The Finance Challenge in Separation
When a couple separates and one party wants to keep the family home, they face a specific and often time-pressured financial task: refinancing the joint mortgage into a single name and paying out the other party's share of the property's equity. This is commonly called a buyout refinance or, in legal contexts, a family law refinance. It is one of the more complex lending situations a broker can encounter, not because the mechanics are unusual, but because the personal circumstances create pressures that a standard refinance does not carry.
The central challenge is serviceability. The couple's original mortgage was approved on the basis of two incomes. The buyout refinance must be approved on the basis of one income, which is often also supporting children. The new loan amount is frequently larger than the original (because the equity payout increases the borrowing), the income is lower, and the expenses are higher. This is a situation where lender selection and application structure matter significantly.
How Lenders Assess Separation Refinances
The income assessment for a buyout refinance follows the same methodology as any other refinance: the single borrower's income is assessed against the new loan amount and all other liabilities. However, lenders differ substantially in how they treat several key variables that are common in separation scenarios: child support payments (made or received), maintenance obligations, and a single parent's household expenses through the Household Expenditure Measure (HEM) benchmarks.
LVR at the time of the buyout refinance is determined by an independent valuation of the property, not by the parties' agreed settlement value or the original purchase price. If the property has increased in value since purchase, the LVR may be lower than expected even with the increased loan, which works in the borrower's favour. Most lenders will approve a family law refinance at up to 90% LVR, which means LMI may be applicable if the equity position after the buyout is not strong. Some professional category borrowers (doctors, lawyers, accountants) may access LMI waivers at 90% LVR that remain applicable in this context.
The NSW Stamp Duty Exemption
One of the most financially significant and frequently underutilised benefits in property settlement is the NSW stamp duty exemption available under the Duties Act 1997. Under this legislation, a transfer of property between spouses or de facto partners pursuant to a family law property settlement is exempt from NSW transfer duty (stamp duty).
The financial significance is substantial. On a NSW property worth $820,000, the NSW stamp duty on a standard purchase or transfer would be approximately $32,500. On a $950,000 property, stamp duty would be approximately $38,000. Where the buyout refinance involves a formal transfer of the departing partner's interest to the remaining partner (as it typically does, since the title must reflect the new sole ownership), this exemption eliminates a cost that would otherwise be payable. The exemption requires either a consent order from the Federal Circuit and Family Court of Australia, or a binding financial agreement under the Family Law Act 1975. An informal separation document does not qualify.
Timing Pressures in Settlement Finance
Property settlement finance is frequently time-sensitive in a way that an ordinary refinance is not. A consent order from the Family Court may specify a settlement date. The departing partner may have purchased elsewhere and needs their equity released to fund the new purchase. There may be school enrolment decisions, rental lease expiry dates, or pressure from the other party's solicitor. Settlement finance often needs to move in four to six weeks, not the standard six to eight weeks of a typical refinance.
Not all lenders process family law refinances at the same speed. Some major lenders have specialist family law refinance teams that can prioritise assessment. Others treat the application as a standard refinance with no awareness of the time constraints involved. A broker with experience in this area knows which lenders can move quickly and how to frame the application to flag urgency without creating unnecessary complications in the assessment.
Child Support and Maintenance
Child support paid under a Services Australia assessment or a court order is treated as a financial liability by lenders, reducing assessable borrowing capacity. The full monthly amount is treated as an ongoing expense. If you are paying $1,200 per month in child support, most lenders will treat this as a committed expense equivalent in impact to a personal loan repayment of the same amount.
Child support received under a formal assessment is generally assessable as income. The standard lender treatment is 100% of the child support received where it has been documented and consistent for at least 12 months. Some lenders shade this to 80% or 90% to reflect the risk of cessation. Child maintenance (spousal maintenance) paid under a court order is treated as a liability. Child maintenance received under a court order may be assessable as income by some lenders, though the treatment is less consistent than for child support. These distinctions matter for structuring the application correctly and are worth discussing with a broker before approaching lenders.
The Single Parent Calculation
The HEM benchmarks used by Australian lenders include higher expense allowances for households with dependants. Each additional child increases the estimated household expenditure applied to the serviceability calculation, independently of whether child support is being paid. A single parent with two children on a single income of $95,000 faces a meaningfully tighter serviceability position than a couple on the same combined income, even though the individual income may appear adequate.
Lenders also differ in how they apply HEM. Some use the metropolitan HEM figures for all borrowers, while others apply a more granular location-based figure. For clients outside the inner city, some lenders apply regional or outer metropolitan HEM benchmarks that are slightly lower than the inner-metropolitan figure. This is a marginal difference but can affect the outcome at the margin of serviceability. Realistic planning, including modelling borrowing capacity against actual income before approaching lenders, is essential in these situations.
A NSW Worked Example
Consider a couple separating after 12 years together. Their joint mortgage is $480,000 on a property valued at $820,000. Total equity is $340,000. The remaining partner, a registered nurse earning $95,000 per year, wants to stay in the home with two children. The departing partner is entitled to half the equity: $170,000.
The new loan required is $480,000 (existing debt) plus $170,000 (buyout payment) = $650,000. The property value is $820,000. LVR: $650,000 / $820,000 = 79.3%. This falls just below the 80% threshold, which means no LMI is required under standard lender policy. At $95,000 gross income, with two dependants and no child support obligations factored in, most specialist lenders would find this serviceable at a 6.2% comparison rate, though assessment buffer rates (typically the higher of the contract rate plus 3% or a floor rate of around 9%) mean the modelled repayment for serviceability is higher than the actual repayment. The NSW stamp duty exemption, provided the consent order is in place, saves approximately $25,000 on the title transfer.
Frequently Asked Questions
Do I need a court order or just a separation agreement to get the stamp duty exemption?
To access the NSW stamp duty exemption under the Duties Act 1997 for a property transfer between separating spouses or de facto partners, you need one of two documents: a consent order made by the Family Court of Australia or the Federal Circuit and Family Court of Australia, or a binding financial agreement under Section 90B, 90C, or 90D of the Family Law Act 1975 (or the equivalent de facto provisions under Sections 90UB to 90UD). An informal separation agreement or heads of agreement document signed by both parties, even if prepared by solicitors, does not satisfy the exemption requirements on its own. The agreement must meet the technical requirements of a binding financial agreement under the Family Law Act. A family law solicitor should prepare or review whichever instrument is being used for property settlement, both to ensure it meets the Family Law Act requirements and to ensure the stamp duty exemption documentation is correct for the Revenue NSW application.
Can child support I receive be counted as income for the loan?
Child support received under a formal child support assessment through Services Australia, or under a court order, is generally assessable as income by most lenders. The standard treatment is to count 100% of the child support amount where it has been received consistently for at least 12 months and is documented by the child support assessment letter and bank statements showing regular payments. Some lenders apply a shade of 80% or 90% to account for the risk that child support payments cease. Child support received under an informal private arrangement without a formal assessment or court order is treated inconsistently: some lenders accept it with 12 months of bank statement evidence, others do not accept it without a formal instrument. If child support income is material to your serviceability position, this is a key factor in which lender is most appropriate.
The property is worth less than when we bought it. Can we still refinance?
Yes, in most cases, though the negative equity position changes the options available. If the property is worth less than the outstanding loan balance, both parties remain jointly liable for the shortfall unless the lender formally consents to releasing one party from the debt. A lender will not simply remove a borrower from a loan where doing so would leave the remaining borrower with an LVR above the lender's policy maximum without additional security or a mortgage insurer's agreement. Where the property is close to breakeven, a property valuation commissioned by the lender at the time of the refinance application may come in higher than expected, particularly in a market where recent sales data in your suburb supports a higher figure. A broker can discuss with the lender's valuation panel what comparable sales are available. Where the shortfall is significant, a broader family law and financial advice conversation about whether to sell the property rather than retain it is appropriate.
Separation finance requires the right structure from the start
The stamp duty exemption, child support income treatment, and lender speed all differ by lender. A 30-minute call can clarify what is achievable on a single income and which lender best fits your situation.
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