Relationships and real estate
Contrary to what the fairy tales of our childhood, not every romance ends with happily ever after. Breaking up with your significant other is an unfortunate and sometimes messy turn of events, with the potential to put a lot of unnecessary stress on different aspects of your life.
When your emotions and finances collide, it’s very rarely a positive outcome. So, we’ve put together a handful of tips that can guide you to make better judgment calls along the way.
When you start a relationship, you don’t get handed a brochure of how to end it. You’re not expected to know exactly what to do, so it helps to reach out and talk about the next steps. In particular, get in touch with a counsellor, legal adviser and a financial adviser.
It’s very hard to make rational decisions with pain and anger knocking on the front door. A relationship counsellor can help both sides of the relationship get past the initial impact and work towards a place where logical communication is leading the way.
Legal advice will give you a good understanding of what you can realistically expect from the breakup. They can also walk you through timelines and deadlines for overhanging bills, as well as the potential of legal aid, depending on your situation.
If your mortgage is through Keystart, we can try to work with you and your partner to develop a payment plan. This might mean deferring a percentage of payments until you get back on your feet, or reviewing your current situation to assess whether one of you are in a position to apply to refinance the mortgage in your own name.
How to move on
Remember that if you have a joint home loan, both parties are jointly and severally responsible for the home loan while it is still in both of your names. So moving on must be done carefully, once you have considered all your options which includes independent financial and legal advice.
If you have reached a point where your relationship cannot be salvaged there are a few different scenarios that may apply to the management of your home loan, depending on several factors including whether you have any equity in your home. You can check your equity status with your lender.
If you have equity in your home
If you have had your home loan for some time and if property values have increased over that time, you may have some equity in your home. If this is the case, there may be two options for you.
Refinance the loan in one party's name
You may wish to buy out your partner’s share or sell your share to your partner.
If both parties have their name on the loan there is a specific process involved in getting that changed. It is not as simple as changing the title deed. Your loan must be refinanced, and depending on what arrangements are made for the ownership of the home, your lender is under an obligation to ensure that the remaining party can afford the ongoing loan under its responsible lending obligations.
The equity built up in the home is taken into account when refinancing. Both parties will need to have come to an agreement on how the equity will be used. It could be used to reduce the remaining loan amount or a portion of It may be used to pay out to the partner who is leaving the home loan.
If your home loan is with Keystart, a discussion with us will determine whether or not refinancing of the existing loan is possible.
Both parties will need to agree and sign the relevant legal documents required to transfer the home.
Sell the property and divide the equity
Without sounding too much like a relationship counsellor which we are not, selling the house may be the best way to make a clean break. You both can move on to whatever life holds. In this situation, after the sale has gone through, everything you still owe on the house will be subtracted from your equity and then you’ll divide the remaining money. Things can sometimes become complicated when one, or both parties don’t agree with what they’re getting from the settlement. This is why a good line of communication is incredibly important, as well as a court order from the family courts or a mediator, as required.
If you do not have equity in your home loan
If you have not had your home loan for very long or if house values in your area have dropped, it is possible that you may not have much, or any, equity in your home. In this situation it is critical to get financial and legal advice as you may be facing a loss.
Your lender will need to assess the remaining party to see if the refinancing is possible. Your lender is under an obligation to ensure that the remaining party can afford the ongoing loan under its responsible lending obligations.
A discussion with Keystart will quickly determine whether or not buying out or selling to your partner is possible.
Sell the property at a loss
If both parties make the decision to sell the home, and the sale price is less than the remaining loan amount, both parties are responsible for making up the shortfall. If your home loan is with Keystart, you will need approval to sell if there is a possibility that the funds from the sale may not be enough to payout the home loan in full.
Prepare your papers
Whether it was a marriage, a long-term relationship, or otherwise, it’s very likely that a number of finances were in both names. Make sure that you have all of the paperwork in a relatively simple format. Keep bank statements, tax returns, superannuation etc. at hand.
Get your team together
A critical step on this journey is to contact your lender early so that you can find out what is involved in your particular situation. Every situation will differ slightly so be sure to get the information you need. A relationship counsellor, a trusted financial advisor and a legal advisor will provide other avenues of support and advice.
Breaking up is never easy and can be complicated if a home loan is involved. But getting advice early and working with your lender can reduce at least some of the uncertainty. If you have any questions, the Keystart team are more than willing to help.
You may also find it useful to view Money Smart's Divorce and Separation Financial Checklist.