Who pays the mortgage after a separation?

A separation often causes confusion and distress for both parties. This can lead to issues surrounding the payment of your existing debts and how your property will be divided.

When considering who pays the mortgage after separation 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.

• the person remaining in the house may have the primary care of the children, is not working (or working part-time) and isn’t able to afford to pay the mortgage.

Importantly despite these problems, your bank wants the mortgage payments to be made. Your bank doesn’t care who makes the payments and under the mortgage, you are each liable for 100% of the mortgage payments.

If the payments are not made, then you may end up with a bad credit rating and the bank may take enforcement action against you, including selling the property.

So, unless you want to face these negative consequences then you and your former partner should come up with a solution to ensure payments will be made without delay.

To assist you, we have come up with 6 practical solutions regarding paying your mortgage after separation:

6 Solutions to Paying the Mortgage

1. Talk and come to an agreement

Discuss the issue with your former partner and attempt to reach an agreement about how the mortgage will be paid.

If the person remaining in the home can afford to meet the mortgage costs, then it could be sensible that they meet the mortgage costs pending your property settlement. Otherwise, it could be agreed that you will each pay a specified percentage. If, for any reason, you cannot reach an agreement you can choose to involve your lawyers and have them negotiate an agreement on your behalf.

This solution may also include talking with the bank. Sometimes financial hardship arrangements can be made with the bank for reduced payments, interest-only payments or no payments for a period of time.

2. Find another 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:

• Avoiding a bad credit rating; and/or
•  Avoiding the sale of the house.

To do this you might need to get another job, sell items of value or borrow 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, we recommend you receive legal advice before doing this and you should not assume that you will receive a dollar-for-dollar reimbursement for any funds you pay into the mortgage after separation.

3. Seek an Order from the Court about the payment of the mortgage

The Family Law Act 1975 (Cth) does not specifically say anything about who pays the mortgage if you separate but the Court can make an Order that the mortgage be paid in certain amounts by one of you.

However, there may be no point in seeking an Order in the following circumstances:

• The other party cannot afford to pay the mortgage; and/or
• The house will ultimately need to be sold because you cannot afford to refinance the mortgage.

4. Sell the house before the bank does

If selling the house is inevitable, you should 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. 

Subject to what you discuss with your legal representative, it could be in your best interests to sell the property sooner rather than later as the property may need time to sell depending on the location.

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 sell the house, then you could also apply to the court for an order that the house be sold. 

In dire circumstances, you can request that this issue be dealt with as an ‘interim’ issue before your matter proceeds to a final hearing.

6. 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 means that both parties must 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 do this, you should not only get legal advice but also financial and tax advice about the implications of this approach. Again, this option is unlikely to be of value if the house will ultimately need to be sold.

Regardless of the option you choose, you should seek advice specific to your situation.

If you have any questions about paying your mortgage after separation, then don’t hesitate to contact the family law team here at Turnbull Hill Lawyers.