What to do with your loan after a divorce or separation.

What happens to my loan if my partner and I divorce?

Wondering what happens to your loan if you and your partner divorce or separate? Many of the married couples in Australia that divorce do so after buying a family home. If this is looking like a scenario you are facing, we’ve summarised how you can handle your mortgage in this event.

Who will have to pay the mortgage after the divorce?

Regardless of your relationship status, the mortgage will still need to be repaid. If both you and your ex-partner are named on the loan agreement, you both have an obligation to meet your monthly repayments, regardless if you are living there or not. However, there are a few options you can consider.*

Option 1: Transfer ownership of property

Depending on your circumstances, your court orders may stipulate that you either acquire the jointly owned property in your own right, or alternatively, your partner will acquire the property – this is called a transfer of ownership.

This may only be possible if you qualify for a home loan as a single applicant as you will need to take over the mortgage in your own capacity and afford the repayments yourself. Applying for the mortgage this way essentially mimics the process of a standard refinance application. You can choose to internally refinance with your existing lender, or alternatively take the opportunity to review the market and refinance to a new lender who may be able to offer more competitive features (this is where your broker can assist).

As usual, the lender will assess your borrowing capacity and ability to service the loan based on income, outgoings, monthly living expenses and the value of other loans you currently have (e.g. credit card debt, car loans, personal loans, HECS/HELP).

Whether the property is wholly transferred into your name or your partner’s, a transfer form will need to be generated to confirm the arrangement.

Option 2: Sell the property

Many separated couples opt for this incase where neither party can afford to meet the repayments alone. On a more positive note, if the property has been owned for a long period of time, there may be a significant amount of equity built up, meaning you could use this towards a deposit on another property. The profits will be divided accordingly between both spouses as directed by the court orders.

What happens if your ex-spouse refuses to sell?

In the event that your partner declines to sell the property that you both own, or you are unable to come to an agreement, the Family Court of Australia has the authority to compel them to do so. In the context of a divorce, the court can issue an order to enforce the sale of a house.

Have further questions, or want to explore which option is best for you? Chat to our leading lending experts today.

*This article provides general information only and has not considered your personal situation. Our comments strictly refer to the mortgage component of a divorce, of which the outcome is dependent on court orders and what has been agreed upon by both parties in legal proceedings. You should always seek professional advice in relation to your individual situation.