Your mortgage might be the biggest financial asset you share with your partner, and when you decide to part ways, it could be your biggest stumbling block.
There’s no doubt about it: divorce makes mortgages complicated. As a joint mortgage holder, you are required to pay for a property that you have a mortgage on even if you no longer live in the property. To avoid a potentially messy situation in the short term, contact your mortgage lender immediately to let them know about the changes. Once you’ve determined a short-term solution, it’s time to look at the options.
Option 1: Sell the property
Selling the property is a quick solution to any mortgage woes, as it rids you of the house (and the mortgage) in one fell swoop. Depending on the agreement you’ve arranged with your spouse and with your lender (and whether or not there is a trust deed in place), you may even be entitled to some of the profits. Do your best to agree amounts and percentages before the property goes on sale. Should discrepancies arise after the sale of the property, it could be a costly oversight.
Option 2: Transfer ownership
If you or your partner intends to live in the property, one of your will need to ‘buy out’ the other partner’s share of the mortgage. This will involve two processes: the first is to prove that you or your partner can afford the entire mortgage on their own, and the second is to take over the other partner’s equity. Most lenders recommend having the property revalued to make sure that payments are fair. Once you’ve ‘bought out’ the other party’s share, the lease will transfer to sole ownership.
This is a crucial step. Your partner might be the most responsible person in the world, but things happen. We advise against allowing yourself to be put in the position of having to take over mortgage payments without any legal recourse.
Option 3: Transfer partial ownership
If you or your spouse still wants to live in the home but cannot afford the entire mortgage on your own, partial ownership is an option. This involves purchasing some of the equity from your partner in the joint mortgage (if you each own 50% of the property, you could buy an additional 35% from your partner, therefore owning 85% of the property). However, your partner will still have a stake in the property, and would be entitled to some of the profit should you sell the home in the future.
If you’d like to live in your property but cannot afford to take sole ownership, consider a Mesher order or a Martin order. Issued by a court, a Mesher order puts off the sale of a house until a predetermined date in the future (often when a child turns 18). A Martin order can also help you gain a bit more time, and allows the applicant to live in the home for the rest of their lives, or until remarriage.
If you are considering this option, be sure to remember that if your name is on the lease, you are equally liable to pay the lease fees, whether you own 1% of the house or 99%.
Option 4: Keep the home, and don’t change who owns it
As I mentioned above, this is a risky proposition. Even the most responsible people can sometimes miss payments, and paying two mortgages (or rent in addition to a mortgage) can place undue financial stress on one partner.
While this option does present considerable risk, it is the easiest to undertake, as nothing is required aside from continued payment of the mortgage.
Every mortgage is different, and the options available to you will depend on your situation. Questions about mortgages? Michelle Niziol is an experienced mortgage broker able to deliver her expertise an advice on a range of mortgage-related topics. Get in touch today.
This article has also appeared in The Divorce Magazine.