Refinancing After a Separation: Buying Out Your Partner's Share

What 'buying out' actually involves

When a couple who own a home together separate and one person wants to keep it, three things usually happen at once: the departing partner's share is paid out, their name comes off the title, and they're released from the mortgage. The remaining owner then has to carry the whole loan on their own income.

Paying out the share is usually funded by increasing the mortgage. For example, on a $900,000 home with a $500,000 mortgage, there's $400,000 of equity. If it's split equally, the person keeping the home needs to borrow enough to repay the $500,000 and pay out $200,000 — a $700,000 loan, on one income.

Relationship property comes first

In New Zealand, the Property (Relationships) Act 1976 generally presumes that relationship property, including the family home, is shared equally once a relationship has lasted three years or more. There are exceptions, and how your property is divided is a legal question for your lawyers, not your mortgage adviser.

What matters for the refinance is that lenders want to see the agreed split in writing. For an agreement under the Act to be binding, each person generally needs independent legal advice and the agreement must be signed and witnessed in line with the Act's requirements. Most lenders want to see the signed agreement, or at least a solicitor's confirmation of the terms, before they approve the final loan.

How lenders assess you as a single borrower

• Income. Your income now has to cover the full loan on its own, tested at the lender's assessment rate rather than today's rate.
• Child support and Working for Families. Some lenders count child support you receive, and Working for Families tax credits, as income, usually with evidence that payments are regular. Others count them partially or not at all. This is one of the biggest differences between lenders for separating parents.
• Child support you pay. If you pay child support, lenders treat it as an ongoing expense.
• Your new budget. Expenses for one household on one income are reassessed from scratch.
• Loan-to-value ratio. Borrowing to pay out a share increases the loan against the same property. If it pushes the loan above 80% of the home's value, fewer lenders will consider it and the cost of borrowing may rise.
• Debt-to-income ratio. The larger single-income loan is assessed against the Reserve Bank's DTI settings and the lender's own limits.

The order that avoids problems

1. Get an early read on what you can borrow — before you agree a payout figure. There's no point agreeing to buy out your partner if you can't fund it.
2. Agree the split with legal advice on both sides, and put it in writing.
3. Get the property valued. Many lenders will need a registered valuation, and it also supports the payout figure.
4. Apply for the refinance, with the signed agreement and your updated income and expense documents.
5. Settle. Your solicitor repays the joint loan, pays your former partner their share and arranges the title transfer.

If the numbers don't work on one income, a family guarantee or co-ownership arrangement, or a lender with a broader view of your income, may make a difference.

If you can't keep the house

Sometimes the right answer is to sell and split the proceeds. That's often easier on both of you than one person stretching to take on a loan they'll struggle to afford. If you're selling, check break fees and any cashback clawback on the existing loan, and plan your next purchase so your share of the proceeds becomes your deposit.

Whatever you decide, we can show you confidentially what you could borrow on your own, so you can negotiate knowing the numbers.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.