These factors typically include:
There are a few options to consider when it comes to deciding what to do with your mortgage if you get divorced, based on your circumstances:
You can buy out your partner’s share of the mortgage, but you will need to qualify for the new loan yourself - and be able to afford this. Applying for a new mortgage in this way is effectively refinancing a home loan after divorce. Your lender will assess your borrowing capacity and ability to service the loan based on your income, outgoings, monthly living expenses and the value of your credit card limits and other loans you currently have (e.g. car loans, personal loans, HECS/HELP). Your partner will have to sign a transfer form confirming this.
You are also able to sell your share of the property to your ex-spouse, if they are able to cover the cost of regular mortgage repayments. As above, they will also be subject to an assessment of their credit-worthiness by the lender, and be able to qualify for a home loan. You will need to sign a transfer form confirming you agree to this.
Many people opt to sell a jointly owned property, sometimes because neither can afford to meet the repayments alone. On the plus side, if the property has been owned for many years, chances are there is considerable equity in it - and a sale could raise a sizeable sum. This can be divided between both spouses and used as a deposit on another property.
If your spouse refuses to sell the home you jointly own, they can be compelled to do this by the Family Court of Australia. A court order can be issued to enforce the sale of a house in a divorce.
If your spouse stops paying the mortgage there are a number of steps to take. The first is to notify your lender immediately, and they may be able to provide some form of relief while the divorce is being finalised. If your spouse can afford to make the repayments, and still refuses to do so, they can be made to via a court order.
Yes, refinancing during a divorce is possible, and is actually relatively common. This allows one spouse to buy the other out, provided they can afford to service the loan and buy the other person’s share out.
It is possible to remove your ex-spouse’s name from your home loan, but this is a technical process that generally requires the services of a lawyer or conveyancer. It also requires the permission of the lender, and you will have to refinance and fill out a transfer title form.
Both parties are obliged to disclose all of assets and liabilities, including a business loan secured on the family home. The primary concern with this scenario is that if the business gets into difficulties then it could have implications for your family home. The best thing to do is get a full picture of the health of the business, and its ability to service any business debts.
As we have discovered here, dealing with home loans and shared property, during or after a divorce, can be complex. The first thing to do is to notify your lender that you are getting divorced, so they are aware of your circumstances. The second thing to do is to get legal advice, either from a family lawyer or conveyancer.
Have more questions about mortgages and divorce? Get in touch and our team will answer all your questions at a time that suits you.