Not many of us think of divorce and selling our matrimonial home while in the throws of crazy, stupid love. Unfortunately, 70,000 Canadians decide to divorce each year. That leaves a lot of confusion and conflict when it comes to asset division. If you’re facing the unfortunate (or sometimes liberating!) situation of divorce, here’s our guide to divvying up your matrimonial home after separation.
What is A Matrimonial Home?
To avoid too much legal speak, let’s first define what we mean when we say “matrimonial home.”
According to the Ontario Family Law Act the matrimonial home in Ontario is basically the main residence occupied by you, your spouse and your family. However, it can also include a home such as a cottage. That is if you used it on a regular basis throughout the marriage.
So, what if you own a home prior to your marriage and your spouse moves in after the honeymoon? It’s still your matrimonial home. Why? Because it was your primary residence.
If you both share a property that was your matrimonial home, but you no longer use it your principal residence, it’s not viewed as your matrimonial home after separation. Instead it becomes an “asset” in the division of assets process. An example is a retired couple who’ve moved up to the cottage and are renting their city home.
Determine If You Should Buy Your Spouse Out
It seems a little silly to even say this, but you really need to ask yourself what you want. Some people will have a strong connection to the home and want to stay, while others can’t bear to be in there. You might not care so much about the house but realize the strong connection you have to the community, especially if you have kids. Even in the case of the most amicable breakups, you might even face an unexpected power struggle over who should get to stay and who should go.
It might be helpful to consider some questions before selling a home after a divorce:
- Can you really move on with your life if you stay put?
- If you have kids, what’s best for them?
- Does a totally new home and ‘hood sound better suited to your new single lifestyle?
- Can you manage the current mortgage payments without sacrificing a truly enjoyable quality of life?
- You love the community but can you afford a new home in the area if your spouse forces you to sell?
- If you sell, what neighbourhoods will you be able to afford?
The last thing you want is to make a rash decision that’ll worsen your financial situation by adding debt to your list of crappy feelings and the emotional stress of divorce. So, consider long and hard to make sure you are doing what’s right to make your future bright.
How to Sell a House During a Divorce: 4 Options
The bottom line is you’ve got four potential scenarios to consider when it comes to your home and divorce:
- Sell and split the profit
Before you put the home on the market, a real estate agent can provide a professional evaluation of your home based on the local real estate market, similar homes that sold in your neighbourhood and the overall condition of your home. We’re well versed in the home evaluation process and will give you a realistic price based on all of these factors. Keep in mind that you won’t necessarily get 50% of the value – your settlement will determine this.
- Buy out the mortgage from your partner
This will require financial obligations and whether or not you can afford the mortgage payments on your own. One of the considerations here is renegotiating the mortgage as well as considering other monies you might be due such as spousal or child support that might help make the payments manageable.
- Have your ex-buy you out
This is often the best way to get a fresh start especially when kids aren’t a concern. You’ll have to make sure your lawyer arranges for the proper transfer of title as if you remain on the title and your spouse misses mortgage payments, you’ll be liable.
- Retain your ownership
This can work under amicable separations, but in the long run, you’ll want to speak to someone about the implications from a tax standpoint, as well as what happens to the home regarding your estates.
Re-Qualifying For Your Mortgage
If you want to stay in the house, you’ll face some mortgage challenges. You’ll have to re-qualify for the mortgage on your own otherwise your spouse can’t be removed from the title or be released from the mortgage. As already mentioned this is a must to avoid any liability should your ex-default on the payments. You should usually be able to avoid any penalties from the lender when going through this transaction, but you’ll def want to speak to a lawyer for the title transfer.
Before any of this can take place, you’ll probably have to have a finalized separation agreement including visibility/disclosure of any alimony or child support payments, so they can be certain they’re calculating all new financial issues during the re-qualifying process. If things are going well and remain amicable, you can try to structure the agreement for spousal support to help increase the chances of qualifying for a mortgage. This is also a nice gesture if the risk of losing the family home will affect the kiddos.
If you don’t re-qualify you might consider finding someone to co-sign the mortgage such as your parents. Having a fall back like this becomes even more important if you want the kids to stay in the house. If it’s just you and you don’t re-qualify, maybe it’s a sign you really can’t afford the home and it might make more sense to sell.
Lump Sum Payments
If your ex is the one staying in the house, your separation agreement might require you to make a lump-sum payment to them. In this case, you might be able to refinance the mortgage to take out equity to make the payment.
Depending on the lender, this can include lender penalties. A good option is if they keep your mortgage intact and then add funds to help avoid any penalties. This is called a blend and extend but keep in mind this falls under Canadian lending rules that limit refinancing to 85 percent of the home’s value. If you have less than 15% equity in your home, it can be limiting. But CMHC will sometimes allow the transaction to go through as a purchase to 95% of the home’s value. This frees up the majority of the capital.
Dividing The Property After Separation
There’re three special considerations given to the matrimonial home after separation when it comes to property division:
- Did you own the home on the date of your marriage? Sorry, you can’t deduct the pre-marriage value of it like you can for other assets. Instead, it’s based on the current worth of the home at the time you formally separate.
- You can’t take advantage of exemptions related to cash gifts and inheritance. That is if that money was used to either purchase OR improve your matrimonial home. In the case of an inheritance, the money is exempt from your assets. Once this money goes towards your marital home your inheritance is no longer protected.
- If you inherit a house that becomes the family home, this also removes all exemptions. Also your home is calculated based on the entire value of the property.
Whether your name, your spouse’s name or both appear on title, both your interests are protected during the divorce process.
Property Rights After Separation
Both of you have equal rights to live in the home as spouses. Therefore you can’t exclude your spouse from living there even following the separation. Until there’s a separation agreement or court order it can be tricky determining who gets to live in the home.
The court can exclude one or the other of you from the home based on a number of issues including:
- If you have children and who has custody
- Existing property orders and any existing support orders or obligations
- Financial considerations for you or your spouse
- Written agreements
- Availability of suitable and affordable housing
- Accusations or proof of violence in the home
Once the court decides who gets to stay, the law requires you to adhere to the decision. As well, whoever is granted exclusive possession may have to pay rent while living in the home.
Selling Your Matrimonial Home Through Court Order
What if you and your soon-to-be-ex hit an impasse on whether to sell the home or not? You can apply to the court for an order of partition and sale. You’re basically asking the court to order the sale of the house and that the profits are split based on your interest in the property. If it’s the other way around, and you want to keep the house, but your ex-wants to sell, you’re out of luck. There’s no first right of refusal that’ll work to your benefit. In other words, if the judge demands you sell, and you still want the house, you’ll have to put in an offer just like anyone else.
Divorce is never easy, but understanding your options can certainly help. Whether you’re looking for an honest and accurate evaluation for your home, are just thinking things through and want to know your options, or are ready to sell, we can help.