What happens if I can’t afford to pay my mortgage or debts following a separation?

The divorce rate for people aged between 50 and 60 has been increasing since 2000. 1 Separating later in life presents unique challenges at any time, however, it is particularly challenging during difficult economic circumstances when the cost of living is high and interest rates are high.

Following separation, finances naturally feel constrained because there is a shift from pooling income to cover expenses for a single household to a single income stream covering separate household expenses. This may make it difficult to meet normal financial obligations.

In this article, Carolyn Devries, founder of New Way Lawyers provides some helpful tips for what you can do if you are separated and finding it hard to meet your expenses, in particular mortgage payments and debts.

1. Negotiate with your ex

It may not be an easy conversation to have but, provided it is safe to do so and there are no family violence orders in place preventing communication, you can discuss between yourselves ways to make mortgage repayments easier on both parties. Options can include selling other assets, or renting out a portion or all the property. Before making any big changes to financial arrangements, it is always wise to speak to your financial planner if you have one and to Human Services, if either party is in receipt of government benefits, to ensure the longer-term impact of any actions is understood.

2. Reach out to your lender

If you are struggling to make your monthly repayments, financial institutions generally have hardship programs that can provide you with temporary relief by reducing your repayments or deferring them for a period of time through a mortgage holiday. You’ll need to provide any supporting documentation that is requested to the financial institution.

3. Look into refinancing options

With interest rates rising, many banks are offering attractive incentives for consumers to refinance their loans. Refinancing involves taking out a new loan to pay off your existing mortgage, which can result in lower repayments or a more manageable payment schedule.

You might want to see the advice of a mortgage broker as there are costs with refinancing. The advice of a family lawyer should also be sought prior to refinancing.

4. Consider selling the property

It may not be the right time to sell your property but doing so can free up cashflow for you to start afresh and cut emotional and financial ties with your ex-partner. If you purchased your property before 2020, it’s likely that you may see a profit when you sell your home. Start by getting your property valued and speaking with a few real estate agents in your area. They’ll be informed to tell you about the current state of the market and what has sold in your suburb.

5. Speak to a family lawyer

Regardless of how your relationship ended, whether it was amicable or more difficult, a family lawyer can help you understand your legal rights and responsibilities and negotiate with your lender or ex-partner where needed. A lawyer can help you find a pathway forward to resolve the property and financial matters that arise from separation and divorce.

1 Divorces in Australia | Australian Institute of Family Studies (aifs.gov.au)

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.