What to do with your mortgage when it doesn’t work out.

No one sets out on their relationship journey thinking they might one day get divorced, but its’s a scenario we are coming across more and more as clients approach us to refinance their loan in the case of a separation.

We’ve all heard the phrase; “money can’t buy happiness” and it certainly rings true when we point to examples of marriage breakdowns of some of the richest people in the world. 2019 saw the worlds largest divorce settlement to date, with Amazon founder Jeff Bezos paying out $38b in his settlement with ex-wife Mackenzie.

Closer to home, there are approximately 49,000 annual divorces, with The Australian Bureau of Statistics estimating that one in three marriages will end this way. So while it’s not something you can plan for, it certainly pays to understand what to do if things start to head south.

Your mortgage still needs to be paid one way or another

Firstly, in the event of a divorce, your mortgage repayments will still need to be made. Failure to do so can lead to a compromised credit score for both parties, high-interest rates and worst case scenario, bank foreclosure. There are various options available for transferring the mortgage once you have determined the most suitable arrangement.

What are the options for the mortgage after divorce?

While it is possible to continue to share the mortgage after divorce, it is generally not feasible long term for one reason or another.

Other options include:
Buying out the property share owned by your ex-partner
Selling your property share to your ex-partner
Selling the home and sharing the profits

Can the mortgage be transferred to one party?

In most cases, the home loan cam be refinanced by the party who will keep the property if they are eligible to borrow the required amount. They would then pay out their ex-partner for their share of the property which changes the name on the property title and the mortgage.

Selling your home after a divorce

Another way forward is to sell the property. This way the asset division is fair and each party can go on to find their own seperate place to live. In this instance, you may wish to seek legal advice or have an agreement in place to ensure the strategy for selling the home as well as the division of assets after settlement has taken place.

What happens if my ex stops paying the mortgage?

Lenders are generally understanding of the issues so it’s important to keep communication honest and open to avoid any dramas down the track.

What is sure to be a difficult time, can often be made so much worse by irresponsible or spiteful behaviour, which could result in you both ending up in a terrible financial position, and possibly with legal fees to contend with.

In the event that your ex-spouse refuses to make their share of mortgage repayments, you can seek legal advice for the most appropriate course of action.

The general advice is to remain as fair as possible while protecting your own interests.

If you need a place to start with getting divorced, the moneysmart website has lots of useful information including a checklist that you can find here:

All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.

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