Falling in love and getting married can be the happiest time of your life. But what happens if you’ve bought the house together, started a family, and then realized that your chosen partnership isn’t quite what you expected it to be? If this sounds like you, you aren’t alone. Experts estimate that approximately 38% of Canadian marriages end in divorce. When separation happens, emotions are at an all-time high and the last thing you want to be thinking about is what will happen to your assets.
Under Canadian law, the house where a couple or family lives together is known as the “matrimonial home.” While details vary from province to province, the general rule is that each spouse is entitled to half of the equity of that home during the marriage. This is the case even if only one spouse is on the title. So in cases where one spouse stayed at home to raise the family or moved into the home after it was purchased by the other, they still have rights to the matrimonial home. The idea is that the courts recognize the domestic economy or labour as contributions to the home just as much as financial provisions and will assign value to that contribution.
- Agree to Sell. In the case that both parties agree to sell the home, the lender must be paid first as well as any transaction costs. Any leftover equity can be split between the two as agreed. This is the simplest approach.
- Release of Covenant. When one spouse wants to stay and the other would like to leave, the leaving party can request a “release of covenant” from the mortgage lender. The remaining spouse will then assume the full mortgage and must requalify on their own. The other is free from the mortgage relatively free of charge. That being said, there is often a lender and a legal processing fee that should be taken into account.
- Refinancing. If there is equity in the home that is required for settlement, the remaining spouse can apply to refinance the mortgage in their own name in order to buy out their partner. This will release the spouse who is leaving the home from the mortgage, while still providing enough cash for their portion of the settlement.
- Negative Equity. In some cases, there is no equity in the home and the remaining party is not eligible to sell or refinance. Until there is enough equity to sell, the home will have to be kept. One way to deal with this is to rent out the property to a tenant for a set amount of time to make up the cash. This is probably the least desirable situation, so be sure to speak with a professional mortgage broker to review all your options before resorting to this step.
The divorce process, even an amicable one, can be complicated and messy. Writing out your assets and getting a clear idea of your goals during the one year separation period is a great way to reduce stress and help get the ball rolling. To get started, call your trusted mortgage broker team at Source Mortgage at 403-341-7800.