Divorce and Loans

By Catherine Lezer
When a couple divorces it is important for all parties to understand the options and the consequences of what to do with joint property.
Generally the options are, one of you buys the other out or the property is sold and proceeds are divided.  In the first instance you will need to speak to your mortgage broker to work out what your borrowing capacity is.  The second instance is all about logistics.
Sometimes if legal people are involved they will advise you to stop paying the repayments on the loan.  From the banks point of view this bad, irrespective of the circumstances.  Banks do have provisions for what they call “hardship”: for instance when you lose a job and can’t make the repayments.  They do not have provisions for people who just stop paying because they are advised to by a legal person.
When you buy a property with your spouse the contract you sign with the bank states that all parties are “Joint and Severally Liable”.  Practically this term means that you are 100% responsible for the loan and so is the other person on the mortgage.  Both of you are 100% responsible.  Simple.
But this also means if one of you can’t or won’t pay your share, the bank expects other person to pay for all of it.  Following this through, if a default happens on your loan because of the other person’s actions you still get the default.  Not fair, but that is the reality of the contract you sign.  
Try to be clear headed and take all the facts into account.

Property is Catherine Lezer’s passion. She owns nine properties of her own and has a fundamental understanding of how the property market works. 

“I’ve bought some great properties and some ‘bad’ properties, and even the bad ones have made me money,” says Catherine. “Property is the most reliable way to make money that I know!”
“I’ve purchased, sold, tendered, offered, negotiated, won and lost at auction, developed and renovated so I understand what happens out there in the market,” she adds. “Being able to help other people finance property is an added bonus for me.”
Originally from Perth and now based in Sydney, Catherine joined Smartline in 1999 with over 25 years of banking experience and qualifications include a Bachelor of Business and an MBA. Catherine has helped hundreds of clients finance houses, semis, terraces and apartments, with the majority of her business coming from word of mouth referrals.