Three common areas of conflict, relationship expert says
When couples separate and both are liable for the mortgage repayments, it’s in their best interests to work together amicably while seeking professional advice, a relationship expert says.
Mortgage advisers play a role in helping their clients to navigate this change, assisting with new mortgage applications, including one person buying out the other, decisions around when to sell a property and which fixed interest rate is best suited to their needs.
Equal Exes founder Bridgette Jackson (pictured above) said that decisions around how the mortgage will continue to be paid is a common area of conflict for separating couples, including contribution levels and property maintenance costs.
Jackson said challenges could be exacerbated when one person has been the primary income earner and a long-term caregiver and then assumed responsibility for contributing to the existing mortgage repayments, requiring re-entry into the workforce.
“People have got to seek expert advice early in the separation and it’s vital that they’ve documented what they own and what they owe, because that forms the basis of any financial decisions in relation to moving forward,” Jackson said.
According to Statistics NZ figures, 7,593 couples were granted a divorce in 2022. This was higher than in 2021 (6,372), but lower than most years before that, following a general decline in the number of divorces each year.
As a separation and divorce coach, Jackson experiences firsthand the conflicts and financial challenges that couples experience and recommends to all of her clients that they get proper legal advice. Her role is to “hold peoples’ hand” through the process and be a “sounding board” to help them to separate amicably and fairly, ensuring they’re aware of all their options.
One of the ways she helps clients is to establish agreement between the parties, drawing up a Memorandum of Understanding (MOU), which includes how a joint mortgage will be paid. This is then shared with the parties' respective lawyers.
How mortgage advisers can assist couples going through a separation or divorce
NZ Adviser spoke to Jackson about three areas where conflict can arise and how mortgage advisers can support their clients through the process.
1. Rent costs on top of an existing mortgage
Where one person moves out of the family home, they often have to find room in their budget for extra costs, such as rent, while retaining responsibility for the mortgage.
In some cases, Jackson said that a partner may be paying 100% of the mortgage on the family home and rent for the property they now occupy.
“In many cases, it’s the caregiver who stays in the family home and it’s the working partner who ends up in the rental property (if it’s a traditional relationship, that’s usually the male),” she said.
Disputes can occur over how much is spent on a rental property, which may need to be large enough to accommodate children, she said.
Advisers can help their clients by discussing the ongoing responsibility of a mortgage and how it would be repaid in certain situations, and checking if they have a prenuptial agreement in place.
Another point for discussion is around who pays for the upkeep of the home, and how this is compensated by the other party.
2. Income disparity and property buyouts
Jackson said that partners who had been the main income earners of a household often wanted to buy the other partner out. Due to their income status, they usually found it easier to do so.
Partners who had been primary caregivers found it more difficult to apply for a mortgage, some having turned to family members for financial help.
“In traditional relationships we see it’s predominantly men who don’t align economic disparity given to the caregiver with them having the opportunity for them to climb the career ladder, but the caregiver obviously sacrificing their career to bring up the children,” she said.
It is important that couples with mortgages have conversations about income and responsibilities when the relationship is in a good space, which will help to avoid conflict down the line.
Mortgage advisers play a key role in helping their clients to re-enter the property market, which Jackson acknowledged could be extremely challenging amid higher interest rates and tougher servicing criteria.
3. Agreeing when to sell the family home
Jackson said that the economic downturn had been a key consideration for separating couples, with many holding off decisions to sell the family home.
It can be helpful to “whiteboard all of the options” to identify those that are positive for both parties, focusing on common interests.
In many situations, Jackson said that people are not able to move on with their lives until one person buys the other one out via a private sale with a property valuation. Some choose to rent the home out until they decide to sell and go renting themselves, she said.
“Most want clean breaks but some are holding off on that until the environment improves in terms of house prices,” she said.
Where one person is buying the other out, Jackson suggests they obtain a formal property valuation rather than a real estate agent appraisal and if they don’t agree, obtaining a second valuation and using the median figure.
Due to uncertainty of the market and whether interest rates had reached their peak, Jackson said that ex-partners often had different views on the fixed interest rate period for mortgage rollovers, and whether to make principal and interest repayments – both areas that mortgage advisers could assist them with.
Emerging forms of homeownership
Among the alternative forms of homeownership Jackson has seen following separations is where one person retains the family home and the other builds a new property on the same site.
She has also seen family members take shared ownership of property for their adult children, and former couples who owned multiple investment properties dividing them equally, selling the family home.
Another scenario was where one partner retained the family home and the other retained the investment property or holiday home.
What are the key challenges for separating homeowners and how can mortgage advisers assist them? Share your thoughts in the comments section below.
