Frequently, financial issues arise when couples separate, including who is required to make mortgage payments on the family house or other properties that may form a portion of the property pool. If there has been a rise in housing expenses, these issues usually need to be resolved, for instance if one person moves out of the family home and rents an alternate property temporarily, like an apartment.
It is not uncommon for the person who is leaving the home to believe that he or she should not be obligated to contribute to the home loan payments any longer, since they are now paying for their owning separate housing expenses—which is not necessarily the correct assumption.
Particularly if there are kids involved, it can definitely be a challenge to try to meet the costs of a separate living situation and the added expenses that come with it. Since the circumstances of the breakdown of the relationship are typically acrimonious—and even more so if there are issues of lack of trust over financial concerns—these negotiations can be challenging.
After a separation, the simplest way to deal with a mortgage would appear to be to hold a shared home loan account post-divorce and to make the loan repayments equally. While it is possible to take out a joint mortgage and both remain responsible for the debt until it is repaid, there are a number of reasons why this might not always be the most feasible option.
It may work out that one partner has a lower income than the other, that they feel they should not have to pay for a home they do not live in anymore, or have increased childcare or rental costs. In these types of cases, there are other mortgage and divorce options, including: selling your property share to your former partner; sharing the profits after selling the home entirely; or buying out your former partner’s property share.
When it comes to figuring out who pays for the mortgage after a divorce, there is no one-size-fits-all solution. Typically, it will depend on the specific circumstances of your home and family. For relationships longer than 1 year, both parties are entitled to a certain share of the assets, depending on factors, including the contributions made by bother parties, like stamp duty, the deposit, or legal fees; ownership contributions like home improvements, mortgage payments, lump sum payments (inheritance, gifts, etc.), and earnings; non-financial contributions to the relationship like staying home and raising the kids; the length of the relationship; the number of dependent children; and whether there is another agreement in place, i.e., a pre-nuptial agreement.
Each party has a personal obligation to the bank—more than each other—to meet monthly mortgage loan repayments if both parties are co-borrowers. Defaulting can impact your credit rating as a borrower or lead you into a forced sale. If, however, you are not able to come to an agreement, family lawyers can step in to help. Occasionally, disputes over mortgage payments will lead to litigation, in which case the court will need full disclosure of the parties’ expenses and income, as well as their overall financial position (including childcare, for instance). By doing this, the court will scrutinize the reasonableness of the expenses asserted by both parties.
The way the equity of a home is divided following a divorce usually depends on the legal proceedings. Both partners are entitled to a share of the property, depending on the various factors involved, including: whether there are dependent children involved and who is to be their sole carer; the duration of the relationship; the share of financial contributions made toward the house (repayments, deposits, among others); and other contributions that have been made throughout the relationship such as being a stay-at-home parent.
Depending on the financial circumstances of both people involved, there are some options during the point of separation that should be thought out carefully before reaching a conclusion. One option is that, assuming the property has surplus funds, both parties reach an agreement to sell the property to pay off the mortgage and spilt the proceeds.
Another option is for one spouse to stay in the property and buy out the other spouse, with their name only on the mortgage. This option can be challenging, satisfying the bank that you have the capacity to make mortgage repayments without the help of your ex-spouse’s income.
