When you separate from your partner or get a divorce, the emotional turmoil is not the only one you have to go through. There will be a great deal of family, finance and asset-related issues that will come up for discussion as you move forward. If you have a house together that you took out a mortgage for and are still in the process of clearing it, then you will have to divide the responsibilities for that between yourselves too.
Even though it can be quite a harrowing experience, it is important to get your finances straight so as not to run into problems later. There are many options available to deal with a mortgage after divorce in Australia. Which option you choose depends on the nature of your relationship with your ex after the split, the responsibilities and assets each of you are gaining, the needs of the dependents each of you support, future financial prospects, contributions made to the household and any other conditions that may, in any way, affect the mortgage.
The responsibility of paying the mortgage goes to whoever owns the house and took out the mortgage. If only one of you did it, then that person has to keep making the payments as usual. If both of your names are on the mortgage contract, then that means you co-own the house and are co-borrowers for it. Hence, you both have to keep making payments towards it as you were before your marriage or relationship broke down. Even if you have moved out and are no longer living in the house you bought together, the conditions won’t change when it comes to the mortgage payments.
There are of course several options that you can pursue after a divorce regarding your mortgage payment. The truth is, several factors come into play when a divorce is finalised. Assets and liabilities are divided according to the incomes, existing property and responsibilities of each partner. It is but natural that in most cases, some sort of adjustment needs to be made in the mortgage payments too. Given below are all the options that you can choose during the settlement process.
This is the ideal situation where both partners keep paying for the mortgage as they used to before. However, this is hardly ever the case due to two reasons. The first is that you can only come to such an arrangement if the split was an amicable one and both parties have carefully discussed their joint and individual finances in a logical manner without emotions coming in the way. This is not very common. The second is that one or both parties will no longer be staying in the home, which means they will have to bear the cost of financing their new residence as well as making the mortgage payments. Hence, in most cases, people go for one of the options explained below.
You have the option of buying the house and taking the entire share of the mortgage payments on yourself. This is possible only if your ex-spouse is ready to give up their share and if you have the financial capacity to shoulder the added expenses. The process will involve transferring the ownership to you and refinancing the loan. However, you must be able to qualify for the refinancing. The lender must be convinced that you would still be able to make the payments regularly without defaulting. You must carefully consider factors like your income, expenses and financial responsibilities before deciding to go for it.
This is the reverse of the above situation where your ex-partner buys you out instead. If you are willing to give up your ownership of the house and your ex-spouse qualifies for the refinanced loan with the ability to bear the increased monthly payments, then this can be a great way to rearrange your finances after a divorce. You will no longer have to provide your share of the mortgage payments or pay taxes for the property. Again, like before, this will only work if both you and your ex-partner are willing and your ex is financially capable enough for the extra expenses.
There is a middle ground among all these options too, where you make your decision based on certain factors and conditions of both your lives. Say, if you had children and one of you is getting greater custody of them or one of you has dependents living with you who are not in a condition to move, that person may decide to keep living in the house and making greater contributions towards the mortgage payments while the person no longer living there can make significantly lesser payments.
Perhaps the most common avenue chosen by most couples is to sell the co-owned house and divide the profits as part of the property settlement. In most cases, neither of the parties is capable of making sole payments on the mortgage and would not be willing to pay for a house they are not living in. Hence they decide to sell the house and, if the equity on the house is large enough, it could turn into significant liquid assets that can be split accordingly between the two and used towards the financial requirements of resettling after the divorce.
It is important to remember that in all cases where the mortgage payment is adjusted or modified in any way, your credit score will also be affected. Hence, if you are not fully confident about understanding the exact impact any of these will have on your financial records and credit score, it is best to get a financial advisor along with legal help for the divorce.
Yes, it is possible to transfer your share of the mortgage to your ex-partner. However, several factors have to be considered for this to work. First, your ex-partner has to be willing to take up the responsibility of maintaining the entire house as well as paying the entire mortgage amount by themselves. But that is not where it ends. Transferring the mortgage to your ex’s name means the loan must be refinanced and your ex has to be financially stable enough to make the required payments regularly according to the lender’s assessment. If either of these conditions is not met, you will not be able to choose this option.
On the contrary, if you want to retain ownership of the house you owned jointly, you could have it transferred to your name in the property title deed along with a refinancing of the mortgage to have the entirety of the payments made by you. In the same manner as above, your financial condition will be examined thoroughly by the lender before you are considered eligible for refinancing. However, even if you pass this step, you should make a thorough budget plan to ensure that you will not run short on essentials while making these payments.
The first step to remove your ex from the mortgage of the house is to get their consent for the process. Unless they are willing to give up their share of the house, you will not be able to move forward with the procedure. Once you have their willing agreement, you need to discuss the proposition with your lender. Your lender will then examine your financial statements to ensure that you would be able to make the regular payments for the mortgage by yourself and that there is little to no chance of defaulting.
When the loan is refinanced, the joint mortgage payment agreement will be removed from your credit score and the new, sole payment agreement would be added. You will also have to get the name of your ex-spouse removed from the property deed once everything has been settled. If you feel you need help, you should hire a Family lawyer and financial advisor to ensure that you are not making any mistakes that will cost you dearly later on.
In many cases, you may be the one moving out from the house you and your ex-partner co-owned and you want to be removed from the ownership and mortgage of the house. The process is similar in this case too. You will first have to talk to your ex and reach an agreement where they are willing to take upon themselves the entirety of the mortgage payment. Before the loan is refinanced, your ex will be assessed for his financial capacity to meet the payment requirements solely by themselves.
If they pass all the criteria of the lender, the refinancing process can be started. Your credit score will no longer reflect the mortgage and you will not have to make any further payments towards the mortgage. You will also not have to pay any taxes for the property anymore and your name will have to be removed from the property title deed.
Refinancing the mortgage on your house can have a few advantages to both the person taking on the extra payment and the one being exempted from it:
You may face certain issues and worries when refinancing your mortgage after divorce in Australia. The main things you have to look out for are:
A divorce is a stressful time in a person’s life. Often, the financial hurdles make it even more difficult because you need to stay calm and logical and not let your emotions, which are already running high, come in the way of your financial decisions. Dealing with an ongoing mortgage during a divorce might seem too much work, but it is extremely necessary to sort things out in time. If it feels too overwhelming or complicated to do by yourself, you will always be able to find a Maatouks lawyer by your side whenever you reach out to us.
All you need to do is get in touch with us and we will take care of everything. Call or message us now for any legal issues you need help with, including family law and divorce.