Sorting out mortgages and loans when you are separating or getting divorced can be challenging. Dealing with your home and what happens to it can be emotionally difficult and you’ll have lenders and their requirements to deal with as well. It will be especially difficult if you and your ex-partner are not communicating.
Here’s what we suggest you do.
Step 1 – Agree on how to continue mortgage repayments for the time being
If you can, agree with your ex-partner what is going to happen with mortgages for the time being. Ideally you can reach an agreement on how repayments will continue to be made until a financial settlement is agreed.
Both you and your ex-partner should be aware that missed repayments could damage your credit ratings and make refinancing properties or getting new finance more difficult for both of you.
Step 2 – Decide what you’d like to happen with the property (or properties)
There are four main options for dealing with properties and mortgages:
- The property is sold, the mortgage is paid out and any remaining amount is split between you and your ex-partner as part of the financial settlement
- You buy your ex-partners interest in the property and refinance the property if required
- Your partner buys your interest in the property and refinances the property if required
- You agree to continue to own the property jointly for a period of time and then sell the property, pay out the mortgage and split the remaining amount
This is something you will probably need anyway as part of the negotiation for your property settlement and knowing what the property is with will help you think through your options.
Step 4 – Run the numbers
If your plan is to sell the property, pay our the mortgage and split the remaining amount you’ll be able to estimate the amount to be split and do some scenarios based on different settlement splits.
If your plan is to buy out your ex-partner you” have an estimate of what the property is worth, what the balance of the mortgage is and you’ll be able to do some scenarios on how much you’ll need to pay out your ex-partner and refinance the property. You’ll need to make sure you can afford the finance. You can use the Own My Own Home feature in the MoneyBrilliant app to help you with this or use one of the many home loan calculators available on the internet to help you. You’ll find some helpful calculators here. If the numbers suggest you cant afford this option it might be worth contacting a mortgage broker or your bank to discuss options or you might have to go back to step 2 and reassess. If you want to discuss your options with a mortgage broker we can help. More information is available here.
If your ex-partner plans to buy you out then you’ll be able to do some scenarios on what you are likely to receive.
Finally, if you plan to continue to jointly own the property after divorcing or separating you’ll need to agree on things like how mortgage payments will be made, how other expenses such as utilities, rates and insurance will be paid, who will have use of the property, how long this will last and what will happen when this ends. This can be complicated and should be discussed with your lawyer.
About MoneyBrilliant and how we can help
At MoneyBrilliant we believe that when people make better decisions about their money they live better lives. We can help you get your finances sorted, understand your spending, find banking products that will earn you more or cost you less, set savings goals, build a plan to own your home, track important insurance details, get your debt under control and build a retirement plan. MoneyBrilliant Plus customers can also join our money coaching programs. Whatever your starting point, we can help.
This summary has been prepared by MoneyBrilliant Pty Ltd (AFSL 492711, ACL 493068). The information in this summary is of a factual nature only. We are not suggesting or recommending that you take any particular course of action in relation to any financial product or service. It does not take into account your personal circumstances or objectives. If you need financial advice or taxation advice you should seek advice from a licensed financial adviser or tax agent. You may also be able to access additional information from the websites of the Australian Securities and Investment Commission (ASIC) and the relevant product providers.