21 Feb 2019

What happens to joint mortgages after separation

What happens to joint mortgages after separation

Going through a separation or divorce can undoubtedly be one of the most unsettling and difficult periods of anyone’s life and there are inevitably a range of issues to contend with alongside the normal emotional stresses.

One of the biggest areas of contention is the financial side of things and in most cases the largest financial commitment is likely to be a mortgage. For many couples but certainly not all, mortgages tend to be in joint names which means that not only do both parties have an equal stake in the value of the home, but they also share the liability for paying it, and ultimately for any outstanding borrowing.

Once a decision has been made to separate or divorce, swift arrangements need to be agreed and made on how to deal with a mortgage and this is particularly important if children are involved.

It’s not always easy to see clearly during these times of stress and it can seem a daunting task to try and deal with a financial commitment of this nature, especially if it has been the family home for a long time and either of the parties have not generally been involved in handling the finances during the period together.

It’s likely that both parties will have already engaged a lawyer to assist them with the technical aspects of the separation or divorce. This will include the separation of assets and liabilities and a discussion around the family home and the relevant mortgage will form part of that discussion.

It is important to know that there are a number of options available in terms of trying to bring about a resolution where a mortgage is concerned and possibly the most straightforward for some could be simply selling the home. Once the property is sold any outstanding mortgage is repaid and the remainder shared. This does of course require each of the parties involved to either buy or rent another property to live in and if the intention is to buy, it’s important to understand that lenders may now only be looking at one income instead of two in terms of affordability.

Another option could be for one party to buy out the other. Again, the party intending to make the purchase needs to be aware that a lender will need to know that individual can afford the additional borrowing on their own. If finances are tight, an alternative could be for the potential borrower to seek a guarantor.

If the mortgage is close to being repaid in full, for some couples they may consider it prudent to simply continue repaying the mortgage between them.

Finally, one option which is perhaps less common is for one party to transfer a part of the property to the other, normally the person that will continue to reside there. The other party would retain a small stake and benefit accordingly if the property is eventually sold.

Ultimately, this will be one of the biggest financial decisions you will make and the process of buying a new property and obtaining a suitable mortgage can be a complex one.

Going through a divorce or separation can be a very difficult time for many people and it’s important that you take your time to consider all the options available and that you take professional advice before proceeding.

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