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Gail Vaz-Oxlade's Guide To The Matrimonial Home
For more than 20 years you have witnessed Gail Vaz-Oxlade’s trademark straight-up money wisdom, both on Radio and Television, most notably as host of TVs Till Debt Do Us Part, Princess and Money Moron. Gail is a multiple time, best-selling financial author, and one of the top Canadian authors of the past decade. Gail brings her common sense wisdom to answer your questions about The Matrimonial Home and divorce in Ontario.
Gail Vaz-Oxlade is Canada’s no-nonsense, money expert.
Gail Vaz-Oxlade's Guide To The Matrimonial Home
For more than 20 years you have witnessed Gail Vaz-Oxlade’s trademark straight-up money wisdom, both on Radio and Television, most notably as host of TVs Till Debt Do Us Part, Princess and Money Moron. Gail is a multiple time, best-selling financial author, and one of the top Canadian authors of the past decade. Gail brings her common sense wisdom to answer your questions about The Matrimonial Home and divorce in Ontario.
Gail Vaz-Oxlade is Canada’s no-nonsense, money expert.
The Matrimonial Home in Ontario
In Ontario, the matrimonial home belongs to both spouses regardless of who’s name in on title or the mortgage. The day you married, the home that you live in automatically became owned by both spouses, therefore it is also divided between the spouse’s when you separate or divorce.
When couples separate in Ontario, typically the matrimonial home is sold – either to you, to your spouse or to a third-party buyer. You should always have a formal Separation Agreement in place that outlines all financial terms before attempting to change anything pertaining to home ownership.
A formal Separation Agreement is required to instruct your real estate lawyer how to disperse assets upon the sale of your home. Equity funds will sit in your real estate lawyer’s trust account until a Separation Agreement instructs the lawyer how to disperse the funds.
ALL Canadian Banks will require your legal Separation Agreement before they will approve you for a new mortgage. You will be required to qualify for a new mortgage based on your income and your debts alone regardless of what is outlined in that Agreement. Support payments will be considered as part of your total debt load when banks review your application.
If both parties are still on an existing mortgage then from the Bank’s perspective both are responsible for the payment of the mortgage and all taxes until one of them is removed.
In Ontario the matrimonial home is defined as “every property in which a person has an interest … 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.”
“If you intend to buy out your spouse’s share of the matrimonial home, you will have to pay land transfer tax on your spouse share, unless you have a formal separation agreement in place.”
Do I Buy or Do We Sell?
There are lots of emotions tied to the matrimonial home. Many speak of how they want to keep stability for the children. Some want to stay in their neighbourhood and others are very tied emotionally to their home and do not want to lose it.
When all is said and done, deciding to buy out your spouse and keep the home or deciding to sell the matrimonial home ultimately boils down to money. Can you afford to carry it alone? Here are a couple of things to consider before you make your decision.
- There are memories tied to your home, both good and bad. Do you want to carry these memories forward with you into your new life? There is something to be said about starting new memories in a new home.
- Your children are more flexible than you may perceive at this time. Many couples use the excitement of new homes and new bedrooms to help children transition.
- Are you able to maintain the home on your own? Taking on a home means cutting the grass, and fixing the roof. Be prepared that you will have to do this without your exes assistance (even if they say they are going to help.)
- Be careful to not be house poor. Taking on a financial expense that will overburden you will only add to your stress and hinder your financial recovery.
How Do I Buy Out My Spouse After Divorce?
In order to buy the matrimonial home from your spouse, you must take on the existing mortgage and pay out your spouse’s half of the equity in the house. For many this means that you need to assume the existing mortgage, and increase the mortgage to include the amount owed to your spouse.
For instance, if your house is worth $500,000 and you have a mortgage on the home for $200,000 that means the equity would be $300,000 of which your spouse would get half ($150,000).
Therefore if you decide to keep the matrimonial home, you will have to assume the existing mortgage of $200,000 and increase it another $150,000 to pay out your spouse. You will now carry the new mortgage in the amount of $350,000.
10 Divorce and Matrimonial Home Questions to Ask Yourself
- Do I or my spouse want to keep the home?
- Do I really want to stay in a home that comes with memories?
- What is the value of my home?
- What time of year is the best for selling this home?
- Can I qualify for a mortgage?
- Can I afford to pay that mortgage?
- Am I keeping the home for the wrong reasons?
- Can I afford to buy another house near to my children?
- Am I able to do upkeep and maintenance on this home?
- Where would I want to live if I didn’t live here?
The Top 3 Divorce Mistakes People Make
1. Hiring a lawyer before understanding all their negotiation options
2. Succumbing to emotions at the expense of their financial future
3. Not starting with a smart, legal and financially savvy go-forward plan
20 YES and NO’s About The Divorce and The Matrimonial Home
- NO It doesn’t matter who’s name is on title. If you both lived there before the date of separation it is the matrimonial home.
- NO You cannot change the locks. Typically, both spouses have an equal right to possession of the matrimonial home after separation.
- YES Once your spouse moves in, the house is instantly considered the matrimonial home. It doesn’t matter if you bought the house before you were married.
- NO You don’t get credit for the value of the matrimonial home before marriage. The matrimonial home is given special treatment and you cannot deduct the pre-marriage property value, as you would with other assets.
- YES You are responsible for the mortgage, even if you don’t live there. If your name is on the mortgage you need to ensure it gets paid.
- YES Inheritance is exempt UNLESS you put the money into the matrimonial home.
- NO Your ex-spouse will not be paying your mortgage after you divorce. You may receive support, but you will need to qualify for your own mortgage.
- NO Your spouse is not required to repay the gifted down-payment money that your parents gave you. You can try to negotiate it with your spouse, but the courts will not legislate it.
- YES You will pay land transfer tax if you buy out your spouse’s share of the matrimonial home, UNLESS you have a proper separation agreement in place.
- YES If you owned more than one home (or a cottage etc) it may also be considered a matrimonial home.
- YES The matrimonial home is always divided unless you have a marriage contract that deals with the matrimonial home differently.
- YES If there is domestic violence happening in your home you can apply to the courts for an order for exclusive possession. Obtaining an order will require your spouse to live somewhere else.
- NO An order for exclusive possession does not affect your ownership rights. Such court orders do not decide who owns the property.
- NO An order for exclusive possession is usually temporary, and is intended to give you time to complete your separation agreement.
- YES In most cases, children are allowed to live in the matrimonial home.
- NO If you are Common Law you do not automatically have the same rights with regards to a matrimonial home. In Common Law, whoever’s name is on the title owns the home.
- NO You are not allowed to mortgage, refinance or place a line of credit on the matrimonial home without your spouse’s written consent.
- NO: A property that was gifted to you, or inherited is NOT exempt from division. If you and your spouse lived there, it is considered the matrimonial home and will be divided between you both.
- YES If can’t agree on what to do with the matrimonial home, you may apply to court for an order of partition and sale. If granted, the court will order the house to be sold and the proceeds to be split.
- NO There is no right of first refusal within Ontario family law. If the house is ordered to be sold, the party wishing to stay in it, must bid on the open market with all other buyers.
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How Do I Value the Matrimonial Home?
There are normally two ways to value the matrimonial home during the separation process. If you and your spouse intend to sell the home to a third-party, the value of the home is whatever you can sell it for.
Make sure to have your Separation Agreement completed before selling the home, as your real estate lawyer will hold the proceeds in trust until the separation agreement is finalized.
If you or your spouse are buying the matrimonial home from the other, the value of the home will be based on a formal appraisal by a certified Home Appraiser (which is different than a realtor).
Be aware that if you intend to arrange a mortgage for the purposes of refinancing, each bank will typically have their own list of Home Appraisers, so it may be prudent to arrange for the appraisal to be done by the bank you are receiving the mortgage from so that you do not have to pay for the appraisal twice.
Can I Use a Realtor to Value Our Home?
You and your spouse can decide to value your home at any price you want to, if both of you are agreeing. For some people, they simply agree on a price. For other’s they call on a realtor. A Realtor has access to recent sales of houses in your neighbourhood.
Be aware though that a realtor’s valuation is only a professional opinion and does not constitute a formal appraisal for re-mortgaging purposes. So for instance, your realtor may say that your home is worth $600,000.
This would mean that you would each receive $300,000 of the equity. But when you try to get a mortgage to pay out your spouse their $300k a formal appraisal comes in saying that your house is only worth $570,000. This would mean that in reality you should be paying your spouse only $285,000 and that you are paying them $15,000 too much.
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How is The Matrimonial Home Dealt With For Common Law?
In Ontario, Common Law is NEVER considered to be married. It does not matter how many years you have lived together… you are NOT considered to be married in Ontario. Therefore the rules about the matrimonial home do not apply to common law couples.
Typically the home belongs to the individual that the home is registered to. For common law relationships and the matrimonial home – the rule of thumb is, what was yours when you came into the relationship is yours when you leave the relationship.
The Unofficial Rules of Divorce:
- Divorce gets prickly, even in the most amicable situation
- It’s often less about the legalities and more about the money
- People make expensive mistakes because they don’t make a plan
- Before you do anything, understand your rights, obligations & complexities
The Matrimonial Home and Mortgages
Divorce is often less about legalities and more about money. Divorce and the matrimonial home similarly is more tied to mortgages and taxes than anything else. There are mortgage implications and there are tax implications that need to be addressed.
Is There a Mortgage for People Divorcing?
Typically when you want to refinance your home you are limited to refinancing only up to a maximum of 80% of the appraised value of your home. Unfortunately many times in today’s housing market this may not provide enough money to pay off joint debt and payout your spouse with any share of their equity.
A number of Canadian Banks do offer what is called a “Divorce Mortgage.” Basically, the Divorce Mortgage allows you to buyout your spouse by refinancing your mortgage up to 95 per cent of the appraised value of your home. In essence they are treating it as though it is an original purchase and therefore requiring only a 5% down payment.
Do All Canadian Banks offer the Divorce Mortgage?
No, the Divorce Mortgage is not offered by every Canadian Bank. The best way to access a divorce mortgage is to contact a specialized divorce mortgage broker, as they have access to all of the banks in Canada.
Keep in mind that in order to qualify for this mortgage or any mortgage, your income and debt ratios must support it. This means you have to be making an income yourself, making enough income to support a new mortgage and not not carrying too much debt.
Keep in mind that Canadian Banks are notoriously difficult these days with qualifying. Here are a few of the rules that are in place in order to qualify for a 95% divorce mortgage.
- Both you and your spouse need to have to been on title to the property before you separated.
- You will need to have a finalized, legal Separation Agreement signed by both of you.
- The following documents confirming the sale price and transfer of title must be on file
- You will need to create a legal Offer to Purchase Agreement – from one spouse to the other
- Since this purchase transaction is not Arms length, the bank will require a full internal appraisal by their approved appraiser (not a realtor).
When I Divorce Can I Use My RRSPs To Buy A New Home?
In Jan 2020, the Canadian federal tax law was changed to assist divorcing individuals. The Canadian Home Buyer’s Plan, the same plan that allowed first time homebuyers to withdraw from RRSPs to purchase their first home, now allows separating spouses to withdraw from their RRSPs without being hit with a tax penalty. The small print; the money must goes toward the purchase of a new home.
How to Avoid A Messy Divorce
- Seriously consider mediation before lawyer litigation
- If at all possible, stay out of the Family Courts
- Gather and organize your financial documents
- Do your homework, understand how divorce works in Ontario
Should I Refinance a Mortgage During a Separation?
You are about to separate or you have just separated and your 5 year mortgage comes due. You DO NOT renew a mortgage if you are considering separation. This is probably one of the biggest and most expensive mistakes that individuals make.
Here’s what you need to be thinking: If you renew a fixed mortgage, you are going to be hit with HUGE mortgage penalties when either of you buys out the matrimonial home, or if you intend to sell the house.
Often people want to refinance a mortgage before a divorce in order to consolidate debt. This just doesn’t make sense. All you are doing is rolling debts (especially unsecured debts) into the matrimonial home and losing any potential claim for non-responsibility of those debts.
When you separate, your debts are dealt with in your Separation Agreement. Leave them out of the matrimonial home and deal with them then.
If your mortgage comes due during a separation, immediately call the bank and tell them that you are facing a separation.
Most Banks will either extend your mortgage as is for a few months, put you into a temporary mortgage that will give you some time to deal with your matters. The interest rate may be a little bit higher, but it will most definitely cost you less than mortgage penalties will.