Breaking up a mortgage after the break-up: a guide to home loans and divorce
Published 5:48 am 30 Jan 2021
Dealing with the end of a long-term relationship is never easy. Apart from the emotional turmoil, there is also the practical side of working out living arrangements, custody of any children and finances. If you and your spouse have a joint mortgage, things have the potential to become even more complicated. There are a number of options available after you separate if you still have a mortgage, including selling or transferring your share of the property to your ex-spouse; selling to a third party and splitting the profit, or buying out your partner and taking on the entire mortgage yourself.
When there’s only one name on the mortgage
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Many couples include both their names on a mortgage, but in some situations only one name is added. This may make things easier during a divorce as the person whose name is on the mortgage will not need to refinance to remove their ex-partner’s name from the loan document if they intend to take over the mortgage. However, if the person whose name is not on the mortgage wants to take on the mortgage, they will need to refinance the loan.
Getting your own name off the mortgage after divorce
If you have agreed your ex-spouse can take over the mortgage and both names are on the document, you will want to take your name off. However, this is not as easy as ringing your lender and telling them about your change of circumstances. By law, the loan will need to be refinanced in the name of the person who will be taking sole responsibility for the mortgage, (your former partner). Once the new loan is set up without your name, then you are no longer liable for making any repayments on the original loan.
Removing your spouse’s name from mortgage after divorce
In most cases, if you want to get your spouse’s name off the loan documents, you will need to refinance the loan. You will need to discuss this with your lender and show that you are able to keep up with the higher repayments you’ll be responsible for once the loan is solely yours.
If you are concerned about how the mortgage is affecting your credit rating, refinancing will pay off the original loan and create a new one in yours or your spouse’s name – depending on who was taking over the loan. If your spouse is taking it over, then your credit report will be updated by having the mortgage removed.
Making mortgage payments during and after divorce
If your ex-spouse has moved out, the question of who pays the mortgage often arises. You should not stop paying the mortgage during a divorce as if the repayments aren’t made, the bank can take possession and sell the home to pay any outstanding debt. Often the person still living in the home pays the mortgage as the spouse who has moved out has to rent somewhere to live. If the spouse living in the home doesn’t work and is responsible for looking after any children, then the working spouse generally makes the repayments, even if they don’t live there.
Assumptions and deeds
Below are a number of scenarios around the family home following a divorce:
- Mortgage assumption – where one partner takes over the responsibility for the mortgage. This requires them to refinance the loan so they are the sole remaining borrower.
- Changing title deeds – if the mortgage was jointly held and one partner is assuming responsibility for it, the property title deeds will need to be amended to reflect this change.
- Quit claim deed – this removes the ex-spouse from the title to the property and is generally a requirement of a divorce settlement so the division of assets can be completed.
- Name on the mortgage but not on the title deeds – this could be an issue as it means one partner has been paying a share of a mortgage on a property that is not legally theirs. Having a name on a mortgage doesn’t define who owns the property – only who will be making payments on the loan.
At some point after a divorce, either you or your partner may need to refinance if you intend to keep your home. It is possible to refinance the mortgage both during and after the divorce and this is quite common as it allows one partner to remain living in the house while the other’s share is bought out. If refinancing, the partner taking over the mortgage needs to show they have enough equity to be able to buy the other partner out and keep up with the repayments.
Frequently Asked Questions
How is property split in a divorce?
There is no one answer to this as it depends on every couple’s circumstances and the property. Factors that may affect how property is split includes whether there are children living there, the income earning potential of each partner, the contributions that have been made by each spouse, the length of the relationship, and if there is a prenuptial in place. These factors can also apply to the mortgage if there is still one being paid off.
Do I have to pay the mortgage after divorce?
If there is still a loan on your property and your name is on it, then you will still need to make repayments. If you stop, there is a risk of your lender taking over the property and selling it to recoup the outstanding debt. Your credit score could also be affected and that may prevent you from getting a loan in the future. If your ex-partner is taking over the mortgage, then once they refinance you are not obligated to keep making repayments.
Can I transfer my mortgage to my ex-wife or husband?
If you decide to transfer the mortgage to either your ex-wife or husband, they will need to refinance the property to take your name off the loan documents and the property’s title deeds. You will be eligible for capital gains tax rollover relief if you choose this method as it is assumed when your ex-partner eventually sells they will receive a capital gain or loss on the property.
Can I buy my partner out of the mortgage?
Yes you can and this strategy will involve you needing to refinance so you can get your ex-partner’s name off the mortgage documents. Make sure you have enough equity or funds to make the repayments on your own. Also, if you only have enough for a smaller deposit, you could be liable to pay lender’s mortgage insurance. You won’t need to pay stamp duty however as that is not payable on a transfer of equity.
Can I refinance my house during a divorce?
Refinancing your house during a divorce is possible and is a common strategy as it allows one partner to stay in the home while the other has their share bought out. As with all refinancing, the person taking out the new loan needs to ensure they can make the repayments, which will likely be much larger once their ex-partner stops making payments. They also need to have enough money to buy their partner’s share, which could be quite large if they’ve lived in the property for many years.
Can my partner stop paying the mortgage?
If at any time your ex-partner stops paying the mortgage, you should contact your lender and explain what’s happening. They may make allowances, such as a mortgage holiday, if you can show you’re waiting for the division of your assets to take effect. In some cases you can get a Court Order to ensure your ex-spouse continues to make the mortgage repayments. Not keeping the payments up to date risks the lender coming in and taken possession of the property.
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