How to manage your mortgage after you and your partner split

Sadly, there will be more divorces as a result of COVID-19, so we find us writing this blog very timely.

The most important thing to do is talk through solutions with a professional before making the final agreement.

This can include calling your bank’s hardship team straightaway and letting them know what’s going on, and they can advise you on your options. You may decide to split the funds in your individual accounts and freeze any joint accounts such as the home loan redraw.

Talking to a professional adviser can also help both of you financially in the long term. For example, it may be beneficial to take on the family home when you factor in the stamp duty costs or real estate agency fees of going into a new property. This can potentially save you $60,000-$80,000
in costs.

You can even negotiate with your bank if you’ve got separate finances at that point. You can continue to have the mortgage together as it’s not that uncommon.

Banks won’t always focus on both names on the property title and it becomes trickier if one person is remaining in the property.

There are many cases where you may continue living under the same roof, too. If that’s the case, there’s less of a need to deal with the property immediately.

There are also situations where assets are tied up with businesses. The business may have a loan that was guaranteed by the property or the property was security and that becomes difficult to untangle. Financial stress might have led to the end of the relationship. Suddenly there’s a debt on a house that there wasn’t before because of an issue with a failing business. One party might be bankrupt and the other isn’t, and it’s really hard to settle anything there.

Divorce cases occur in all age groups and scenarios. First home buyers pop up more than people might imagine. Those first six months of making repayments when you’ve got to manage your finances on a tighter budget can be very stressful and we can see some couples come undone taking out that first mortgage. At Blue Key Finance we’ve seen a couple had been together for some years, saved really hard to get their first home (one party more than the other). Once they got into the house, both parties then had to match their savings and the contribution to the home loan and it wasn’t long before that didn’t work for them, and six months later, they were selling. It’s a shame and a wasted opportunity and here they are coming out of it with no equity and a tougher time to start again.

Traditionally it can be a tougher time for women, and we are often asked what it means if, all of a sudden, their name is on the property title or the mortgage becomes solely in their name. It can be challenging for women financially because often they’ve been out of the workforce and their skills might not be up to date, or perhaps they’re part-time workers. They usually have the primary caring role or have to sacrifice the caring role to go back to work and put the kids in day care. They usually have to manage the childcare fees, and they perhaps have lower income. While there might be some income support such as the family tax benefit or child support payments, not all lenders like to consider these for borrowing power purposes.

In addition, women in their senior years can also find it challenging. They might not have as much super if they’ve had employment gaps. And banks now look for property exit strategies in the post-retirement age.

Tips for managing divorce and a mortgage

Here are some tips for negotiating a mortgage after your relationship breaks down.

- Communicate with your Bank, let them know what’s going on and maintain repayments as best you can, but if you’re struggling, contact their hardship team as soon as possible.

- Without blocking your spouse from accessing money, perhaps quarantine some funds separately (some for each of you) and turn joint accounts and redraw to “two to sign” to avoid assets being removed.

- Keep civil communication whenever possible, it won’t help to inflame matters.

- Avoid the temptation to give away assets or take on disproportionate share of debt “to get it over with”.

- Draw up a list of assets and liabilities (right down to furniture, superannuation and credit cards) and try and divide these amicably and fairly – the more you can do together the more you can save longer term.

- Get good legal advice. It doesn’t have to be expensive, especially if you’ve already got a good idea of the asset division. There are benefits in keeping the family home, if possible, in terms of stamp duty savings, which your legal team can assist you with. And if you can’t do this, then use the remaining assets wisely to build for your future, as opposed to short-term gains like a car or a holiday.