I often get asked by clients in the initial stages of separation whether they need to keep paying the mortgage and rates on the family home. This is in the context of a relationship break down where there has been a separation and one party has moved out and the other has remained living in the property.
Like a lot of things in law, the answer to this isn’t a short one but the following are the key things people need to consider. I’ll refer to the mortgage repayments below, but this can also apply to other outgoings for real estate like rates and utilities.
- If the home loan is in your joint names then you are jointly and severally liable to the mortgagee/bank to meet the repayments as and when they fall due. The bank will not care who is living in the property or whether you have separated or not. If payments are missed, there can be several negative consequences including future payments increasing and penalties and other fees accruing and the bank eventually selling the property and your credit rating being adversely effected. It is often said that there is a ‘user pays’ principle in family law, however, this will have no standing as far as the bank is concerned and the bank can pursue both parties for any unpaid amounts. Even if there is a family court order that provides for one party to pay the mortgage and indemnify the other for this, this will not bind the bank and if the party doesn’t comply, it will be up to the other party to apply to the Court to enforce the indemnity.
- A party may have to continue paying the mortgage by way of or in lieu of spousal maintenance. Under the Family Law Act a party to a marriage is liable to maintain their former spouse to the extent they are reasonably able to do so, if their former spouse is unable to support themselves adequately. The same applies to people who have been living in de facto relationships. Spousal maintenance is different to child support and property settlement which relates to the division of property as opposed to income.
Take for example a husband and wife who have separated. The husband is in paid employment and earns $100,000 per year. The wife hasn’t been in employment for many years as she has been taking care of the children. The husband has moved out of the family home and the wife remains living there with the children. There will need to be a property settlement where the property may be transferred to a party or sold, but what do they do in the meantime? The wife won’t be able to pay the mortgage on her own because she doesn’t have an income. Under the Family Law Act she would be entitled to spousal maintenance from the husband. I would tell the husband to keep paying the mortgage for the time being because if he doesn’t, the wife will likely apply to the court to obtain an order that he pay her spousal maintenance which could be equal to or more than the amount of the mortgage repayments. The wife of course may be entitled to an additional amount by way of spousal maintenance if, for example, she can’t meet her other living expenses like groceries, petrol, electricity etc. The amount of spousal maintenance the husband may have to pay will depend on his capacity however, as he will also have to be able to pay his own reasonable living expenses.
- If the party that moves out now has to pay rent, do they still have to contribute to the mortgage? I would tell the person that unless the party that has remained living in the property can afford to meet the mortgage on their own, they should continue to contribute to the mortgage to the extent they are able. Another option is for the parties to approach the bank and explain the situation and ask the bank to change the repayments to interest only until the property settlement is finalised. Likewise, if people can speak to the council or electricity or utilities provider directly if they are in financial hardship and ask what arrangements they can put in place such as a payment plan. If a party reduces loan repayments unilaterally, even though they could afford to continue to make the repayments at the existing level, this may be taken into account by the Court in assessing the parties’ contributions in their property settlement as presumably there would be more equity in the property if the party had not reduced the repayments.
- Tied to this question is the question of whether the party that remains living in the property has to pay ‘rent’ to the other party pending the finalisation of their property settlement. I would say the answer to this is ‘no’, but this could be taken into account when the Court is assessing the parties’ contributions. However whether this is given any significant weight is another matter and would could depend on the time that has passed that the person has been living in the property ‘rent free’. If it’s been 6 months or even 12 months, then the Court won’t give much if any weight to it but if it’s been several years since the parties separated the Court may give some weight to this.
If you would like to know how this applies to your circumstances, contact one of our experienced family lawyers today for an appointment.
