Separation and divorce can impact a family on many levels. It’s most likely something you weren’t expecting when purchasing a house, but a divorce will also impact you and your family financially.
While it can be a stressful and messy process for all concerned, I want to take the time to write about how a divorce or separation will impact your mortgage. And, what you should do in terms of your home.
A home is the largest asset.
For many couples, their home is their largest asset and where they have the majority of their equity. Many couples end up selling the house to pull out their equity, which could cause additional stress to the couple. If one spouse does prefer to stay in the home, it could be possible to get a new mortgage to purchase the property from the other spouse for up to 95% of the property’s value.
This program is called the Spousal Buyout program. It allows one spouse to keep the home while paying the ex-spouse their portion of the home’s equity. This option creates some stability for a family who may be having a harder time with the separation.
Just like other mortgages, the purchasing spouse must qualify to carry the loan and be approved again during this process. A legal separation agreement and a purchase agreement will be required.
Every province is different.
Each province and territory is different and has its own laws regarding the division of family/marital property. Generally speaking, marriage is seen as an equal partnership in the eyes of the law, so for the most part, anything that has been acquired during a marriage and is still owned at the time of the separation would be divided equally.
The “matrimonial home” is the space where both spouses have their primary residence at the time of separation, and regardless of whose name is on the title of the house, both parties have an equal right to the home unless there is an agreement that states otherwise.
Requirements of the Spousal Buyout program.
As mentioned before, the purchasing spouse will have to qualify for the mortgage themselves if they wish to use this program. Additionally to that, here are some of the other requirements:
- The lender will require a signed separation agreement with the details of asset allocation.
- Net proceeds can only be used to buy out the other owner’s share of equity and/or to pay off joint debt as explicitly agreed upon in the finalized separation agreement.
- The maximum equity that can be withdrawn is the amount agreed upon in the separation agreement to buy out the other owner’s share of the property and/or to retire joint debts (if any), not to exceed 95% loan to value (LTV).
- Max. LTV is the lesser of 95% or remaining mortgage + equity required to buy out the other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV).
- The property must be the primary owner-occupied residence.
- An appraisal is required.
The rules are a bit different surrounding common-law couples. When a common-law couple separation, both partners don’t have an equal right to stay in the home. Generally speaking, any property you brought into the relationship or bought during the relationship remains your own property.
This means that the person whose name is on the title of the home stays in the home. If both parties are on the title, then it’s similar to a married couple. As a couple, you need to decide whether or not to sell the home, divide the money or buy one of the parties out.
Questions about separation & divorce mortgages?
Separations and divorces are a hard life situation to go through and deal with. With everything so up in the air, it may seem impossible to even understand what to do in terms of your mortgage. I want you to know it is possible to either keep your house or sell it.
If you and your spouse decide to sell and you’re interested in qualifying yourself for a new mortgage, give me a call today. We can go through your situation and discuss what may need to happen to get you approved for a new home.
If you’re interested in using the spousal buyout program, give me a call as well. The sooner you understand what’s possible and what is needed to make it possible, the less stress will be put on you.
I am here to help you take some stress off your plate in a stressful situation. Give me a call and let’s discuss your next steps.