Going through a separation or divorce is understandably distressing. Aside from the emotional turbulence of separating your lives, untangling your financial knots, especially the mortgage, can be particularly challenging. To ensure a smooth and fair transition, it’s important to have a clear understanding of the legal aspects of property division, and what happens to the mortgage when relationships change.
Australian Law on Property Division: Relationship Property
In Australia, division of property is governed by family law which outlines the principles for a fair and equitable division of “relationship property” – the property that gets divided between both parties when the relationship ends.
In legal terms, ‘property’ refers to the things that you or your spouse own – your assets – and the things you or your spouse owe money on – your liabilities. You can own these things individually, jointly with another individual, or through a Family Trust or family company.
Property generally includes:
- The family home
- Savings and investments
- Inheritances and shares
- Credit card and personal debt
- Mortgages and loans
- Cars, furniture, jewellery, and other valuable assets
When working out how property gets divided in a separation or divorce, the law considers each person’s contribution, future needs, and various factors unique to each case. Regardless of whose name is on the documents, who bought the item, or who incurred the debt, the way relationship property gets divided will depend on individual circumstances.
Paying the Mortgage After Separation or Divorce
Understanding who pays the mortgage after separation or divorce in Australia is quite straightforward and depends on who the borrowers are on the loan documentation.
If both spouses are listed on the mortgage, both remain legally responsible for the debt. So even if one person moves out, they are still tied to the mortgage until it's resolved through refinancing or the sale of the property.
Selling the property is often the most practical solution, in which the proceeds from the sale can be used to pay off the mortgage, and any remaining funds divided according to the agreed-upon terms.
Tips for Couples Going Through Separation or Divorce
While it’s true that many separations and divorce end up with costly legal battles, high levels of stress, and ongoing conflict, there are ways to manage the process and help smooth the transition.
- Open communication. Maintaining open and honest communication and being transparent about the mortgage and other financial matters can help pave the way for smoother negotiations.
- Legal advice. Consulting with a family lawyer to get a clear understanding of your rights and obligations ensures that you make informed decisions about your situation.
- Consider refinancing. If one spouse wishes to keep the property, refinancing the mortgage may be an option, where one partner takes over the home loan in their name and releases the other from financial responsibility.
- If you’re struggling to reach an amicable agreement, enlist the help of mediator to facilitate discussions and help you find mutually acceptable solutions to potentially avoid long and drawn-out legal battles.
- Document agreements. Whether you reach an agreement through mediation or on your own, it’s important you keep a clear, written account of all decisions to prevent misunderstandings and provide a reference point for future discussions.
Get Advice About Splitting Your Mortgage
Every separation or divorce is unique and there's no one-size-fits-all solution. Getting professional advice, understanding your legal rights and responsibilities, and maintaining open communication are essentials steps in navigating the complexities of mortgage arrangements during a divorce or separation.
If you need advice or have specific questions about your mortgage, reach out to the expert team at Mortgage Express. We're here to help you with advice and guidance to plan a financially secure future, even in the face of life's challenges.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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