We've separated, but who pays the home loan?

Usually when a couple separate, one party moves out of the home that they shared together. This then raises the issue of who is responsible for paying the home loan.

If both of you are the registered proprietors of the property, then it’s likely that you are the joint account holders of the home loan as well.  The bank expects the home loan to be paid, whether by both or either of you. You are both jointly and separately responsible for the full amount of the loan.  If the loan is not paid, the bank may take possession and sell the home to pay it.  The fact that it is your family home and the place where you have raised your children is not as important to the bank as recovering the full amount of the debt you owe to them.

The ideal situation would be that you both live in the home together until it is sold, contributing equally to the mortgage instalments and other expenses for the home and divide the sale proceeds equally.  Easy.  This is a fairy tale ending to a fairy tale relationship where each of you have the same income, spend the same amount, are the same age, have the same future earning capacity, contributed the same amount to the acquisition of the assets and expenses and have no children or have children but care for them equally and pay every expense for them equally.  Unfortunately for many couples, the reality is usually much different and a couple’s financial history and future are rarely equal. As such, there are a range of scenarios which might apply, depending upon your individual circumstances.

Most commonly, if you remain living in the home, you should pay the mortgage and expenses for the home, pending sale.  Your ex-partner, who has moved out, may not be able to make their income stretch far enough to pay their own rent and living expenses as well as contribute to expenses for the marital home.

If you were the one who moved out and your children have remained in the home with your ex-partner, all or some of your child support payments can be paid to the mortgage in lieu of paying these directly to your ex-partner.  This is not the ideal long term arrangement because eventually you might want to buy your own home with a home loan and be released from the joint loan you had with your ex-partner.   

Perhaps you were married for a very long time and have adult children no longer living at home. You rarely had paid work during this time and relied financially on your partner’s generous full time six figure salary.  If you want to stay in the home, how will you afford the mortgage repayments? It wouldn’t be fair to expect you to pay the mortgage from your government benefits as there would be little else left for other living expenses.  In this instance, your ex-partner should pay the mortgage and you could obtain a Court order or agreement that they do so as “spousal maintenance”.

In some cases, if you wish to keep the home, then you may have to refinance all or some of the joint home loan. Generally, you will be liable to pay the instalments pending the transfer of the home and home loan to you.  Previous history showing payment of the loan instalments might be helpful in proving to the bank that you can afford to meet loan repayments of that level without going into default.

It is the responsibility of both parties to make sure the home loan does not go into default and I always encourage clients to pay it, even if they don’t believe they should.  Post separation financial contributions can be taken into account when reaching a final agreement about property division and it shows you have tried to be reasonable and cooperative in the process.

Regardless of whether you will be selling the family home or keeping it, it is best to ensure that any mortgage redraw facility is cancelled as soon as possible. You do not want the bank making you responsible for a home loan that has been increased by your ex–partner months after separating!  Your bank might have options which are available to you pending the sale or transfer of the home, such as a “mortgage holiday” or interest only payments.

Your next step should be to obtain professional family law advice because there are many factors that influence who should pay the joint home loan, who will keep the home and what would be a fair property settlement. Should you need assistance, please call our family law team on (08) 8414 3400. 

This article was written by Senior Associate, Catherine Leis

Practice Area: Family Law

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