Divorce Mortgage- Coming Soon

A divorce mortgage may be coming to a bank near you, soon.

This could be a welcome development for older homeowners who want to stay in their houses after a marital breakup but don’t have the cash to do so, and have a limited ability to increase their income due to impending retirement.

According to a recent article in the British newspaper, The Telegraph, some lenders in Great Britain may introduce the “divorce mortgage” later this year, due to “a flood of older people being forced to sell their homes after they split in later life.”

Here’s how it would work: The soon-to-be ex who wants to remain in the home would be able to borrow enough to buy out their former spouse with the lump sum from the lender. The bank would also lend the person staying put extra money that would go into a savings account and be used to pay the loan interest over a set period of time. At the end of the loan’s term, the borrower could sell the home and pay back the lender from the home equity or take on the full mortgage.

[Tweet “A divorce mortgage allows one spouse to stay in the family home for a set period.”]

The divorce mortgage allows that spouse to stay in their home for a set period.

Grey Divorce: The Impetus Behind The Divorce Mortgage

Divorce in later life, or ‘grey’ divorce as it has been otherwise coined, is a phenomenon that is rising. In 2014 in the United States, people age 50 and above were twice as likely to go through a divorce than in 1990, according to the National Center for Family and Marriage Research at Bowling Green State University in Ohio. For those over 65, the increase was even higher. At the same time, divorce rates have plateaued or dropped among other age groups.

divorce mortgage, house, divorce, property settlementGrey divorce has escalated across Australia with latest Australian Bureau of Statistics data showing the average age of divorcees has increased over the past 25 years. In 2013, the average female divorcee was 42 years old while the average male divorcee was 44. This compares to 32 for women and 34 for men in 1990.

Problems can arise if one partner has had control of the couple’s finances or has been the primary income-earner throughout a marriage. Wives who have spent 20 years raising children and husbands who’ve spent the same time working full-time is the common scenario for today’s grey divorcees. In this scenario, the woman may find it particularly difficult to enter the workforce or may be forced to work in low-income jobs to make ends meet. It’s important to understand that in this scenario, women are especially vulnerable. The average Australian woman will live five years longer than a man but has a superannuation balance that’s 43 per cent lower. So dividing the family assets fairly in a split is important to maintaining quality of life. While one spouse may wish to stay in the family home following divorce, the ability to afford to stay in the home is another matter entirely. Even if both spouses were working, it may be difficult for one spouse to meet the repayments on their sole income. In this instance, a divorce mortgage might allow that spouse to remain in the home while they re-skilled in order to enter the workforce.

The biggest assets to divide are the family home and superannuation. The Family Court can help couples split super through a formal written agreement, consent order or if an arrangement cannot be made, through a court order. The court will take into account the financial and non-financial contributions made by each party throughout the course of the marriage and each divorce is settled according to individual needs. The position of the law is that the contributions of both parties over a lengthy period are substantial and significant. The parent and homemaker’s contributions to the welfare of the family are in themselves significant contributions and the law does not suggest that one kind of contribution should be treated as less important or valuable than another.

[Tweet “In Australia, family law takes into account both financial & non-financial contributions.”]

What Are Your Choices When It Comes To Divorce?

At the moment, there is no such thing as a divorce mortgage in Australia. When it comes to the family home and divorce, couples in Australia have three choices:

To sell their property and split their assets;

You may consider selling the property to receive equal benefits.

The advantage of this option allows each party to feel a sense of closure that both the divorce and property issues have been settled.

For one party to buy out the other parties share of the mortgage;

divorce mortgage, divorce, property settlementIn order to buy out your partner’s share of the loan it’s important to understand that you cannot simply ‘take over’ your existing home-loan. While this is common practice in other countries, in Australia you must instead re-apply under your individual name.

Just like any other loan you would take out, your income and credit history must be approved to demonstrate that you have the capacity to make full loan repayments. An added bonus: In most cases it is unlikely that refinancing process would incur any additional stamp duty taxes.

To continue to co-own the property.

Whilst this may not be the most popular solution in all situations, many families choose to opt for this decision especially when children are involved. In this case both parties remain on the loan agreement in the form of a business agreement whereby each spouse is 100 percent liable for the loan repayments.The benefit of this option relates to the continuation of a stable family environment.

The worst thing you can do is to stop pay the mortgage altogether.
When you buy a property with your spouse the contract you sign with the bank states that all parties are “Jointly and Severally Liable”.  Practically this term means that you are 100% responsible for the loan and so is the other person on the mortgage.  Both of you are 100% responsible.
But this also means if one of you can’t or won’t pay your share, the bank expects other person to pay for all of it.  Following this through, if a default happens on your loan because of the other person’s actions you still get the default.  Be careful about stopping repayments on a loan without talking it through carefully with your bank and a family lawyer.
If you are contemplating divorce and need advice about separation, property settlement and any other issue, please contact us today. We offer a free, 10-minute phone consultation with one of our friendly, experienced family lawyers.