Managing finances & paying the mortgage after separation
Managing finances & paying the mortgage after separation
When a couple separates, whether de facto or married, it is very common for people to create immediate or future issues for themselves, financially and otherwise, due to a limited understanding of what they should and shouldn’t do upon separation.
On this page you can expect to get insights into what people think they should pay for (or not pay for) and what happens in the family law context in Australia.
In this article we explore:
- During separation, who pays the bills?
- What to know about paying the mortgage after separation
- How to manage other expenses immediately upon separation
- Who should move out of the house upon separation
- Time limits that apply to finalise a financial separation
- Common mistakes that lead to asset loss/ financial issues
- Partner or spousal alimony/financial maintenance
- How to protect yourself financially in a separation; and
- How to protect yourself financially in a divorce.
If one person has moved out of the home, and into another property (whether that is a rental or one they own) that doesn’t automatically mean they are no longer responsible for expenses relating to the property they previously lived in. Even when they have utility bills, insurances etc to pay for their new residence.
Common household expenses such as mortgages, car loans, credit cards, utility bills (electricity, gas, water etc), insurances, repairs etc still need to be paid.
It is common for issues to arise relating to payment of expenses when there are two households and subsequently two sets of living expenses. In the very early days of separation these often tend to include:
- Conflict about who should stay in the home and who should move out;
- Refusal by one person to contribute to mortgages/ loan repayments; or
- Issues relating to the imbalance in income between you and your former partner/ spouse.
This conflict often extends to child-related expenses such as child care, school fees, private health etc but first, who should be responsible for paying the mortgage after separation?
During separation who pays the bills?
If one person has moved out of the home, and into another property (whether that is a rental or one they own) that doesn’t automatically mean they are no longer responsible for expenses relating to the property they previously lived in. Even when they have utility bills, insurances etc to pay for their new residence.
Common household expenses such as mortgages, car loans, credit cards, utility bills (electricity, gas, water etc), insurances, repairs etc still need to be paid.
It is common for issues to arise relating to payment of expenses when there are two households and subsequently two sets of living expenses. In the very early days of separation these often tend to include:
- Conflict about who should stay in the home and who should move out;
- Refusal by one person to contribute to mortgages/ loan repayments; or
- Issues relating to the imbalance in income between you and your former partner/ spouse.
This conflict often extends to child-related expenses such as child care, school fees, private health etc but first, who should be responsible for paying the mortgage after separation?
What to know about paying the mortgage after separation
Generally speaking, where there are loans or credit cards in one name, that person is financially liable to fulfil the terms of the agreement. If mortgages and loans or accounts are in joint names, both are liable to fulfil the terms of that agreement. However, if one person’s refusal to contribute to mortgages, loans, credit cards etc is solely because their name is not on the mortgage/loan/account/credit card and this results in their former partner defaulting on a loan Agreement, or leads to financial penalties or property repossession, that can be problematic for more than one of the parties, as we will explore further along.
The goal should always be to minimise the financial hardship experienced by either party but that does not mean that you should continue to pay exactly as you have historically. This is where legal advice is essential.
When people come to us for advice tailored to their unique circumstances, they may learn that not paying for expenses they previously paid for might be the best course of action or conversely, it may prove to disadvantage them in some other way later on. Every circumstance is different which is why legal advice is important before you agree to any terms relating to payment of expenses informally or otherwise.
How to manage other expenses immediately upon separation
Generally speaking, do not stop paying accounts, loans or expenses without first seeking advice from an experienced family lawyer. Do not immediately close down joint bank accounts either as this can create havoc for your former partner or spouse as well as yourself, if the Court ever ends up involved. Acting in any way that could reflect poorly on you later on, can have an impact on the outcome of any matters (including time with children) that may end up before the Court. Even if Court is something you both agree you don’t want involved, sometimes this is where amicable separations end up despite the very best of intentions.
So, seeking advice before you act is always the best course of action.
Other common expenses that separating couples may need to consider include:
- Child care/school fees;
- Extra curricular activities (sport, music, dance etc);
- Private health insurance;
- Medical/dental/specialist appointments;
- Medication; and
- Other incidentals including excursions, travel etc.
While the Child Support Scheme (within Services Australia) can determine and manage child support payments, it only takes into account general costs relating to children such as:
- Food and clothing;
- Basic school expenses (uniforms, books etc);
- Basic/routine medical/dental; and
- Everyday transport and housing/living costs associated with the child.
For parents who wish to maintain their children’s enrolment in private schools, extra curricular activities and want to include extras like laptops/devices, allowances, vehicles at driving age, private health insurance etc, then a formal Agreement needs to be entered into – either a Limited Child Support Agreement or a Binding Child Support Agreement. While this is separate from the Property Settlement Agreement, it is a financial consideration.
Who should move out of the house upon separation?
Regardless of whose name is on the title deed or mortgage, there is nowhere in the Family Law legislation that says either party is obligated to stay or leave.
Separation under one roof can be challenging. It is often the case that one person elects to move out or, in some circumstances, neither wants to move from the property. If there is family/domestic violence, urgent legal advice is essential to get a safety plan in place.
It is important to seek family law advice, specific to your circumstances before deciding, so you can be fully informed about the possible impacts on moving out / staying in the home.
Time limits that apply to finalise a financial separation
While delaying is common, there are time limits for the property settlement to be finalised with the Court that both people who have been married or in de facto relationships must comply with.
Marriages
For people who have been married, there is a requirement for the Property Settlement Agreement to be filed with the Court no later than one year from the date your Divorce Orders come into effect.
De facto property settlements
For people who have been in a de facto relationship, the Property Settlement Agreement must have been filed with the Court within 2 years from the date of separation.
Common mistakes that lead to asset loss or financial issues
While most people take their time to start the financial separation process, this can be incredibly risky.
Unlike the one year waiting period that is required before either party to the marriage can make an Application for Divorce, the property settlement process can begin and be finalised at any time from the date of separation.
When a property split is to be determined, it is the value of the property pool at the date the settlement is submitted to the Court that is to be divided. That is, not the value of the property pool at the date of separation. So, if assets increase in value, additional assets are purchased, additional income and superannuation is earned, then that increased value is what is to be divided. Conversely, if the combined property pool drops in value or is depleted, then that is what is considered for division.
The risk in delaying a property settlement is often problematic for both parties. Seeking legal advice to assist in the negotiation and decision making across a range of areas provides clarity about best next steps.
Partner or spousal alimony/financial maintenance
You may have heard it called spousal alimony however in Australia it is called spousal maintenance or partner/de facto maintenance.
Essentially, it is financial support that one party of the relationship makes to the other to maintain basic living expenses. It is specifically paid in the short-term where one person would not otherwise be able to afford basic living expenses. It is usually temporary, until the terms of the property settlement are finalised.
The law says that anyone in a marriage or de facto relationship needs to assist the other in meeting living costs, where there is an ability to do so. However, any significant disparity in income / earning potential between the separated parties is further considered when negotiating the terms of the Property Agreement (the financial settlement).
There are several considerations that determine whether someone is entitled to partner/spousal maintenance. Whether you are considering separation or already separated, seeking family law advice specific to your personal circumstances will allow for you to gain insights into your obligations and/or entitlements.
How to protect yourself financially in a separation | How to protect yourself financially in a divorce
There are many considerations for anyone going through separation and divorce in Australia should be aware of. What helps with the often-overwhelming amount of information is to have someone who works with people going through separation every day who can filter out what you need to know and consider now, and what can wait.
Advice from friends and family about what to do and what not to do is well-meaning but it is often out-of-date and inaccurate. While speaking with a family lawyer “later on” might be your thinking right now, it is often what puts them on a troublesome path.
Too many highly intelligent individuals discover later that their decision making was flawed. When they have inadvertently created other consequences (that they could not have known about without specialised family law advice), this is often when the conflict and likelihood of needing Court intervention is heightened.
Getting clarity about what you should know, specific to your financial and family circumstances, is what puts people on the best path.
Put simply, in separation, family law advice exists for two core purposes:
- Advice and insights before acting/deciding – proactive information-seeking to assist decision making; and
- Insight, advice and representation (if required) after acting – reactive/consequential information-seeking to resolve matters and minimise risks/consequences where possible.
So, the best way to answer those early questions like these…
“In a separation who pays the bills?”
“Who should be responsible for paying the mortgage after separation?”
“How to protect myself financially during separation or divorce”
…is always to get legal advice early. What people think is the right (or best) thing to do in the early days of financial separation, is best actioned with the confidence that only highly experienced family lawyers can provide.
We assist individuals with pre-separation and post-separation advice about how to approach financial matters in the short- and longer-term. Our family lawyers are highly experienced in assisting with the negotiation, drafting and reviewing of Property Settlement Agreements/ Financial Agreements, including partner/spousal maintenance. To make an appointment with one of our lawyers click here or to learn more about these services and related de facto separation matters, visit this page.
Disclaimer: The information in this article is general in nature and is not a substitute for independent legal advice from a family lawyer.
This information is correct as of the date of publishing and is relevant for people in these states and territories of Australia – ACT, New South Wales, Queensland, Victoria, Tasmania, Northern Territory and South Australia.
