3 Big Things to Know About Divorce and Real Estate

Unfortunately the stats don’t lie, 48% of marriages will end in divorce according to stats Canada. So for almost 50% of us, we are going to need to go through this process at some point in our lives. In our industry we see this regularly and people approach us at all different stages in the process.

It is a difficult and emotional time in people’s lives and we do our best to walk them through it as carefully and quickly as possible to ensure both parties have a positive outcome or at least as close to that as can be expected given the circumstances.

Here are 3 main things we find people don’t understand or have misconceptions about. This should not be construed as legal advice and we urge people to discuss with their solicitor.

    1. The Matrimonial Home – is defined as a property in which either spouse has an interest and which is currently, or was at the time of separation, “ordinarily occupied by the person and his or her spouse as their family residence.” The Matrimonial home is treated differently than other properties under the equalization process and The Family Law Act states that either spouse shall have 50% entitlement to that property. We see this often where one spouse is the only person registered on title and therefore they think they can unilaterally sell the property without the other spouses consent. This is not the case- even though the one spouse is not on title they still have 50% entitlement to that property if it is the matrimonial home and therefore have to authorize and sign off on the sale.
    2. Real estate other than the matrimonial home is treated differently. The right to equalization is triggered when the marriage dissolves. Each partner then becomes entitled to one half of the value of property accumulated during the marriage (not one half of the property itself). The court orders one spouse to pay the other an “equalization payment,” in order to equalize the value of each spouse’s net family property. The matrimonial home is not counted in the equalization calculation. This can come into play with investment properties as we have seen with many clients. An evaluation of the property at time of separation is needed to calculate the net value for the equalization process. We often have clients approach us to give them an opinion of value on properties for divorce. Some lawyers will accept and opinion of value from a realtor and some prefer an actual appraisal from a certified appraiser. It is important to find out what is required if you are going through this process.
    3. Separation Agreement is contract entered into by both parties that outlines the terms of the breakdown of the marriage. It is typically used to decide issues such as custody, support, and also financial matters including division of property assets, debt/liabilities, income and other financial information. Often times we have one spouse come to us and say they are in the initial stages of a divorce and they want to move out and purchase a new place to live. The potential issue here is will they qualify for a mortgage? It can be very difficult for people going through a divorce to qualify for a mortgage without a separation agreement in place. If the bank/lender does not know debt/liabilities you have or potential payment obligations to the other spouse then they cannot qualify you for a mortgage.

There are options for dealing with the real estate in a divorce:

  • Sell the property to a third party – this would be your normal real estate transaction where it is put to market. After all legal fees, mortgages paid out etc. The couple then splits the remaining amount – this is typically outlined in Separation Agreement.
  • Sell the property to one of the spouses – a lawyer can remove a spouse from title if one of the spouses wants to retain ownership of the home and pay the other spouse out. However some things to consider. If there are substantial changes to the ownership of home for example a change in title the bank has the right to demand full payment of the mortgage. Also if one of the spouses is removed from title does the other spouse still qualify for the mortgage? Division of the closing costs, legal fee to change title, and land transfer tax will need to be addressed- typically done in the separation agreement.

If you would like to learn more or want to see how our approach is different when dealing with divorce situations please contact us. We have a number of great mediators and divorce specialists we work closely with that can save you thousands of dollars on legal fees and time in court.