Ben and Heather are joined by Craig Budden from Aussie Home Loans in Coffs Harbour to discuss the tricky business of getting finance after separation.
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Benjamin Bryant: Welcome to episode 61 of The Family Matters Show. I’m your host Benjamin Bryant from Bryant McKinnon Lawyers. Today we are going to discuss a topic that is absolutely critical to moving forward after a divorce or separation, and that is finance. Sorting out your finances after a divorce can be overwhelming. You might have to untangle shared debts and assets, adjust to a single income, and deal with a potential hit to your credit score. On top of that, big decisions like refinancing a mortgage or saving for a new home can feel daunting when you’re already navigating a major personal change. So today, we’ve invited Craig Budden from Aussie Coffs Harbour to come on the show and talk about these challenges. Craig and his team have been helping this community access mortgages and loans since 2005 and has provided over $1 billion in loans to people from all walks of life. Over the years, he has helped many people to get back on their feet after separation, and we’re delighted he could be with us today. Of course, my partner and family law expert Heather McKinnon, will also be joining us on today’s episode.
Benjamin Bryant: Before jumping in with Heather and Craig, a quick reminder to share this podcast with any family and friends who are starting down the path of separation. We now have an extensive library of podcasts that provide the answers people need to feel less fearful and to make informed decisions. And now on with the show.
Benjamin Bryant: Thank you Craig and Heather, welcome. And thank you, Craig, for joining us on this episode. We’ve been professionally close for a while, but in the recording studio, we’re actually quite close. Thank you for coming.
Craig Budden: You’re welcome.
Benjamin Bryant: Let’s get started. What are some of the biggest challenges people run into when they’re trying to get finance after a divorce or separation, Craig?
Craig Budden: Yeah. Look, we see a lot of this, unfortunately. And sometimes it’s not knowing the timeframes involved. We always say to people, check what or if you can borrow before committing to buying out your partner. Then work with your broker and solicitor to move forward from there.
Benjamin Bryant: Very simple, but very good advice. A lot of people aren’t aware of the time frames, Craig. And also, I think a lot of people aren’t aware of what to expect when dealing with banks. What can people expect when dealing with banks?
Craig Budden: Not a lot unfortunately. Like the old Tyrannosaurus rex. Long pocket, short arms. Talk to a broker first who can look at all the lenders and then work out your best steps forward from there.
Benjamin Bryant: A more tailor made solution. We always hear about credit scores, Craig, but what exactly is a credit score and how can divorce actually affect it?
Craig Budden: Good question. Credit score is basically how likely you are to default on a loan if given one. So the lower your score, the more likely (the bank thinks) that you will default. So a big thing to look out for is if your partner remaining in the home stops paying the loan, or perhaps the rates, utilities. These will all affect your score if they’re in joint names.
Benjamin Bryant: And Heather, you been doing this for a number of years. How many clients have you had that have had their credit score actually affected by their property settlement or non-payment of mortgage with the throws of what happens in a property settlement after separation?
Heather McKinnon: There’s a huge area of research around how coercive and controlling people can really target the credit score of the spouse. And we have another concept that Craig’s team are aware of called sexually transmitted debt. So what will happen is the spouse will have sort of very little knowledge of what the other one was doing during the marriage and find that they had racked up an absolutely appalling credit history. As Craig said, traditionally, what happens when you’ve got an analysis of a case that unravels that, you send them to Craig and his team very early in the separation process, because a lot of what they have to do is work really hard to unravel what’s happened. And then when they pitch to the lenders, they can do explanations. Look, this woman’s come out of a horrific situation, but she’s been, for example, a teacher for 15 years. In her own name she’s never defaulted on anything. But in relation to joint debts he set up to try and make her product in the marketplace that’s untouchable. So this is a really common thing at the time of breakdown. That’s why I think brokers are so important, because they can give you a really frank idea at the beginning as to whether you’re going to have trouble borrowing. It gives you time to try and correct it before you go to mediation and try and buy the other one out.
Benjamin Bryant: And I think going back to what people can expect, or reasonably expect ,when dealing with banks or financial institutions, and some people’s understanding is that if you miss one mortgage repayment, the bank’s foreclosing the next week, and other people, we see balance sheets where it’s in arrears for thousands, tens of thousands of dollars. So it’s really hard to know what the bank’s going to do. It’s really hard to know when it does actually affect your credit score rating. When it goes to the debt collection team. It’s all different. It’s all very confusing.
Benjamin Bryant: Craig, if someone’s credit score has taken a hit after separating, what can they do to start rebuilding it?
Craig Budden: Yeah. Look. The most important maybe number one item is just stop making inquiries. No more inquiries. Don’t seek credit cards. Any sort of pay-as-you-go lending. Anything. Just avoid all inquiries on your file. Avoid seeking hardship assistance, if you can. Number one thing when someone’s looking at a loan, if they see hardship on your file, they want to know why and when it’s going to disappear. Keep making your repayments. And again, as difficult as it may be during separation, keep making your repayments as best you can. And in need, worst case, seek assistance from a credit repairer and there’s some locally that do actually clean up people’s credit files pretty well, when and if required.
Benjamin Bryant: Hmm. Question without notice. If you have preapproval for a loan and it lapses, maybe because of the timeframes that you mentioned before, does that affect someone’s credit rating?
Craig Budden: Only in so much as it’s an inquiry. Once you start getting six, eight, ten inquiries during the last 12 months, then banks start going, what is going on?
Benjamin Bryant: And when someone is applying for a home loan, will the bank or lender count child support or spousal maintenance as part of their income?
Craig Budden: Yes, they will use it. Not all lenders do, but they will. Some will accept it. The caveat on that being the borrowers need to show that it’s going to be ongoing for at least another five years. So typically the child it relates to has to be at least or a maximum of 12 or 13 years old. lenders might also ask for, the court documents in relation to that, they may go as far as asking for transaction statements to see that they’re still receiving it and that it is actually getting paid. Because, as you know, sometimes they stop.
Benjamin Bryant: Absolutely. And what if your name is still on a joint loan, but you’re also trying to buy a new property. How does that work?
Craig Budden: While your name is on the loan, you are still responsible for that debt. Jointly and severally. So whether you’re paying it yourself or not, doesn’t matter. In this situation, it’s even more important to work out a way to be removed from the property if that’s the case. Preferably do that, because if the ex does stop paying the loan, or at least their share, it will affect your credit file.
Benjamin Bryant: Absolutely.
Craig Budden: Some people actually think I’ll stop making repayments because the ex is going to get half of it, so why bother? But it will affect you.
Benjamin Bryant: Heather and I hear a lot, “I’m paying my half share of the mortgage, but he’s not paying his half share.” But of course the bank or the lender, there is no half share.
Benjamin Bryant: Heather, any views about people overcomplicating a property settlement by trying to buy their dream home at the same time as trying to sell their old home or doing their property settlement?
Heather McKinnon: Yeah, it’s what Craig said. It just shows objectively chaos. I mean, the big thing is when you separate, you’ve got to take a deep breath and understand you’re in a period of transition. And don’t try and do too much at once. Get your settlement done so you know what equity you have to buy again, or get your settlement done so that you can buy out the ex. And then if you want to buy a property as an investment property, do it then. Don’t, for goodness sake, try and do it together. Because I think what Craig’s very nicely saying is that what they look for is chaos. Now, unfortunately, the breakdown of a relationship is a pretty big sign of chaos. And then they look at whether people have got the ability to commercially look at what they’re in the middle of and strategically work out what to do. If they see that someone’s just anxiety ridden and applying left, right and centre for credit, top up loans, pay at the end loans, all those things, are really going to affect the way you look to both the algorithms at the bank and to the brokers who are trying to help you.
Benjamin Bryant: I think there’s also a lot of emotion attached. And with such an emotional time we find ourselves, saying to people that even though it is possible to purchase a new house, if it’s financially possible, of course you can do that during a property settlement. But for them, it’s their dream house. They see themselves or them and their children or them and the new partner in this home. And there couldn’t be any other home, possibly, except for this one. And so we’re saying it’s possible to do it, but it’s also possible that this isn’t the dream home. This is just what you’ve essentially attached to it.
Benjamin Bryant: Craig, you touched on this before. Is it possible to remove your ex’s name from a loan if they’re no longer paying anything towards it? And how tricky would that be in practice?
Craig Budden: Well, a lot of people think removing someone off the loan is simple, and in fact, it means a full refinance and transfer of title to remove them from both. It’s not so much taking the name off a loan or title, but a transfer of title from two names to one name, as you know. So this situation obviously normally would trigger some form of payment to the one coming off the title. But someone needs to take over the loans, someone needs to show affordability and take it over and there’s a payment to one or the other of course.
Benjamin Bryant: And it’s a completely separate financial product. It’s not just I’ll continue paying the mortgage, it’s a completely separate financial product.
Craig Budden: Absolutely.
Benjamin Bryant: And if one person wants to buy out their ex as part of the property settlement, what are lenders actually looking for before they’ll say yes?
Craig Budden: Yeah. Easy. Number one is always affordability. Can they afford the current loan plus the increase to pay out the ex. So all normal lending criteria apply. A lot of people still think if I’ve got the equity in the house, the bank will give me the money. The bottom line is they won’t, they can’t rely on selling it because they’ll get their money back, which is how it used to be years ago. If you owe $50 on the house, you’ve got to go through the full works of, showing affordability. The bank’s got to show that they’ve made sufficient inquiry as to affordability before you can do it. And they probably also want to see, of course, like the stamped court orders prior to settlement, confirming the agreed amount being paid out, and that the ex has no longer got any title to the property.
Benjamin Bryant: Mm. I thought you were going to say in your answer, Craig, that the banks or the lenders need signed orders before they say yes, because we get that a lot from clients, don’t we Heather, that the banks saying before I can get approval, I need to get the sealed orders from the court. We’re like, actually it’s the other way around. You shouldn’t be entering into orders until you can actually pull it off. Otherwise there can be some pretty dire consequences. So we find that quite a lot, don’t we?
Heather McKinnon: Yeah, and certainly a lot of judges, as this economic cycle changes, want confirmation from the broker as to borrowing capacity before they’ll look at orders. So it’s a real catch 22. So the broker’s job is to look at whether you’re likely to get it and get a preapproval, if at all possible. But if the affordability on the documents looks a bit dodgy, judges will often say, I want formal loan approval before I formalise these orders. And I think, as Craig said, the biggest myth is that, but we got a loan to borrow to get the house, so we just need his name off it. People fundamentally don’t accept that two incomes got the loan and now you’ve got one income. And that’s the problem that we see every day. The financial reality of dividing capital.
Benjamin Bryant: And in our context, when there is a buyout like what Craig referred to before, when one party is paying a cash adjustment to the other one to keep the home, essentially in all orders, there will be a default clause that if you can’t do that within the 60 days or the 90 days or whatever it is, the property will be sold. And that, of course, undermines the very intention of what they’re trying to do. So people have to understand. They have to understand what it is.
Benjamin Bryant: Heather, this is probably more of a question for you. Let’s say a separated couple decide to hang on to the family home until the market picks up. Can they keep a joint mortgage in the meantime? And is that actually a good idea?
Heather McKinnon: So the Family Law Act says as far as possible, people should separate their finances when they do divorce or separate if they’re de facto. In my 40 odd years in practice, I would have seen 2 or 3 people successfully continue to jointly invest in assets after their relationship’s broken down. It’s almost impossible to look at a scenario where that would be sensible. Certainly, if there are a number of small children you will sometimes see people say, well, look for the stability of kids we won’t do the buyout until the youngest child finishes high school, but it’s done by orders and it absolutely sets out time frames and amounts. But for the listeners today, what you should assume is the 98% of couples that go through this, you’re going to separate your capital. If on one income you can’t have what you had with two incomes, face it, sell it, liquidate it, then go to the broker and say, right, I’ve got this deposit, what can I borrow? It’s getting that reality test right up front. So you don’t create the chook with the cut off head stuff that Craig’s talking about. “But there must be a way. There must be a way.” There will be in 2 or 3 years. Just use this as a transition period. Don’t create a credit score that nobody can correct.
Benjamin Bryant: I find myself often having a quip with clients saying, there’s nothing financially sensible about a separation. You can try and see each other as the business partner, be on a commercial basis. We’ll still have this property together. We’ll still work in the business together. We’ll still maintain the home together. It does not work. It does not work. And the very intention of a property settlement, of course, is to sever legal and financial ties.
Heather McKinnon: And I think what Craig said is true. The banks know that. They know that if it’s a separation, that they’ve got to sort of work out how they’re going to get rid of the debt in the joint names, and they’re really alive to the fact. So it’s very hard to get new finance after a separation in joint names.
Benjamin Bryant: Craig, for single parents who want to buy a home but don’t have a big deposit saved up. What options are out there for them?
Craig Budden: Look, this day and age, unfortunately it is harder to buy as a single parent. However, there are single parent schemes out there, probably more aimed at new first home buyers. But you know, with 2% deposit. It’s not the best option. But going into a home loan with such a little ownership percentage, it’s not great. Maybe a situation involving a guarantor would be a better way to go. If you have parents or family that are happy for you to use their equity. That’s probably the better way. They can borrow up to 100% of the purchase price plus costs in need.
Benjamin Bryant: Bank of Mum and Dad.
Craig Budden: Exactly right. And it doesn’t cost Mum and Dad anything other than it’s a second mortgage on their security. They’ve typically got a lot of equity, so it’s a good way forward for someone who’s just come through that process.
Benjamin Bryant: Mm. Interesting. Heather, I just had the thought. What if Mum and Dad separate?
Heather McKinnon: Yeah, well, we tell them that that statistically, I mean, most people are re-partnered within 3 or 4 years. So it’s hard to see it at the time, but if you’re separating and you’re relatively young, it’s likely that you will be able to merge your capital with your next partner. So it’s that transition stage that’s the interesting one.
Benjamin Bryant: And Craig, we’ve heard a bit about the government’s Family Home Guarantee scheme. Can you explain what that is and how people can check out if they’re eligible?
Craig Budden: Yeah, sure. Look, this is similar to what we mentioned a moment ago about having your parents as guarantors, but instead of mum and dad, essentially you’ve got the government as your guarantor. It’s a really good option for first home buyers, or for those who haven’t owned a home for at least ten years. It does have some restrictions on income, which means as a joint couple, you’re not allowed to earn more than 200,000 a year and the purchase price can’t be over $750,000. But for a first home buyer, that’s okay. But otherwise, there’s no lenders mortgage insurance payable and participating lenders will treat those borrowers as if they’re borrowing at 80%. So on top of not paying mortgage insurance, they’re getting a lower rate, which just helps out with servicing everything.
Benjamin Bryant: Lots of people taking that up.
Craig Budden: We see lots. Yes, those spots fill up fairly quick during the year. So it’s pretty popular.
Benjamin Bryant: And Craig, finally, what’s your number one piece of advice for someone who wants to get their finances back on track after separation?
Craig Budden: That’s an easy one. And it’s always the same. The single most important thing is to speak to your broker first. Just get a clear picture of where you’re at right now and plot a path forward from there. Everything else can be fixed over time, be that credit files, savings, future pay increases or changes of jobs, income. Just seek that guidance first so you know what the steps are to get where you want to be. And we can help with that.
Benjamin Bryant: Excellent. Heather and I think our number one piece of advice would be, we can handle the legal side of things. We can affect the legal outcome. But what the smart way to do that in terms of the financial aspect of it, we really refer people to someone like Craig and his team to be able to get the expectations, the timeframes, what they can expect from the lenders, what they need, all those types of things. We can’t really help with that.
Heather McKinnon: And all we can do is that referral. And look, a lot of people use the breakdown of their first relationship, say in their late 20s early 30s, to go back into education to try and increase their income. So I know Craig and his team will often take, say, someone who’s in their third year of nursing and say, okay, as soon as you’re registered next year, you’ll be able to borrow this much. So they give them a really positive goal, which helps a lot when you’re going through it. And I know that that’s helped so many people that, okay, if I hit this income goal and I’ve got this much savings, I can buy a house for this much and you see them then go voom, because they’ve got a really concrete goal.
Benjamin Bryant: On the other side of that coin there’s matters where even without the financial background, you can see looking at the figures that it’s pie in the sky stuff, what they’re wanting to achieve. And we really need to refer them on so there can be some reality testing as well. Because if you don’t know, you don’t know.
Heather McKinnon: Exactly.
Benjamin Bryant: Thank you, Heather, and thank you so much Craig for joining us. It’s been great.
Craig Budden: My pleasure.
Benjamin Bryant: Thank you for tuning in to this episode on getting finance after separation, and a big thank you to Craig for letting us benefit from his years of lending experience. This podcast was created to give you practical advice and support when you need it most. So if you found this helpful, take a moment to explore our growing library of episodes and expert interviews. We’ve covered a lot of ground, and you might just find exactly what you’re looking for. If you have a question we haven’t yet covered, please email us on familymatters@bryantmckinnon.com.au. We will do our best to get you the answers you need. You can head to our website, bryantmckinnon.com.au, where you’ll find all of our episodes organised by topic, plus the full transcript of today’s show and links to any resources mentioned. And finally, if someone in your life might benefit from this episode, please share it with them. We really appreciate your support and we hope to have you listening again soon.