Wondering whether buying out a mortgage from your (soon to be ex) spouse may be possible? According the Australian Bureau of statistics (ABS), you're not alone: there are around 50,000 divorces in Australia each year.
If you go through a relationship breakdown, you will need to figure out what to do with the family home or investment properties. There are a few options, which include:
- Buying out the property share owned by your ex-spouse.
- Selling your property share to your ex-spouse.
- Selling the home and sharing the profits.
Buying the property outright from your ex-spouse
There are many couples who divorce or separate under less than ideal conditions, which means buying out your ex can be challenging. Some of these concerns can include:
- Issues that arise when you try to come to an agreement about the cash settlement after the property has been sold.
- Bad credit may exist on your credit file due to unpaid bills related to the divorce.
- Either or both of you may stop paying the mortgage based on legal advice.
- You may not have anticipated the separation and may not be prepared to put in another home loan application.
Because of all of these potential complications, it's important to move as swiftly as possible.
To work out if you can afford to buy the home outright from your spouse, you first need to come to an agreement with them. You may want to (or need to) do this through your lawyers, so you come to an agreement that is legally binding.
Listen: We want prenup! A podcast on the cost of divorce
A few considerations when buying out your spouse:
- Stamp duty: You generally won't have to pay stamp duty when buying out the property share of your ex-spouse. Stamp duty is a complex legal issue, so speak with a solicitor for confirmation.
- Refinancing your loan: Whether or not you'll need to refinance depends on your specific situation, and what you decide to do with your property after your divorce. You'll either refinance your loan with the same lender, or with a different lender altogether.
- Your credit profile: If you or your spouse have stopped making repayments, your loan might be behind or in arrears. This shouldn't impact your ability to refinance, provided the rest of your credit history is in good shape and you can provide proof you can make the new repayments. Check your credit score for free in the Finder app to make sure your credit history is squeaky clean.
If your history of repayment has been excellent and you meet all the bank guidelines, then may be possible to get a loan for 95% of the value of your property. You will have to pay lenders mortgage insurance (LMI) if you borrow more than 80% of the value of your property. Calculate how much you can borrow with our calculator.
Can you use child support payment as income to get a home loan?
Some lenders will accept your child support benefit as income when applying for a mortgage however this will vary depending on the lender. The following may apply:
- Age of dependents. Most lenders will take into account the age and number of dependents that you have. The older your children, the less likely the lender will accept your Family Tax Benefit (FTB) income, particularly children aged 11 years and over.
- Centrelink statements. The lender will request at least 6 months of Centrelink statements. You can download a statement from the Department of Human Services website.
Family Tax Benefits (FTB) Part A and B and child support income are accepted by a number of lenders. However, keep in mind that some lenders view child support payments as an unreliable source of income so they may not take this into consideration when reviewing your borrowing capacity.
Find out more about home loans for Centrelink recipients
See below for some options when refinancing your home loan. You may also want to contact a broker to discuss your situation further.
Comparison of Home Loans
Selling your share to your ex-spouse
If you choose to sell your share to your ex-spouse, then they will have to refinance the home loan to buy out your share of the property and to remove your name from the home loan.
You'll also want to make sure to have your name taken off the property title after the divorce.
If this is the path you decide to go down, there'll be much less work for you to do, as you don't need to prove you can afford the home loan.
One important part of the process however is getting your name removed from the title. This is the final legal step in the process, and means the property is no longer your responsibility in any way, shape or form.
How to get your name off the property title after divorce
What are the tax implications of selling to my ex-spouse?
If you sell your share of the property to your ex, you will be eligible for capital gains tax (CGT) rollover relief. This means that you won't have to pay CGT on the share you sell to your ex-spouse, because the spouse who receives the property is assumed to receive the capital gain or loss on the property should they decide to sell in the future. Also, if your home is owner-occupied (not an investment), then no CGT applies.
Selling the home and sharing the profits
Many separating couples decide that a fresh start is the best way forward – sometimes, it's the only way forward, depending on your financial situation.
It's a super stressful time and the decisions you make have so much riding on them, so don't be shy in reaching out for help and assistance. You can use the services of a mortgage broker for free, and solicitors who specialise in property and family law can provide really helpful advise too.
You may also want to contact the National Debt Helpline: they offer live chats with a financial counsellor, and their service is free and confidential.
Recently divorced? It may also be time to consider reviewing your life insurance policy
If you have recently separated with your partner, it could be worth also reviewing your current life insurance cover to ensure you still have adequate cover in place. You may currently have a joint policy in place with your spouse that you would like to review or you may want to adjust the beneficiaries on your policy. Just as getting married is a key time to consider taking out life cover, divorce is an important time to review the cover you have in place to ensure it still meets your needs. Review your life insurance and receive a free quote for cover