If you’re going through a separation, the mortgage is probably one of a dozen things on your mind, and not the one you want to think about. That’s completely understandable. It’s also the one that can cause the most trouble later if it’s left to sort itself out.

The short version is this. If you’re both on the home loan, you’re each responsible for the whole of it, and separating doesn’t change that. The bank doesn’t split the debt in half when you split up. It stays a joint loan until it’s paid off, refinanced into one name, or the lender agrees to release one of you.

So here’s what that means in practice, and the order we’d do things in.

What changes with the bank when you separate?

Nothing, unless you ask for it. The balance, the repayments and the property behind the loan all stay exactly as they were.

The legal term is “jointly and severally liable”, which just means the bank can chase either of you for the full amount, whoever is living in the house. Your repayment history is also reported against both names. If your ex agrees to cover the repayments and doesn’t, it shows up on your credit file as well as theirs.

What should I do in the first few weeks?

Keep the repayments going. Work out who’s paying what for now and write it down. An email you both reply to is better than a conversation in the driveway.

Then give the bank a call about your redraw and offset. On a lot of joint loans, either of you can take money out without the other one signing. You can usually ask for the account to be changed to “both to sign”, or for redraw to be switched off for now. It’s a short call, and it protects the savings you built up together.

If money is already tight, call the bank before you miss a payment, not after. You have a legal right to ask for a hardship arrangement, and the bank has a lot more options when you ring early.

What are my options for the house?

There are really only three.

One of you keeps it

This is what most people want, especially when there are kids involved. It’s also the option that falls over most often, so it’s worth understanding why.

The bank won’t just take a name off the loan. Whoever keeps the house has to qualify on their own: one income, their own living costs, and repayments tested at a rate a few percent higher than the one they’ll actually pay.

And the loan usually gets bigger. Here’s an illustrative example. Say the home is worth $1,000,000 and you owe $500,000 on it. If you’re splitting the equity evenly, whoever keeps the house needs to pay the other person $250,000, so the new loan is $750,000.

At 6.75% over 30 years, the old $500,000 loan costs about $3,243 a month, which the two of you were sharing. The new $750,000 loan costs about $4,864 a month, on one income. That’s the number the bank will look at, and it’s the number to look at yourself before you agree to anything.

A couple of other things can add to it. If the new loan goes above 80% of the property’s value, Lenders Mortgage Insurance may apply. If part of your loan is fixed, there may be a break cost to refinance it.

Some lenders will count child support and family payments as income and some won’t, and the ones that do each have their own rules. This is one of the places where the choice of lender can be the difference between a yes and a no.

You sell and split what’s left

Selling pays off the loan, releases you both, and you divide what’s left the way you’ve agreed. It’s often the simplest way through.

Just run it with honest numbers. Agent fees, any break costs and the months a sale takes all come off the top, so use the price you’re likely to get rather than the one you’re hoping for.

You keep it together for a while

Some couples hold on to the house until the kids finish school or the market picks up. That can work if you trust each other with the repayments.

You’re both fully on the hook the whole time, though. And when either of you applies for a new loan, a lot of lenders will count the entire joint debt against you, not just your half. That can make a big dent in what you’re able to borrow for your next place.

Check whether you can borrow before you agree who keeps the house

If you only take one thing from this article, make it this.

It’s one of the most common mistakes we see in a separation. A couple agrees that one of them keeps the house, the lawyers write it up, and only then does anyone check whether that person can actually borrow enough. The refinance gets declined and the whole settlement goes back to the start.

A borrowing check is one conversation and a handful of documents. Do it before you agree the split, not after.

Do I pay stamp duty or capital gains tax?

Stamp duty

In NSW, transferring the home into your former partner’s name is generally exempt from transfer duty when it’s done under a Family Law Act court order, or, for de facto couples, a financial agreement made under that Act (Revenue NSW). For married couples, a financial agreement signed while the marriage is still going doesn’t count, and neither does an informal agreement between the two of you. The other states have their own rules, so check the ones where your property is.

Capital gains tax

The home you live in is usually exempt anyway. Investment properties are where you need to be careful.

When a property moves between former partners under a court order or a binding financial agreement, the ATO’s relationship breakdown rollover applies automatically. It doesn’t apply to private arrangements (ATO). Whoever takes the property also takes on its original cost base, which means they also take on the tax bill when it’s eventually sold.

So two properties worth the same today can be worth quite different amounts once tax is counted. It’s worth knowing before you decide which one you’d rather keep.

Are there time limits?

Yes. Married couples have 12 months from the date the divorce order takes effect to apply to the court for property orders. De facto couples have two years from the date they separated. After that you need the court’s permission, and it isn’t guaranteed.

You don’t have to wait for a divorce to get started, though. You can negotiate and settle any time after you separate.

Frequently asked questions

Separation and Your Home Loan FAQs
Can I take my name off the mortgage without refinancing?

Usually not. Even if you stay with the same bank, the person staying on the loan has to be approved on their own, which is a new application in everything but name.

What if my ex stops paying the mortgage?

You're still responsible for the full repayment. Cover it if you can, and call the bank straight away if you can't. A missed payment lands on both of your credit files, whoever's turn it was.

Can my ex take money out of our offset account?

On a lot of joint accounts, yes. Ask the bank to change it to "both to sign", and ask your lawyer how money already sitting in the offset or redraw will be treated in the settlement.

Do we have to sell the house when we separate?

No. One of you can keep it if they can qualify for the loan on their own, you can sell and split what's left, or you can keep it together for a while. Whichever you choose, you both stay responsible for the whole loan until it's paid off or refinanced.

Where to get help

The Family Relationship Advice Line is on 1800 050 321. For free, independent financial counselling, the National Debt Helpline is on 1800 007 007. If you’re dealing with family or domestic violence, 1800RESPECT is on 1800 737 732, and most banks have a specialist team who can help you set up accounts and loans safely.

The bottom line

Keep the repayments going. Lock down the redraw and offset. Find out whether the person keeping the house can borrow enough, before anyone agrees to it. Get your settlement documented properly, so the stamp duty exemption and tax rollover actually apply. And speak to a family lawyer before you sign anything.

If you’d like to know whether you could keep the house on your own, we can run the numbers with you before anything is agreed. Sometimes the answer is no, and if it is, we’d rather you hear it from us early, while it’s still useful.

You can read more about how refinancing works, or get a rough first number from our borrowing power calculator.

This article is general information only. It doesn’t take account of your circumstances and isn’t legal or tax advice. Speak to a family lawyer about your property settlement before you sign anything.