How to Manage Real Estate After Divorce?
Between 38% and 40% of all marriages in Canada end in divorce. While most people when they get married are not thinking about divorcing their spouse when they are saying their vows, getting divorced is not uncommon. People change, relationships change and what might have worked for you and your spouse once might not work for you and your spouse in the future.
Marriage is not simple, it can be complex and messy, especially when it comes to what happens when your relationship ends. This is why if you are going to be getting separated you need to have a team of experts supporting you through this major transition and upheaval who are experienced in helping people through divorce.
A divorce team might consist of a divorce lawyer, a financial advisor, real estate attorney who has experience handling divorce sales, a real estate agent or broker who has experience managing divorce sales, a mediator who has experience working with couples who are getting divorced, and maybe even a therapist or counselor who can help you cope with getting divorced. While all of the emotional parts of getting divorced can be stressful, tense and painful, the actual division of property and assets can be extremely contentious and stressful.
For example, a house might be one of the largest assets a couple might own. And dividing the matrimonial home and figuring out what to do with it can be extremely stressful. This is why it is important that you understand what the matrimonial home is.
The matrimonial home in Ontario is defined by Ontario’s Family Law Act as “every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence …”.
Also, there can be more than one matrimonial home, so if you and your spouse have a frequently used weekend cottage this might also be considered your matrimonial home. A matrimonial home can be a home that you rent or a home that you own. It is a home that you both regularly occupy until the date of separation.
If you have more than one home together, and unsure if your second home would be considered the matrimonial home, you should consult a divorce lawyer since a second home might be considered a matrimonial home, but it might not be considered a matrimonial home in every case. For a more detailed and in-depth exploration of the matrimonial home in Ontario and your rights regarding the matrimonial home, you can check out our article, “How to sell your home and real estate after divorce”.
Deciding what to do with the home you and your spouse shared, after getting divorced
Deciding what to do after you get divorced and how you and your spouse will manage your home and any other properties you might own can be extremely challenging. Given that the family home might be one of the most valuable a couple owns means the decision regarding what will happen to the family home might be stressful, emotional, and a difficult financial decision.
It is important to note that the following information only applies to spouses who are legally married and living in Ontario, if you are in a common-law relationship, you will not have as many rights to the matrimonial home as an asset. If you are a couple who are or were legally married in Ontario, you will have four possible options for what you can do with the matrimonial home.
Your options for managing the real estate after divorce
1. You keep the home and buy out your spouse’s portion of the equity in the home
If you take this path you would be making a payment to your spouse that is equal to their portion of the equity in the matrimonial home. If you have a mortgage on your home, this means that you would be taking on the existing mortgage for your home and would probably need to increase your new mortgage to include the amount of money that you will owe your spouse.
So, if your home is worth $600,000 and your mortgage is for $200,000, the total equity in your home would be $400,000. Your spouse would get half of the total equity in your home ($200,000) and if you’re keeping the matrimonial home, you would be assuming the existing mortgage and increasing it by $200,000 to pay your spouse for their share of the equity in your home. After this, you would be solely responsible for paying the new mortgage of $400,000.
Whenever one spouse is going to be buying out the other’s half of the equity in their matrimonial home, the value of the matrimonial home is based on an appraisal completed by a professional appraiser. [Differences Between a Home Appraisal and a Current Market Assessment in Ontario].
Given that you will probably be getting a new mortgage that includes your existing mortgage and how much it will cost you to buy your spouse’s portion of the home, each bank usually has its own list of home appraisers they like working with.
You might benefit from having the appraiser who does an appraisal for your new mortgage also do the appraisal for your divorce settlement. If you get this appraisal you can avoid having to pay to have two appraisals done for your home.
Also, before you even begin to negotiate with your spouse about what happens with the matrimonial home, you will need to have a finalized separation agreement in place. Whenever you are getting separated or divorced and you are changing the ownership of your home you should have a formal separation agreement in place that details the financial terms of your divorce and the division of marital property and assets.
When you are getting separated or divorced a formal separation agreement is required for you and your spouse to be able to instruct your real estate attorney on how you want to distribute the proceeds from the sale of your home. When you do not have a formal separation agreement in place, the equity funds from the proceeds from the sale of your home will be sitting in a trust account for your real estate lawyer.
The equity proceeds from the sale of your home will sit in a trust account until a formal separation agreement is in place, providing instructions to your lawyer about how you will be distributing the proceeds from the sale of your home.
2. Your spouse keeps the matrimonial home and they buy out your portion of the matrimonial home
This is a similar version of the scenario described above. However, your spouse will be buying out your portion of the matrimonial home.
3. You and spouse agree to sell your home or keep your home and rent your home as an income property and split the proceeds
If you and your spouse agree to sell your home to a third-party on the open market, you both will be selling your home for as much as you can instead of how much your spouse’s share in the equity in your home is. If you and your spouse will be keeping your home and renting your home as an income-generating property and renting it out for as much as you can. If you have not already done so you will need to finalize your separation agreement.
4. One spouse remains in the matrimonial home for a certain amount of time (This might be until their child or children graduate from high school)
This solution is not as common, but it might be a viable solution for some couples. In some cases, one spouse might want to stay in the matrimonial home until their children are older or until the housing market improves, then they will sell their home together or one spouse will eventually buy the other spouse out.
Things to consider when deciding how you want to manage the real estate after divorce
What happens with your mortgage if you want to sell your home?
This is an important consideration when dealing with real estate after your divorce is what happens to the mortgage(s) on any property or properties that you own with your spouse since many people will need a mortgage or financing from a bank or other financial institution to be able to purchase a home.
If you are trying to get a new mortgage after your divorce without your spouse, you must know that ALL Canadian banks will require you to show them your legal Separation Agreement they can approve you for a new mortgage without your spouse.
It is important to note that when you will need to be qualified for a new mortgage based on your income and debts alone regardless of what is described in your Separation Agreement. However, banks will consider spousal support and other support payments as part of your total debt-to-income ratio when they are reviewing your new mortgage application.
Additionally, if both spouses’ names are still on an existing, then in the eyes of the bank, both spouses will be responsible for paying the mortgage and taxes on a home until one of the spouses’ names are removed from the mortgage.
Questions you should be asking yourself before making any major decisions about the fate of any properties that you own with your spouse
Before you make any significant decisions about what to do with your matrimonial home, here is a list of questions you should be asking yourself. These questions are meant to help you figure out how you will deal with managing real estate you own with your spouse.
1. If you only own one home with your spouse and this home is the matrimonial home, where will you go if you are selling this home to a third-party buyer or you will not be buying out your spouse?
2. If you are going to buy out your spouse, how much will it cost you to maintain your home?
3. If you decide to buy out your spouse, will you be able to reasonably afford to be the only one covering the costs and expenses related to keeping and maintaining your home?
4. If you will be selling your home to a third-party buyer, what will you need to do to get your home ready to sell? Will you need to do any repairs before listing your home for sale?
5. How much will it cost you to sell your home? You should be taking into consideration: lawyers’ and legal fees, the commission a real estate broker or agent who is representing you as the seller will be taking, mortgage penalties, other potential costs, and the costs associated with getting your home ready to sell.
6. If you and your house have children, how will selling your home and moving out affect your children? How will you explain your separation, divorce, and why you are moving out to them?
7. How will the proceeds from the sale of your home be divided? If you have questions about how this works and how much money you can expect to get from the sale of your matrimonial home, you should consult a divorce lawyer and/or a real estate lawyer who has experience handling divorce sales.
8. Are there any debts, you have jointly as a couple or otherwise that will need to be paid using the proceeds from the sale of your home before the proceeds from the sale of your home can be distributed to you and your spouse?
9. Will there be any deductions that will be taken from one spouse’s share of the proceeds from the sale of your home to cover the expenses the other spouse covered after you two were formally separated?
10. Do you and your spouse have a formal agreement in writing that outlines custody access, child support, spousal support, and the division of property if and when the marriage ends, or you become legally separated? For example, this might be a marriage contract or prenuptial agreement.
11. Will a real estate attorney be holding onto the proceeds from the sale of any of your properties because you and your spouse do not a formal agreement in writing dictating the division of your marital property?
12. If you have a mortgage, what will happen to your mortgage when you get divorced?
Things to consider when you are selling your home and real estate after divorce
It is not recommended when you are selling your home to a third-party when you are getting divorced that you advertise the sale of your home as a divorce sale. You do not want potential buyers knowing you are selling your home because you are getting divorced because potential buyers might believe that you are selling your home out of desperation because you are getting divorced.
You might be surprised to hear this but it is recommended that if you are still living in your home to stage your home to make it appear as if you and your spouse are both living there so it does not appear that you are selling your home because you are getting divorced. In other words, you will want some of your stuff visible and some of your spouse’s stuff visible, so buyers are not getting the impression that you are selling your home because you are getting divorced.
There are many things you to consider when selling any property you own, especially if you are getting separated, divorced, or are already divorced, but managing real estate after divorce does not have to be hard.
Yes, there are certain legalities and technicalities related to the division of marital assets, as well as who has the title or deed to the home, the mortgage, the division of proceeds after the sale, your relationship with your spouse, getting divorced, etc. However, the actual process of selling property in reality e is not extremely different from what you would be dealing with if you were selling property you own if you were an unmarried single person, or you and your spouse were still together.
Additionally, your experience selling your home after divorce, the circumstances that led you to sell your home, the circumstances surrounding the sale of your house, how the proceeds from the sale of your house will be divided, the technicalities, and logistics associated with selling property you own with your spouse when or after you are getting divorced mean that there are things that will be different than a non-divorce sale.
On the other hand, you might be surprised to learn that many of the rules and tips associated with getting your home ready to sell, staging your home to sell, and the tactics you can use when selling your home will still apply if you are selling your home because you are getting divorced.[How much does getting your home ready to sell cost in Toronto and Ontario?]
Related article: How much will home staging cost in Toronto?
However, if you are selling property you owned with your spouse when you are separating from your spouse while getting divorced, or after your divorce, it might take longer and be a more involved process than if you were selling your home under different circumstances.
Selling your home, moving, and getting divorced are stressful on their own, but all of these things together can be a lot to handle. If you are feeling a lot of things and sorting through a lot of stress and emotions related to your divorce, take a moment and some deep breaths, be compassionate with yourself. You will make it through this, this is temporary, and you made it through all of the other difficult times that you have encountered.
We cannot recommend to anyone who is getting divorced and has property they own with their spouse that they would benefit from working with a real estate broker or agent who they trust and believe they would work well together with who has experience handling divorce sales, a real estate attorney who handles divorce sales, and an excellent divorce lawyer. [How to Pick an Agent When Flipping a House in Toronto]
Working with people who are used to working with other people who are in a similar position as you will help to make this process easier. [Buying or Selling a Home in the GTA During Divorce Just Got Easier]
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