Who pays the household expenses, including the home loan, when you separate?
Separation can be an extremely emotional and confusing time, however there are important commitments that separating couples need to put to the forefront of their minds during this period.
One of the most common financial commitments is to the bank.
Who should be responsible for the home loan repayments on the family home and any other properties forming part of the net asset pool available for distribution between separating parties?
Who also should remain responsible for the other ongoing household expenses pending a final property settlement?
Commonly on separation, one party will continue to reside at the family home and the other will move into rental accommodation elsewhere.
The party who moves out of the family home may assume that the other should continue to be responsible for the household expenses, including repayment of the home loan, and may stop contributing on the basis they no longer live there and have rental and other costs of their own.
This is not necessarily the correct assumption.
Where parties cannot agree on an interim basis as to what contribution each should make to the ongoing payment of household expenses, the following factors will be considered:
- All sources of income available to each party.
- The reasonable living expenses of each party, including rent for the other property.
- The day-to-day expenses of each party, including any child support obligations.
- Other ongoing liabilities such as loan repayments or private school fees.
It may be the case that the party who continues to reside at the family home has insufficient income to contribute to the household expenses if, for example, they are not working and caring for the children and therefore reliant on the other party to meet such expenses.
Many parties however will be in a position to leave the existing arrangements for payment of the household expenses in place while they are negotiating their property settlement. Where parties do find that one party pays a disproportionate amount of the home loan post separation, this can usually be adjusted between the parties on their final property settlement.
It is advisable for parties to avoid accessing funds available on redraw facilities unilaterally, as this will often lead to urgent court action for orders for restitution of the funds to the redraw account.
It is also important to remember that if both parties are jointly named on the home loan secured by mortgage against any real estate, they each have a personal obligation to the bank to meet the periodic loan repayments.
Default in payment can affect the credit rating of the borrowers and/or lead to a sale of the property.
Where the dispute cannot be resolved by negotiation, either party may apply to the Family Court of Western Australia for orders as to who should meet payment of the household expenses on an interim basis pending a final property settlement.
In determining the dispute, the Court will require full disclosure of the considerations referred to above and will scrutinise the reasonableness of the expenses asserted by each party.
For example, if the party who vacated the family home enters a lease for a luxury apartment to the financial detriment of the family, the Court will not likely treat the rental as a reasonable expense and instead apply a more modest amount attributable to that parties’ reasonable rent.
What happens to the home loan on settlement?
If a party wishes to retain any real estate as part of a property settlement, that person will be required to refinance the existing home loan(s) into their own name at the time the property is transferred out of joint names.
It is therefore prudent to obtain advice as to your borrowing capacity prior to putting the offer to the other party, and/or committing to the transaction as part of any Family Court order.
If neither party wishes to retain any real estate as part of a property settlement, or cannot afford to maintain the home loan repayments after settlement, the property will need to be sold. In that circumstance, agreement will need to be reached in relation to the ongoing payment of household expenses until the completion of the sale.
Negotiations become much more complex when the loans are secured by mortgages over partially constructed homes, vacant land and vacant investment rental/commercial properties, or where the loan is a collateral mortgage for business loans.
Further, separating parties may have agreed to defer payment of the home loan for 3–6 months post the onset of COVID-19. Whilst this may result in a short-term reprieve, parties should ensure there is agreement in place, or appropriate Court orders if required, as to the ongoing payment of the home loan by one or the both of them once repayments resume.
Call Lotus Legal for advice in relation to your rights and entitlements, and to assist you in resolving the ongoing payment of household expenses pending a final property settlement on (08) 9305 9529.
