Divorce is a big life change and figuring out what happens to the house is often the most stressful part. Whether you want to buy out your ex's share, sell the property or refinance the mortgage, it's important to know your options and your obligations.
To help you out, our divorce lawyers have put together this guide about refinancing a home loan after separation. From understanding your mortgage rights to whether to go to a bank or mortgage broker we'll walk you through the steps and the financials.
What to do with the mortgage after divorce
When a relationship ends the biggest financial decision you'll face is what to do with the home loan. Whether you own the house together or one partner has been paying most of the mortgage repayments there are a few options:
Buy out your ex's share
If you want to stay in the house, you may have the option to buy out your ex's share. This usually involves refinancing the existing mortgage into your name meaning you'll need to qualify for a new loan based on your financial situation. Lenders will assess your income, expenses and credit history to see if you can afford the mortgage repayments on your own.
One thing to consider is whether you'll need to pay stamp duty on the transfer. In some cases, if the property settlement is formalised through a court order or divorce agreement you may be eligible for an exemption. We recommend talking to a divorce lawyer (like us) or mortgage broker, as we can help you understand the costs involved.
Sell your share
If you can't refinance the home loan on your own, selling your share to your ex is another option. This means they take over the entire mortgage and your name is removed from the loan agreement. But this can only happen if they can refinance and the lender agrees to remove you as a co-borrower.
Until the loan is fully refinanced you may still be liable for the mortgage repayments even if your ex has agreed to take over. This can put you at risk if they stop making repayments so make sure the process is finalised properly.
Sell the property and split the proceeds
n many cases the simplest solution is to sell the shared property and split the profit. This allows both parties to move on financially and avoid ongoing mortgage repayments. But you need to consider the current market value, outstanding debt and capital gains tax (if the property wasn't your primary residence).
A sale may be necessary if neither party can afford the mortgage after separation. If you choose this option, make sure you agree on how to sell the property including who pays the ongoing costs like rates and maintenance while the property is on the market.
Factors for property split in a divorce
When it comes to dividing assets including the house there is no automatic 50/50 split in Australia. Instead the division of property – including who gets to keep the house or how the proceeds from a sale are split – is based on several factors.
The Family Law Act 1975 sets out a process that considers:
- Each party's financial contributions, which includes income, savings and any mortgage payments made during the marriage. If one partner was the higher income earner, they may have contributed more financially but this isn't the only factor.
- Non-financial contributions, so if one party took time out of work to raise children or manage the household these contributions are also taken into account.
- Each person's future needs will be considered. The Court will consider factors like age, health, earning capacity and whether one party will be the primary carer of any children. If one person is in a weaker financial position post-divorce they may receive a larger share of assets.
- Length of the relationship, longer marriages tend to result in a more equal split of assets, shorter marriages may see each party keep what they brought into the relationship.
- Existing financial obligations, for example, if one party has more debt or ongoing costs this could impact the final split.
A property settlement can be negotiated between the parties but if no agreement is reached the Family Court can make a decision based on these factors. You should seek legal advice to understand your rights and obligations especially when a jointly owned property is involved.
Can you refinance a home loan during a divorce?
Yes, but it's not always easy. Refinancing a home loan after separation is possible but timing is everything. Until a property settlement is finalised both names will usually remain on the existing mortgage so both parties are still liable for mortgage repayments even if one person has moved out.
Some lenders will allow one party to refinance the home loan during divorce proceedings but they often require proof that a divorce settlement is in progress. This can be a court order, a separation agreement or formal negotiations between divorce lawyers.
If you're thinking of refinancing during separation, remember:
- Your ex may need to agree – If both names are on the mortgage the lender may require written consent from your ex before they approve a new loan.
- You'll be re-assessed financially – A lender will review your income, debts and credit history to make sure you can afford the mortgage repayments on your own.
- Refinancing could impact your property settlement – If you refinance before the financial split is finalised it could complicate negotiations around asset division.
- Joint mortgage after separation can be dangerous – If both names are on the loan agreement and your ex stops paying the mortgage you could be left paying the whole mortgage or damaging your credit score.
While you can refinance before a divorce is finalised you should weigh up the risks and where possible seek legal advice before making any big financial decisions.
Can you remove an ex's name from a mortgage?
Yes, but removing an ex's name from a mortgage isn't as simple as just taking them off the paperwork. In most cases the existing mortgage will need to be completely refinanced into one person's name. This means applying for a new loan and proving to the lender you can afford the mortgage repayments on your own.
To do this, we suggest taking the following steps:
- Check with your lender – Some banks and lenders may allow a name to be removed without refinancing but this is rare. In most cases a full refinance home loan after divorce is required.
- Get a property valuation – Lenders will usually require a current market value assessment to make sure the home loan is still within borrowing limits.
- Apply for a new loan – You'll need to qualify for a new loan in your own name which involves proving your income, expenses and creditworthiness.
- Get legal and financial advice – A divorce lawyer will ensure the process aligns with your property settlement and a mortgage broker will help you find the best refinancing option.
- Complete the transfer – Once the loan is approved you and your ex will need to sign a transfer form to change ownership of the property.
Removing an ex's name from a joint mortgage after separation is a big step in getting financially free. If unsure always seek legal advice before making any changes to your home loan.
How long do I have to refinance after a divorce?
There's no legal deadline to refinance a home loan after divorce but practical and financial factors make timing important.
Most property settlements have a timeframe to finalise the division of assets and if refinancing is part of that agreement, it must be done within that timeframe. If no timeframe is set delays can cause financial stress and complications.
Some factors that could affect the amount of time you have to refinance include:
- Your property settlement terms – If you and your ex have agreed (or a court order has been made) that one person will keep the family home refinancing should happen as soon as possible to remove the other person's name from the mortgage and loan liability.
- Lender processing times – Depending on the bank or mortgage broker refinancing can take a few weeks to a few months depending on your financial situation, property valuation and loan approval process.
- Your ability to qualify for refinancing – If you don't meet the lender's requirements due to income, credit history or other financial issues you may need more time to get your financials in order before applying.
- Cooperation from your ex – If your ex is slow to sign documents or disputes the terms of the divorce settlement the process will take longer.
If the property settlement requires refinancing by a certain date and you miss that deadline the court may make alternative arrangements—such as selling the property. Until refinancing is done both names remain on the mortgage so both parties are responsible for mortgage repayments even if only one person is living in the home.
If you're running behind on a refinancing deadline, seek legal advice to explore your options and avoid legal and financial consequences.
Bank or broker?
When refinancing a home loan after divorce, you have two options: go directly to a bank or work with a mortgage broker. Each has its pros and cons so the right choice depends on your financial situation, how much guidance you need and how complex your divorce refinancing is.
Refinancing through a bank
If you have a good financial situation and an existing relationship with a lender refinancing with a bank may be a simple option. The benefits are:
- Knowledge of your existing mortgage – If you already have a loan with the bank they may have a more streamlined refinancing process.
- Loyalty discounts or better rates – Some lenders offer incentives for staying with them such as lower fees or better interest rates.
- Control of the process – You deal directly with the lender which can sometimes speed up the process if you meet all the requirements.
But banks only offer their own home loan products so you may miss out on a better deal elsewhere.
Refinancing through a mortgage broker
A mortgage broker can compare multiple lenders and find the best refinancing option for you. This can be helpful if:
- You're not sure if you qualify for divorce refinancing and need guidance on how to get approved.
- Your financials have changed due to separation and you need a lender that considers alternative income sources.
- You want more loan options than just one bank's products.
Brokers are useful if you're struggling to refinance a home loan after separation due to affordability or complex property arrangements. But some brokers charge fees so make sure to check their terms before you proceed.
FAQs
Can my ex make me refinance?
No, your ex can't make you refinance the mortgage unless there's a court order that requires you to do so. But if you want to keep the family home, you'll usually need to refinance to remove their name from the loan agreement and take full responsibility for the mortgage repayments.
What if I can't refinance on my own?
If you don't qualify for a new loan your options may include:
- Negotiate with your ex to delay the refinance while you improve your financials.
- Guarantor loan (if you have a family member willing to help).
- Sell the property and split the proceeds.
- Talk to a mortgage broker to explore other lenders or loan structures.
Do I have to pay stamp duty when refinancing after divorce?
In most cases if the property transfer is part of a formal divorce settlement you won't have to pay stamp duty when transferring ownership from a joint mortgage after separation into one name. But stamp duty rules vary by state so check with a lawyer or lender.
What if my ex stops paying the mortgage?
Until the loan is fully refinanced both names remain on the existing mortgage so both parties are still liable for payments. If your ex stops paying it can affect both of your credit scores. If this happens you may need to:
- Get legal advice to enforce any agreements around mortgage payments.
- Talk to your lender for temporary payment relief.
- Refinance as soon as you can to remove their name from the loan.
What if my ex won't cooperate with refinancing?
If your ex-spouse won't sign the documents to remove their name from the mortgage or finalise refinancing you may need a court order to enforce the terms of the property settlement. A divorce lawyer can help you with that.
Can I remove my ex's name from the mortgage without refinancing?
Some lenders allow you to remove a name from a mortgage without refinancing but this is unusual. You usually need to show you can service the full mortgage on your own. A mortgage broker can help you check if this is an option.
How Unified Lawyers can help
Refinancing a home loan after divorce is more than a financial decision it's a big part of your future. But without the right legal guidance it can get overwhelming especially when dealing with property settlements, joint mortgages after separation or an ex who won't cooperate.
At Unified Lawyers we help our clients through the refinancing and property settlements process and make sure they understand their rights and obligations all the way. Whether you need advice on removing a name from a mortgage, enforcing a divorce agreement, or negotiating a fair split of assets our divorce lawyers will look after you. If an agreement can't be reached, we can help with court orders to get the process moving.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
