Often in a relationship, you and your partner will join finances and take out joint overdrafts, personal and home loans. So when a relationship comes to an end, you’ll need to consider separating your finances. One of the first things to do is figure out if you’re liable for any debts incurred during your relationship or post break up.
What happens to joint debt?
When you separate, you and your partner might agree to both continue being responsible for your joint debt or you might agree that only one of you is responsible for the debt.
It’s important to know that your agreement doesn’t bind the lender and they’re still entitled to recover the debt from both you and your partner or each of you individually, unless they consent to your agreement.
However, the lender may be required to re-allocate liability when a Court makes an order binding on a third party (such as the lender) pursuant to the Family Law Amendment Act 2003 (Cth).
Read our article for more information Dividing your shared assets in a divorce or separation.
How does NAB handle these types of orders?
Below are some guidelines to help you understand how we handle:
- applications to transfer mortgages and titles
- requests to enforce debts affected by Family Law property settlements.
Mortgages and titles
1. Unless NAB is ordered by a Court, or is a party or has consented to a private agreement reached between the parties, NAB is not automatically required to consent to arrangements such as:
a. the transfer of property mortgaged to NAB; or
b. the re-allocation of the liability for a debt between the parties.
2. Where parties propose to transfer property subject to NAB’s mortgage or re-allocate the liability of a debt between the parties, either by property settlement (financial agreement) or court order, the parties should keep in mind the following points:
a. Each proposal for NAB’s consent will be assessed on a case by case basis.
b. Do not enter into an agreement or seek a court order until you have discussed the proposed arrangement with NAB.
c. Allow sufficient time for NAB to make a full assessment of the proposal, which will involve a full financial assessment of the party who is to assume responsibility for payment of the mortgage debt. NAB will need to consider the parties’ financial position, so as to satisfy itself of the ability of the transferee of the property, or the party who has assumed liability for the joint debt owed by NAB, to fulfil the financial commitment to the bank by himself or herself without undue financial hardship.
d. Full financial particulars including the terms of the proposed agreement must be provided to NAB.
e. Where the parties seek orders from a Court directing one of the parties (A) to pay a lump sum or an amount by instalments in settlement of the other party’s (B’s) interests in property, and A needs to borrow the settlement amount, NAB will need to take that additional amount into account when assessing A’s ability to service the existing loan. NAB must be satisfied that the existing debt together with the new debt can be serviced by A without causing undue financial hardship to A.
f. If there are continuing credit facilities such as an overdraft on a joint (or several) account that are secured by a mortgage, NAB may have to stop further drawings on the account until the matter is resolved or unless both parties expressly agree to further drawings.
g. NAB is not able to divulge personal or financial information about one of the parties (or their practitioners or representatives) without the consent of the party whose details is sought.
h. If there are other co-owners of property their consent will be required prior to any dealing with the property.
i. If other persons have guaranteed the parties’ obligations to the bank, the consent of those guarantors might be needed before any alteration of liability or transfer of property occurs.
j. There may be bank and other fees and costs payable to obtain NAB’s consent to a dealing and in connection with the dealing itself.
3. When there is a proposal that one party is to be responsible to repay NAB for a jointly owed unsecured debt, an application to the bank for consent to recognise the change in liability must be made and points a) to j) above need to be observed.
4. If a Court grants one party the sole right to reside in a property to the exclusion of the other party NAB’s rights against the non-resident party under the mortgage over the property is preserved unless the bank agrees to release that party from the mortgage.
If NAB declines either a transfer of property to a party or the release of a party from further liability it will be entitled to enforce its original contractual rights if necessary.
The breakdown of a relationship can be one of the most stressful and emotional things you’ll ever experience. Due to the complexities around settling your property and financial affairs it’s a good idea to seek specialist legal and financial advice as soon as possible.
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These guidelines are intended to be for general information and guidance. They are not intended to be legal or financial advice. They are not a substitute for legal or financial advice. If you are contemplating or are involved in separation proceedings or considering settling your property/financial affairs as a result of a relationship breakdown you should consider seeking specialist legal and financial advice.