While going through the separation process, one of the biggest decisions for many couples is what to do about the family home. If you own your home, and particularly if most of your family equity is in the home itself, this decision can be even more challenging. For some, dividing the equity in the home between the two of you results in coming face-to-face with the reality that you may not be able to own a home in your city or your neighbourhood after separation. During the uncertainty of COVID, additional fear and anxiety may arise.
There are choices. It is definitely wise to speak with a trusted realtor about the practical implications of today’s market and the value of your home. Consulting with a financial advisor and/or mortgage broker can provide you with further critical information about your ability to qualify for a mortgage or maintain a new property. And obtaining legal advice regarding family law issues such as whether you have exclusions (inheritances or gifts and pre-relationship equity, for example) that affect your percentage interest in the property, could really make a difference as you consider your options.
Here are four of the most common options that separating couples have related to their owned family home:
- One person keeps the family home: If you or your spouse would like to keep the family home and can afford to buy the other person out, this can be a great option. It gives the children the consistency of one parent remaining in the house they are accustomed to in their current neighbourhood. The person keeping the property must be sure they can take over the mortgage and compensate their spouse for their share of the equity. It may mean finding someone else to invest with you, or to act as a guarantor on a new mortgage. If this is an option you are considering, it is wise to have a property appraisal report completed by a reputable appraisal to determine the current fair market value of the home.
- Sell immediately: If neither of you can afford to keep the family home or neither wishes to keep it, you may decide to sell immediately. Typically the two of you will jointly decide on a realtor, the listing price and the ultimate sale price, even if one of you takes the lead in coordinating with the realtor. There is usually no need for a property appraisal with this option since the fair market value will be determined by the sale price. In this case, realtor fees are shared, debts are paid out and each spouse retains their share of the net sale proceeds. If agreement has not been reached on other property issues or the relative shares of the proceeds has not been determined, then the sale’s proceeds may be put into trust until a written agreement is reached.
- Deferred buyout: If the person who would like to keep the family home is not in a situation to buy out the other at the moment, there could be an option to defer or postpone the buyout. This typically only occurs when the other spouse does not plan to purchase a new home immediately or the family owns additional properties. With this option, you would jointly retain a property appraiser to determine the fair market value of the property and would calculate the compensation payment to be made to the other spouse. However, the spouse would agree to postpone receiving the payment and/or would agree to remain on the mortgage for a particular length of time (or for a minimum amount of time), after which the spouse can give notice that the payment must be made. Typically both spouses would remain on title until the compensation payment has been made and potentially until the other spouse is removed from any mortgage obligations. However, even if the other spouse remains on the mortgage, the property is now owned by the spouse who compensated the other, has sole possession of it and is responsible for all payments. If this option is chosen, it is wise to sign a bare trust agreement which states that the spouse who remains on the mortgage after payment is holding the property in trust for the actual owner.
- Deferred sale or co-ownership: Some couples choose to wait on the sale of their home due to the real estate market or the age of their children. In rare cases, they may continue to live in the family home together (or in separate living spaces in the same home) with the agreement that either of them can give notice that they would like to proceed with a sale (or buy out) after a certain agreed upon period of time. This is only recommended for couples who can get along well enough to protect any children from conflict and have thought through what will happen if either starts a new relationship or has financial trouble. Other couples decide to wait on a sale, but agree that only one of them will remain living in the former family home. Again, co-ownership is only recommended in cases where the relationship has not deteriorated significantly, as it is a joint business venture. You will have to work out what house expenses are paid by the person with the use of the home and which ones are shared. Typically joint owners share the costs of mortgage payments, house insurance and property taxes, however, this can be adjusted where the other spouse must pay rent, for example. You will also have to work together to determine the time in the future to sell and if any significant expenditures need to be made (such as a new roof or hot water tank). In this scenario, no property appraisal report is needed because the amount of money retained by each spouse will be determined in the future based on the fair market value of the property in the future. Both remain on title and on any mortgage; both enjoy any increase in value and share the risk of depreciation.
Options 3 and 4 do require cooperation and even sacrifice on the part of one or both spouses. But, ultimately, this decision can be a win-win, rather than a win-lose proposition, if you both listen to the needs and interests of the other. After discussions and gaining knowledge of your particular situation and capacity, you may find that some options are out of reach or not as desirable as they appeared at first glance. Some find that selling and starting over is inevitable. But others creatively work out an alternative solution that both can live with.
If you need assistance in talking through your choices, or referrals to trusted professionals to assist you in this significant decision, we are here for you. Pleasecontact us!
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