These days, it is an unfortunate reality that a large number of relationships end in divorce, and we don’t need to describe the questions around them, but we do need to solve your personal financial picture around it.
Even though there are a lot of special circumstances, rules and government/banking regulations surrounding the split ups, let’s navigate together so that we can better prepare you for the happier side of divorce.
There are many questions that you may have if you own a home together. Do we both have to move? Can I pay out my spouse and how?
Can we pay off other debts? Do we need a lawyer? Can we do it ourselves to avoid the expenses? What do I even need to ask? What do I need to know that I don’t even know to ask?
Let’s dig deeper.
Banks, lenders, and the mortgage insurers (think CMHC and competitors) call the product the Spousal Buyout Program, where two parties are on title to a property in the process of a legal separation where one party wants to keep the matrimonial home.
Did you know you can ‘purchase’ your matrimonial home up to 95% of its value (it feels more like a refinance, but technically one spouse is buying out the other?)
The funds can be used to pay off the amount owing to your spouse and debts listed in the separation agreement – keep in mind not all lenders allow payouts and rules are changing on us all the time, so time can be of the essence.
There are a few things we need to look at to ensure you will qualify for this program:
Have you completed a Legal Separation Agreement?
Although you may feel you are able to split things between yourselves, this program requires a Legal Separation Agreement, with the bare minimum that a lawyer provides each party with their own Independent Legal Advice (ILA).
The lawyers don’t necessarily need to complete the entire document – if you are very well organized that is – but if you aren’t familiar with contracts, then I’d advise you to seek one out to represent you.
Whether you hire one or not, they do need to sign off to ensure that your rights are protected and to determine what liabilities are remaining from each other, if any (ie. child support, alimony etc).
Depending on the firm, you can each obtain your own ILA at separate firms for about $250 – $1,500-plus, pending the complexity of your situation.
Everyone needs their rights protected whether you are staying in the house or if you are one leaving. You want to know the title to the property and mortgage are registered correctly, so no problems arise.
Ensure you talk about all the debts you jointly have so they can be separated appropriately and can be managed inside the separation agreement.
At some point an appraisal will be required to determine the value of the home.
You and your spouse will want to determine the value of the home through an impartial third party and most importantly, the lender will require it. Keep in mind that the lenders may want their own appraisal as well, separate and apart from the one you get.
There can be large value differences between what you think it’s worth and what it’s really worth.
Remember I said that technically it’s a purchase, this is where you need to draft a purchase agreement.
Your lawyer can help you or you can get one online easily enough. I know this seems surprising but the lender will treat the file as a purchase, as it’s going from two names to one, it legally commits both of you to time-lines and values..
These are just a few steps to prepare you for the home separation, there are other qualifying criteria as well and this is where I come in to help guide you along in the process.
I’ve helped many families with their mortgages through these trying times and quite often they come in with emotional tears, but leave with happy ones.
Divorces are hard enough – allow me to help prepare you to make your mortgage easy! Everyone’s situation is unique thus experience is what you need in these difficult times. Don’t let them go to chance.
Jean-Guy Turcotte is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.