When a relationship ends, the family home and the mortgage attached to it are typically the most significant financial matters to resolve. In Australia, approximately one in three marriages ends in divorce, and many more de facto relationships dissolve each year, making this one of the most common reasons people seek mortgage advice.
The critical thing to understand from the outset is that your lender is not a party to your separation. A family court order or private agreement between you and your former partner does not change your obligations to the bank. If both names are on the mortgage, both parties remain jointly and severally liable for the full loan amount until the mortgage is formally discharged or refinanced into one person’s name.
This means that even if your former partner agrees to take over the mortgage payments, you remain legally responsible if they fail to pay. Missed payments will affect both parties’ credit scores, and the lender can pursue either borrower for the outstanding debt. This is why it is essential to formalise the financial separation as quickly as possible, rather than relying on informal arrangements that leave both parties exposed to risk.
There are three main options for dealing with a jointly owned property following separation. Each has distinct advantages and challenges, and the best choice depends on your financial circumstances, the needs of any children, and the current property market.
| Option | Pros | Cons |
|---|---|---|
| One party buys out the other | Stability for children; retain property asset; avoid selling costs | Must qualify for loan alone; need funds to pay out partner’s share |
| Sell the property | Clean break; both parties receive proceeds; simple division | May not suit children; selling costs; market timing risk |
| Retain jointly (temporarily) | Delays disruption; allows market to improve; time to arrange finances | Ongoing financial entanglement; both remain liable; potential disputes |
If one party is keeping the property, refinancing the mortgage into their sole name is the most important financial step in the separation process. This involves applying for a new loan that pays out the existing joint mortgage and, if required, provides additional funds to pay the departing partner their share of the equity.
The biggest challenge with post-separation refinancing is that you must now qualify for the loan on a single income. If both incomes were needed to service the original mortgage, the remaining borrower may not have sufficient income to meet the lender’s serviceability requirements. This is where an experienced mortgage broker helps: different lenders have different assessment criteria, and some are more accommodating of post-separation circumstances than others.
Some lenders will consider child support and spousal maintenance payments as assessable income, which can significantly boost borrowing capacity for the parent with primary custody. Others may not, or may only accept a portion. A broker who understands which lenders have the most favourable policies for separated borrowers can make a substantial difference to the outcome.
Additionally, lenders may offer a stamp duty exemption on property transfers between separating spouses or de facto partners when the transfer is part of a court order or binding financial agreement. In Victoria, this exemption can save tens of thousands of dollars, so it is important to ensure the transfer is structured correctly to take advantage of this concession.
divorces were granted in Australia in recent years according to ABS data, with property settlement being one of the most complex aspects of the process
In Australia, property settlements following separation are governed by the Family Law Act 1975 for married couples and by corresponding state or federal legislation for de facto relationships. The law provides a framework for dividing assets that considers contributions made by each party, their future needs, and the overall fairness of the proposed division.
The court considers both financial contributions (such as income, savings used for the deposit, and mortgage repayments) and non-financial contributions (such as homemaking, child-rearing, and renovations). This means a partner who stayed home to raise children while the other worked is still recognised as having contributed to the property, even if their name was not on the loan or title.
Property settlements do not have to be equal. They must be just and equitable. Factors that can influence the split include the length of the relationship, the age and health of each party, their earning capacity, who has primary care of children, and any other relevant circumstances. Most property settlements are resolved by agreement between the parties, either informally or through mediation, without needing to go to court.
Michael and Lisa separated after 15 years of marriage with two school-age children. Their Geelong home was valued at $850,000 with a $320,000 mortgage. Lisa wanted to keep the home to provide stability for the children. We helped Lisa refinance the $320,000 mortgage plus an additional $145,000 to pay Michael his agreed share of the equity, all into her sole name. By identifying a lender that fully assessed her child support income and part-time nursing salary, we secured approval that two other lenders had declined.
One of the most overlooked risks during separation is the potential damage to your credit score. When emotions run high, mortgage repayments can be missed, either because one party refuses to pay or because both assume the other is handling it. Even a single missed payment can remain on your credit file for five years and significantly impact your ability to borrow in the future.
To protect your credit, ensure mortgage repayments continue on time regardless of the state of your relationship. If necessary, set up automatic payments from a joint account that both parties continue to fund. If your former partner has stopped contributing, it may be worth covering the full repayment yourself in the short term to protect your credit score while you formalise the property settlement through legal channels.
It is also important to review and separate any other joint financial products, including credit cards, personal loans, car loans, and buy-now-pay-later accounts. Each of these creates a joint liability that can affect your borrowing capacity and credit profile. Close joint credit cards and remove your former partner as an authorised user on any accounts in your sole name.
Many people going through separation need to purchase a new home, often on a reduced income and with a smaller deposit than they had when buying as a couple. While this can feel daunting, it is achievable with the right guidance and realistic expectations about what is affordable on a single income.
Your deposit will typically come from your share of the property settlement proceeds. If the family home is being sold, your portion of the equity after repaying the mortgage and covering selling costs becomes your deposit for the next purchase. If your former partner is keeping the home, the buyout amount they pay you serves the same purpose.
Lenders will assess your application based on your individual income, which may include employment income, child support received (some lenders accept this), rental income from investment properties, and government payments such as Family Tax Benefit. Having a stable employment history and a clean credit record will strengthen your application significantly.
Before signing a property settlement agreement, consult with a mortgage broker to confirm that the proposed financial split will allow you to obtain finance for a new home. There is no point agreeing to a settlement that looks good on paper but leaves you unable to qualify for a mortgage. Your broker can provide a pre-assessment based on your projected post-settlement financial position.
A Binding Financial Agreement (BFA), sometimes referred to as a prenuptial agreement or financial agreement, is a legal document that sets out how assets will be divided in the event of separation. BFAs can be entered into before, during, or after a relationship and provide a degree of certainty about property division without the need for court involvement.
For couples with significant property holdings or complex financial arrangements, a BFA can streamline the separation process considerably. Instead of negotiating the property split during an emotionally charged time, the agreed terms are already documented. Both parties must receive independent legal advice before signing a BFA, and the agreement must comply with specific requirements under the Family Law Act to be enforceable.
However, BFAs can be challenged. Courts can set aside a BFA in certain circumstances, such as where there has been fraud, duress, unconscionable conduct, or a material change in circumstances (such as the birth of a child) that would make the agreement unjust. Despite these limitations, a well-drafted BFA remains one of the most effective tools for protecting your financial interests and providing clarity about property division.
If you and your former partner own investment properties in addition to the family home, the separation process becomes more complex. Investment properties are treated as part of the total asset pool and must be valued and divided as part of the property settlement. The capital gains tax implications of transferring or selling investment properties add another layer of complexity.
When investment properties are transferred between separating partners as part of a family law settlement, there is a CGT rollover relief available. This means the transfer does not trigger an immediate capital gains tax event. Instead, the receiving partner inherits the original cost base and will pay CGT when they eventually sell the property. This rollover only applies to transfers made under a court order or binding financial agreement, not to private sales between former partners.
Decisions about whether to keep or sell investment properties should consider the ongoing holding costs, rental yield, potential capital growth, and each party’s ability to service the associated loans independently. In some cases, selling all investment properties and splitting the proceeds cleanly is the most practical approach. In others, one party may wish to retain investment properties as part of their long-term wealth-building strategy, offsetting this against a smaller share of other assets.
Going through a separation is one of the most stressful life events, and handling the financial aspects without professional support can feel overwhelming. A mortgage broker who understands the unique challenges of post-separation lending can provide practical guidance during this difficult time.
Your broker can assess your borrowing capacity as a single applicant before your property settlement is finalised, ensuring the proposed financial split is workable from a lending perspective. They can identify lenders that accept child support and spousal maintenance as income, find options for borrowers with reduced deposits, and structure applications to maximise your chances of approval.
At Mortgage & Finance Advisory, we work with separated clients across Geelong, the Surf Coast, Melbourne, and regional Victoria with sensitivity and discretion. We understand that every separation is different, and we tailor our advice to your specific circumstances. Whether you need to refinance an existing property, buy out a former partner, or purchase a new home on a single income, our team can help you work out the next step. Call us on 03 9020 2699 for a confidential consultation.
In most cases, one party cannot unilaterally force a sale without a court order. However, if you cannot reach agreement on what to do with the property, either party can apply to the Family Court for orders regarding the property. The court will consider all relevant factors and may order a sale if that is the most just and equitable outcome. It is always preferable to reach agreement through negotiation or mediation rather than court proceedings.
For married couples, you have 12 months from the date your divorce is finalised to apply to the court for property settlement orders. For de facto couples, the time limit is two years from the date of separation. It is strongly recommended to resolve property matters as early as possible, as delays can complicate the process and leave both parties financially exposed through ongoing joint liabilities.
Many people successfully obtain home loans on a single income following divorce. The key factors are your income level, employment stability, deposit size, existing debts, and credit history. Child support and spousal maintenance income may be considered by some lenders. A mortgage broker experienced in post-separation lending can assess your situation and identify lenders most likely to approve your application.
In most Australian states, including Victoria, transfers of property between separating spouses or de facto partners are exempt from stamp duty when made pursuant to a court order or binding financial agreement under the Family Law Act. This exemption can save tens of thousands of dollars. Ensure the transfer is properly documented to qualify for the exemption, and seek legal advice to confirm eligibility in your specific circumstances.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
