by Lisa Montgomery 26/03/2007

Leading Non-Bank Lender Urges Couples To Consider All Options In A Break-Up Before Selling The House

Breaking up is hard to do…particularly when the financial reality of a mortgage and property is involved. So what options are available to deal with a mortgage and other joint financial commitments in the event you and your partner separate?

According to leading non-bank lender, RESI Mortgage Corporation, relationship breakdowns are one of the main reasons houses are put on the market, but there may be alternative options other than the sale of the home.

RESI’s Head of Consumer Advocacy, Lisa Montgomery, says a house is often a couple’s biggest investment and if they break up, many believe initially that they will need to sell the house to split their assets, when in fact that may not be the most appropriate option for the couple. 

“Both partners need to sit down and work through all the financial arrangements they may have together. Although the relationship may have ended, the debt that the couple have incurred together will not disappear with the relationship. You cannot just walk away from debt,” she says.

Montgomery explains, “when one person leaves a relationship and the marital home they can be under the impression that they leave their responsibility for the debt behind, and this is simply not the case. Often the debt will fall into arrears and can affect ongoing credit ratings for both parties, something which is so easily avoided.”

In addition to a mortgage, a couple may still be financially tied together through the commitment they jointly undertook in relation to credit cards, accounts and other purchases such as a car.

Montgomery says “when the relationship breaks up, the best course of action is to approach the situation as rationally as possible and to try to maximise both partners’ assets and situations.”

“The reality is, people don’t enter a marriage, or take out a mortgage, thinking they will get divorced so this possibility is not commonly planned for. While some people consider pre-nuptial agreements as a helpful and sensible way to preserve their financial details prior to marriage, such agreements are not the norm,” Montgomery said.

In the event of a change of relationship status it may also be an obligation for both parties to advise their lender of their change of circumstances. This will depend on the terms of the original mortgage contract. 

Montgomery says before deciding to sell the house there are other options which people can consider including:

• One partner decides to buy the other out. In the event of this happening the person taking over the mortgage will probably need to refinance their loan and should discuss their options with their lender.
• The couple agree to rent out the house and continue their mortgage  repayments. The couple may decide to have this arrangement in place until they feel more prepared to commit to a sale, or in the event of a property market  change, they judge the market to be better for a sale.

Both partners will benefit if they work things out sensibly and steer away from expensive legal tussles.

Montgomery says an event such as divorce is a very trying time financially, as well as emotionally, but both parties often go on to eventually own a property outright – it just may take them longer than they originally planned.

“The important thing to remember is that these days, lenders are familiar with people needing to refinance their loans because of the change of a relationship status. They are normally willing to work with people to find a solution which suits their needs,” adds Montgomery.

Working out your entitlements can be a complicated and sometimes drawn out process. It is therefore important to seek legal advice so that you understand exactly what your rights and options are. Once these are clear, you will be in a better position to realistically plan for the future.