Keep up with repayments and honour joint mortgage liability from day one.
Talk to your lender as soon as your circumstances change.
Seek legal and financial advice before making any key decisions.
Going through a divorce or separation is hard enough without the added stress of what to do with your shared mortgage after divorce. In Australia or abroad, a mortgage is one of the biggest financial challenges during separation. There are big decisions to make – do you sell, co-own and rent it out, or does one of you buy the other out?
Planning for separation is tricky; it often comes suddenly and with a lot of emotional turmoil. But navigating your mortgage early in the process, while difficult, is crucial. Unfortunately, a separation doesn’t dissolve your mortgage obligations. Until you remove your name from the mortgage, or your partner refinances into one name (if you choose that route), you’re still liable.
From the day you decide to split, there are a few steps you need to take and options to consider for managing your mortgage during separation and after settlement. Let’s explore.
Mortgage during separation: What to do before the divorce is final
1. Keep up with repayments and honour your joint mortgage liability
When it comes to handling your mortgage during separation, your number one priority is keeping up repayments. Whether the split is amicable or challenging, your mortgage doesn’t pause during separation; it still needs to be paid.
If things have ended badly, it might feel tempting to stop making payments out of frustration, but this can cause lasting damage. Missed repayments affect your credit score and can make it harder to borrow or buy property in the future.
Depending on your mortgage situation – you may own 50/50 with your ex, or have another arrangement – will depend on who pays and how much. A rule of thumb to remember is that if you’re listed as a borrower, you’re legally responsible for repayments.
Note also that even if you’ve moved out, this doesn’t matter, you still need to pay. Your responsibility doesn’t end until you remove your name from the mortgage (if you choose that route).
2. Talk to your lender as early as possible
The next step in sorting out your mortgage during separation is to speak with your lender as soon as possible. The moment your circumstances change, it’s important to be open and honest with them and discuss what options might ease the financial pressure during this period.
Remember: everyone’s situation is different – you may have children, financial benefits, or other factors to consider. Whatever your unique circumstances, make sure to talk it through with your lender to explore the support available to you.
Lenders may offer some of the following options:
Hardship assistance programs
Interest-only payments
Payment deferrals
Reduced repayment plans
Loan term extensions
Refinancing
Repayment holidays
Keep in mind these are just some of the options lenders may offer, and that eligibility criteria apply depending on your unique situation. Ensure to speak with your lender as early as possible to find out what solutions they can support you with.
3. Seek legal support and financial advice
Sorting out your mortgage during separation can be complex, so it’s a good idea to get advice from both a family lawyer and a financial professional.
A family lawyer can help explain how property settlements and mortgages work under the Family Law Act – including how assets and liabilities are divided – and, importantly, that this process doesn’t decide who remains responsible to the bank. They’ll also help you understand your rights and obligations.
A quick heads-up: while a family lawyer can guide you through dividing assets and debts, only your lender can remove a name from the mortgage once both parties agree and the lender signs off. For example, if you agree that one person will keep the home, there are still steps before the other name can come off the title or loan.
A financial professional, such as a mortgage broker or financial adviser, can help clarify your refinancing options, affordability, and how any changes might affect your credit.
Before making any decisions about your mortgage during separation – whether it’s refinancing, selling, or buying out your ex – it’s crucial to seek professional guidance. Choices made early in the separation can have lasting effects once your divorce is final, so you want to be clear on your rights, obligations, and options.
Aussie broker Sam Harvey shares why it’s important to get legal advice when navigating a mortgage and separation in our recent These Four Walls podcast:
“If someone who hasn’t sought legal advice yet comes to me, I’d be saying, go get some legal advice. Because even if you draw up a financial agreement, you need legal advice to do that – it’s the easiest way. You want that in place. You run a risk not having a financial agreement.”
You don’t have to do it alone. We’ve got your back.
Handling a mortgage can be challenging at the best of times, and with the added stress of separation or divorce, it can feel even more overwhelming. At Aussie, we’re here to help simplify the process and help you understand what options are available.
Mortgage after divorce in Australia: What your options are once your separation is final
Option 1: Refinance after separation and put your mortgage into one name
Depending on your unique situation, you might have the financial stability to buy out your ex, leaving you as the sole owner of the property (or vice versa). But before taking this step, it’s important that you consult with your lender and financial advisors during the separation stage.
Why? Because refinancing to remove a name from the mortgage (whether yours or your ex’s):
may not always be possible, and
might not be the right option for you.
Let’s consider the option that you wish to buy out your ex. Here are a few things to help you understand how this process might look:
New loan assessment: To understand your personal financial situation, your lender will look at your income, expenses, and any existing debts to determine your ability (or ‘serviceability’) to repay the new loan on your own. This will help you understand your borrowing power and if buying out your ex is possible.
Property valuation: Next, your lender will arrange for a professional to assess how much your home is worth right now. This helps the lender understand your equity position, and it can also give you and your ex a clearer idea of the potential equity split.
Costs involved: There are a few potential fees to keep in mind, such as charges for closing your current loan, applying for a new loan, and potential stamp duty (a government tax). Your lender and lawyer can support you in navigating these.
A few pros and cons to consider if you’re thinking about refinancing after separation and buying out your ex:
Pros | Cons |
|---|---|
Retaining stability by keeping the family home, potentially simplifying finances by having only one borrower on the mortgage, and gaining greater control over the property and mortgage decisions. | Taking on full financial responsibility for repayments, managing all the ongoing costs alone, and facing increased personal risk if your circumstances change. |
Option 2: Sell your family home or property and divide the proceeds
If refinancing after separation isn’t an option for you or your ex, the next option is to sell. This means you can divide proceeds, and cut financial ties with your ex, so you can both move on – financially and emotionally.
When it comes to selling, you can either reach an agreement privately or go through the court, depending on your situation, preferences, and how amicable or challenging the separation is. Factors such as whether you’re selling your family home and whether you’re a single parent with children can also influence the process.
Whether it’s right for you to sort privately or through court is something you’d want to seek legal and financial advice on during the separation phase, before your divorce is final. Remember: it’s crucial to get legal advice as early on as possible so you’re aware of your rights (and liabilities!).
A few things to consider before selling:
Market conditions: If the market is strong, selling might be a good option depending on your situation and advice received. But if the market is soft, selling at a loss is possible, so continuing to co-own until conditions improve may be better. Ultimately, the best choice depends on your unique circumstances and professional guidance.
Legal timelines: Divorce or family court orders and settlement agreements often include deadlines for selling your property and dividing assets, so it’s important to factor these into your plans.
Emotional readiness: Selling your family home or property can be emotionally challenging, especially when children are involved. It’s important to share these feelings with your advisors, who can help identify hardship support options or suggest if it’s better to wait before selling.
Equity split: What happens after selling?
Property settlement agreement: After selling your home, your equity split, the remaining money after paying off the mortgage and costs, is determined by an agreement between you and your ex that outlines how you share assets and debts.
Cost deductions: Selling costs, such as agent fees, legal fees, and repairs, are deducted from the sale proceeds before your equity split is finalised.
Paying out the mortgage: The existing mortgage is first paid off from the sale proceeds, and the remaining amount (equity) is then divided between you and your ex according to your agreement or court order.
A few pros and cons of choosing this option:
Pros | Cons |
|---|---|
Provides a clean financial and emotional break, letting you and your ex move on without ongoing joint mortgage liability. | Depending on your financial situation, you may need to rent for a while or buy again on your own. This could mean facing higher interest rates or added stress. There are also selling costs to consider, including agent and legal fees. |
Option 3: Continue co-owning and manage joint mortgage liability for a transition period
Another option regarding your mortgage after divorce in Australia is co-ownership – either indefinitely or, more commonly, for a transition period.
What does this mean exactly? You might choose to keep co-owning the property for a while longer, staying on the mortgage together and continuing repayments. This can be a good option if you’re considering selling your family home but want to keep things stable for the kids, or if the market is soft and you want to wait for a better time to sell.
But note that there are risks. Since you’re both still responsible for repayments, if your ex struggles or stops paying, that could cause problems for you too. That’s why it’s important to get advice from legal and financial professionals before finalising anything, and to ensure any co-ownership agreements are legally documented.
If you go down this path, make sure you have a formal written agreement covering who pays what, who lives there or if it’s rented out, and when you’ll review the arrangement.
Whether your separation is amicable or challenging, having clear agreements protects you both. Even if you trust your ex now, unexpected financial changes can occur like job losses or unexpected expenses – and if you co-own, their issues can affect you too.
Aussie broker Sam Harvey dives into breakups, mortgages, and your options in our recent These Four Walls podcast:
“You can sell. Secondly, you can look to buy one another out of the property if you’re in a position to do so. And then thirdly... if it’s amicable and the market’s not perfect, maybe you’ll rent it for a period of time, or ‘We’ll do this reno.’ – maybe that’s a possibility. Or, ‘Maybe we’ll keep it as an investment.’ – I’ve seen so many different ways it’s handled, depending on the couple.”
Watch the full podcast episode on our YouTube channel.
Other things to consider before you tackle this chapter
Equity and property valuation
Equity is the difference between your property’s current market value and what you still owe on your mortgage. For example, if your home is worth $600K and you owe $400K, your equity is $200K. Having a current property valuation (and getting one early on) is crucial – it helps determine whether buying out your ex or exploring other options is possible.
Affordability and borrowing capacity
One of the biggest financial stressors during separation can be moving from a dual income to a single income (if that’s your situation). It’s also important not to overlook ongoing costs like legal fees, stamp duty, and lender charges. A borrowing power or repayment calculator can give you a clearer picture of what’s realistic, and seeking financial advice can help you make informed decisions.
Legal and tax considerations
It’s also worth thinking about the legal side of things. Property settlement orders and transfer of title formalise ownership after separation, and in some cases, stamp duty exemptions may apply. Capital Gains Tax rollover relief may also apply when transferring property between spouses under a court order.
Remember: this is general information that might not be applicable to everyone. Always check with your legal and financial advisors for guidance on what’s right for your unique situation.
Summary of key steps
If you’re reading this, you’re already one step ahead in sorting your mortgage and separation, helping to minimise stress early in your breakup. Use the checklist below to stay on track during and after the divorce is finalised.
1. Get organised early by collecting key documents.
Gather things like loan contracts, recent property valuations, and bank statements. This will help smooth the process and ensure you have everything you need.
2. Notify your lender or broker ASAP.
This gets things moving quickly and helps you avoid decisions that could negatively impact you later.
3. Make sure to get legal and financial advice (early).
Get professional advice to understand your rights and obligations early. Whether amicable or challenging, this will help streamline the process.
4. Work with professionals to figure out your next move.
Whether you refinance into one name (yours or your ex’s), continue co-owning (for a short or long time), or sell and move on – you’ve got options. Just make sure to get the right advice to pick the best one for you.
5. Get it all in writing – amicable or not, formalised documents are a must.
Whether it’s formal agreements, consent orders, or something else, work with your lawyer and financial advisor to get things documented. Your ex might agree verbally now, but that could change later. Protect yourself – and your children (if you have them).
6. Update shared access to insurance, utilities, and banks.
While difficult during emotional times, it’s crucial to get on top of shared accounts and services. Your situation has changed, so everything else needs to follow – think joint bank accounts, insurance, and more. Get it sorted ASAP.
7. Review your budget and loan buffer (now and ongoing).
Your financial advisor can help you understand your finances to ensure you keep making mortgage repayments in the short term, plus cover additional costs like lawyers or selling fees if you go that route.
Aussie tip: To stay on top of things, set calendar reminders for repayment reviews and key settlement dates. Whether it’s on your phone, a physical calendar, planner, or sticky notes – the more organised you are, the less stress you’ll add to an already challenging time.
Glossary: A few key phrases you’ll likely see again
Equity: The difference between your property’s current value and what you still owe on your mortgage – basically, the part of your home you actually own.
Serviceability: How well you can afford loan repayments, based on your income, expenses, and other debts. Lenders check this to make sure repayments won’t stretch you too thin.
Refinancing: Switching your current mortgage to a new one, usually to get better rates or features. It can save you money but depends on your situation.
Property settlement: The final stage when the property officially changes hands and you pay the remaining balance to become the owner.
Consent orders: Court-approved agreements that formalise property or financial arrangements, often used in family law to avoid a full court case.
Liability: Your legal obligation to repay debts, like what you owe on loans or mortgages.
Navigate your property settlement, mortgage, and separation with poise and preparation
Divorce isn’t easy. And handling a mortgage after divorce (in Australia, or beyond) isn’t always easy either – especially when the two happen at the same time. But with the help of professionals you can understand your options, make the right decisions for your unique situation, and avoid adding extra stress on top of what you’re already going through.
Everyone’s situation is different. There’s no one-size-fits-all approach, so the most important thing you can do is seek professional support, and as quickly as possible.
A broker – like Aussie – can guide you through the turmoil, ensuring the short-term decisions you make (like continuing payments) and the long-term ones (selling, co-ownership, etc.) are in your best interest, now and into the future.
Aussie broker Sam Harvey shares the importance of speaking with a broker when handling your mortgage during separation in our recent These Four Walls podcast:
“They do need to reach out to a broker first, because they’ve got to gauge, ‘Is this even possible?’ Like, I’m going to start speaking to the right people – but they need to speak with a bunch of people.”
Breakups can’t be planned for. But if there’s anything you can do to prepare for future breakups or similar challenges, a good rule of thumb is to stay organised, keep personal savings, stay across all finances (whether organised by you, a future partner, family member, or friend), and seek professional advice when you need it.