Paying off the mortgage when separated or divorcing
A separation or divorce generally causes major upheaval for both parties and issues often arises around paying the mortgage, dividing property and settling debt.
Some common problems are:
the person who leaves the property may not be able to afford to pay the mortgage because they are now paying rent on a new premises, child support and their own living expenses.
the person who leaves the property may be able to afford to pay the mortgage but chooses not to, taking the view “I’m not living there, so I’m not paying”.
the person remaining in the house may have the primary care of the children (as is often the case), not be working (or working part-time) and not be able to afford to pay the mortgage.
Notwithstanding, the above, the bank wants the mortgage payments to be made. It doesn’t care who makes the payments and under the mortgage, each mortgagor is liable for 100% of the mortgage payments.
If the payments are not made, then both parties may end up with a bad credit rating and the bank may take enforcement action, including selling the property.
So, unless you are content for the bank to sell the property, you and your estranged partner need to come up with a solution… and do so in a timely manner.
6 Solutions to Paying the Mortgage
1. Talk with all involved parties and come to an agreement
This solution involves talking with your spouse in an effort to reach an agreement about how the mortgage will be paid. Such an agreement could mean that each party pays a specified percentage of the mortgage. If, for any reason, you both cannot reach an agreement you can choose to involve your lawyers and have them negotiate an agreement on your behalf.
It may also include talking with the bank. Sometimes arrangements can be made with the bank for reduced payments for a period of time (perhaps interest only). Sometimes the bank will suspend the mortgage payments for a short and specified period of time to allow you to ‘get on your feet’.
2. Find any way of paying the mortgage
This solution could apply whether you are the person still living in the house or whether you are the person who has left the house. The person who has left the house may do this for reasons including:
(a) Avoiding a bad credit rating;
(b) Avoiding the sale of the house.
This solution requires that you find any way possible to pay the mortgage, even if that means getting another job, selling items of value, taking out a loan or borrowing from a friend or family member.
If you are not living in the house and you pay the mortgage, then you would seek for that to be taken into account in the property settlement as a post separation contribution made by you. However, you should not assume that you will receive a dollar for dollar reimbursement.
3. Seek an Order from the Court about the payment of the mortgage
The Family Law Actdoes not specifically say anything about paying the mortgage, but the Court can make an Order that the mortgage be paid in certain amounts by one or both parties. There is, of course, no point seeking an Order that the other party pay the mortgage if they do not have the capacity to do so. Also…
there may not be much point in seeking such an Order if the house will ultimately have to be sold because you can’t afford to refinance the mortgage.
4. Sell the house before the bank does
If selling the house is inevitable, you could do it quickly rather than waiting for the bank to do it.The bank selling the house will result in increased costs and may result in a decreased sale price. It is therefore in your best interests to take the reigns and put the house on the market as quick as possible because it could take months, or even years, to sell depending on where the house is located and what state it is in.
5. Seek an Order from the Court for the sale of the house
If you have left the house, the mortgage is not being paid, and your spouse does not agree to selling the house, then you may want to apply to Court for an Order that the house be sold. This Order could be made at an early date in the Court proceedings and well prior to a final hearing.
6. Both parties move out and rent the house
This solution requires that you both move out and rent the house to tenants. Their rent can then pay your mortgage. This solution requires that both parties have to find somewhere else to live and possibly incur rent, so this may not be the most viable solution (unless the party who would otherwise be living in the house can find rent free accommodation, such as with a family member).
If you choose this solution you will need to get advice about the tax implications of doing so (income tax, capital gains tax).
However, this option is unlikely to be of value if the house will ultimately have to be sold, if this is the case you should refer to solution #4.
If you need further assistance with putting any of these strategies into practice, or have further questions, please don’t hesitate to contact our friendly team at Turnbull Hill Lawyers, or call on (02) 4904 8000.