You’ve bought a house with your partner. What happens if you break up?

Breakups are no fun. They can be emotionally charged, painful, volatile and exhausting. And, although it seems cruel to add paperwork, financial decisions and legal concepts into the mix, they are necessary parts of the process for couples who have bought property together.

Carina* and her partner recently separated, 18 months after buying and renovating their first home together.

Despite months of discussions about when to sell the house, and how to fairly divide the equity, the pair couldn’t reach an agreement. While they had split the mortgage evenly, Carina had put more money into the deposit and renovation. Eventually, they turned to mediation.

“It’s been emotionally draining,” she says. “I’m ready for it to be done so I can let go and move forward.”

We reached out to a family law expert to explain what happens to joint property owners in the aftermath of a break-up. Their advice is based on a de-facto couple with no children and who are both on the property title and mortgage.

What to do with your property in the event of a breakup

Keep paying the mortgage

Many of those navigating the murky waters of separation, particularly younger buyers or recent first-home buyers, are likely laden with a hefty bank loan. So one of the first things to consider is how the mortgage will be paid while the former partners figure out what to do with the property.

“One of the main issues that can arise is who lives in a property pending a property settlement and who meets the expenses for that property,” says Sage Family Lawyers partner Charlotte Geddes. “This is why it is often best to get advice early to understand potential entitlements.”

Seek legal advice

It is advised that you speak to a legal professional promptly after separation. “It is typically best for parties to seek professional legal advice as soon as possible and prior to negotiating an agreement,” Geddes says, “in order for them to properly understand their rights and entitlements and to negotiate from an informed perspective.”

It is worth noting legal advice is a financial cost and will need to be factored into the budget.

Three options to reach agreement

Regardless of the outcome, there are generally three paths available to former spouses: an informal agreement, a financial agreement and court/consent orders.

1. An informal agreement without taking any legal steps is the cheapest option. This may occur when the two parties can amicably come to an agreement. However, the agreement is not enforceable by a court so any outcome could be legally disputed down the track.
2. Financial agreements provide more certainty, setting out what will happen to the assets and liabilities in the event of a separation. These agreements can be costly as they require lawyers to advise both parties independently. They can be reached before, during or at the end of the relationship. For example, a financial agreement may be the result of mediation.
3. Parties can also file consent orders with the Family Court to formalise any agreement. Similar to court orders, consent orders are legally binding and enforceable. “The court will consider whether any agreement reached between the parties is just and equitable,” Geddes says.

If an agreement cannot be reached between the two parties, the matter can be considered by the Federal Circuit and Family Court of Australia.

The court would consider the assets and debts available for division, if there should be an alteration of the parties’ property interests, the parties’ respective contributions, and the “future needs” of both parties.

Litigation can be expensive and time-consuming.

Value the property

Seeking a property valuation or appraisal is an important step in the process, to determine if there would be enough funds to pay any outstanding mortgage,  and if there could be any left-over equity to be split.

Selling a property after a separation

Sale options

Selling the property is generally the simplest and most likely outcome for most ex-partners with a mortgage. In this case, a mortgage discharge fee will likely apply, in addition to real estate fees.

In some situations, one person might have the financial backing to buy out the other. This would require an agreement to be reached between the former couple, and for the loan to be refinanced in one name. The lender would need to assess whether one party was able to service the loan alone.

Some former couples with an amicable relationship continue joint ownership, and turn it into an investment property. It’s important to do adequate financial research into joint property investment, such as considering tax implications, property management and an exit strategy if one partner wants to sell later on.

What if it’s not a 50/50 split?

If one person contributed a bigger deposit, it is sensible to ensure that the title reflects that, Geddes advises.

“For example, if one party contributes 90 per cent to the purchase, that party may wish to have that reflected on the title,” she says. “While that does not mean that the party will receive 90 per cent of the equity in the home at separation, it is a contemporaneous record of that party’s contribution.”

She also recommends both parties keep clear records of what they contributed to the deposit or renovations, and any other funds invested into the property, such as inheritance. These could all be considered in negotiation, mediation or court.

“The significance of the contributions will depend on a number of factors, including the length of the relationship, but it will be of significant assistance if there are source documents confirming the respective contributions.”

Advice before purchasing

Buying a property together is a big deal, and worth preparing for – even if that means having hard conversations with your partner.

“Parties are entering into a significant financial commitment and that needs to be considered carefully,” Geddes says. “They may also need to consider whether they enter into a financial agreement prior to the purchase.”

*Name has been changed.