The Money Smart Divorce Solution
For The Matrimonial Home
...Without Going to Court.
Gail Vaz-Oxlade's Guide To The Matrimonial Home
For more than 20 years you have witnessed Gail Vaz-Oxlade’s candid money wisdom on radio and TV, most notably as host of TVs “Till Debt Do Us Part,” “Princess” and “Money Moron.” Gail, a best-selling financial author brings her trademark common sense wisdom to 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.
20 YES and NO’s
About Divorce and The Matrimonial Home
- NO It doesn’t matter whose name is on title. If you both lived there before the separation, it is the considered matrimonial home.
- YES The matrimonial home is always divided, unless specified differently in a marriage contract.
- NO You cannot change the locks. Typically, both spouses share equal possession of the matrimonial home after separation.
- YES You can seek “exclusive possession” through court orders in cases of domestic violence.
- NO An order for exclusive possession will not affect ownership rights.
- YES An order for exclusive possession are temporary, and is intended to give you time to complete your separation agreement.
- YES When you marry and your spouse moves into the home you owned before you were married, it is instantly considered the matrimonial home.
- NO You don’t get credit for the value of the matrimonial home from before your marriage. The matrimonial home is given special treatment in Ontario and the pre-marriage property value is not subtracted from the matrimonial home’s worth during divorce proceedings
- YES You are you are still responsible for the mortgage, if your name is on it, even if you’re not living there.
- YES Inheritance is typically exempt UNLESS you put the money into the matrimonial home.
- NO Your ex-spouse will NOT be paying your mortgage or rent. Post-divorce you may receive support and you will pay your own mortgage or rent.
- NO Your spouse may not be legally required to repay a gifted down-payment though you can still try to negotiate it with your spouse.
- YES Unless you have a legal Separation Agreement, you will pay land transfer tax if you buy out your spouse’s share of the matrimonial home.
- YES Cottages or additional properties might also be considered matrimonial homes.
- 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.
- YES A gifted or inherited property could still be subject to division if both spouses lived there.
- YES If can’t agree on what to do with the matrimonial home, you may apply to the courts for an order of partition and sale, requiring the house to be sold.
- NO There is no right of first refusal within Ontario family law. If the house is ordered sold, the party wishing to stay in it must bid on the open market with all other buyers.
SUMMARY: The Matrimonial Home in Ontario
In Ontario, the home you live in when you separate is called the “matrimonial home.” The matrimonial home’s value is divided between you and your spouse when you separate or divorce.
OWNERSHIP: The matrimonial home belongs to both spouses, regardless of whose name appears on the title or mortgage. Furthermore, any residence in which you both resided on your wedding day automatically becomes the marital home, belonging to both partners, even if it was solely owned by one spouse prior to the marriage.
SELLING THE HOME: When couples separate in Ontario, typically the matrimonial home is sold – either to you, to your spouse or to a third-party buyer. Before selling or attempting to change ownership, you should have a legal Separation Agreement that formally outlines all of your financial terms. After the sale of a home, the proceeds will be held in your real estate lawyer’s Trust Account until a signed Separation Agreement is provided, instructing the lawyer on the appropriate way to distribute the funds to each spouse.
BUYING OUT YOUR SPOUSE: If you plan to purchase the marital home from your spouse, you will need to meet the requirements for a new mortgage in your name only. The new mortgage will cover both the existing mortgage and the funds required to buy out your spouse’s portion of the home’s equity.
EXISTING MORTAGES: A Separation Agreement does not remove you from the responsibility of mortgage payments. If both spouses are still on an existing mortgage the bank still considers both parties equally accountable for all of the mortgage payments until one person’s name is legally removed from the mortgage.
NEW MORTGAGES: All Canadian Banks will require a copy of your legal Separation Agreement before they will approve you for a new mortgage. Qualifying for a new mortgage will hinge solely on your own credit, income and debts. Support payments will be factored into your overall assessment during the bank’s evaluation of your mortgage application.
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 Out My Spouse or Do We Sell?
Many people have a deep emotional connection to their home and are reluctant to part with it. We may desire to maintain stability for our children or may wish to remain in a familiar neighborhood.
After everything is considered, the choice between buying out your spouse or selling the marital home essentially comes down to finances. Can you manage the costs independently? Here are a few factors to consider before you make your decision.
- Your home holds memories, both good and bad. Do you wish to bring these memories along as you step into your new life? There is something to be said about creating fresh experiences in a new home.
- Children are often more adaptable than you might realize. Many families leverage the enthusiasm of new homes to help their children transition and adjust.
- Are you able to maintain the home on your own? Owning a home on your own means the responsibility for cutting the grass, shoveling the driveway and fixing the roof. Be prepared that you will have to do this without your ex’s assistance (even if they promise to help.)
- Ensure you don’t become “house poor.” Assuming an burdensome financial commitment may add to your stress and hinder your financial recovery.
How Do I "Buy Out" My Spouse?
“Buying out” your Spouse means you are buying the matrimonial home from your spouse, meaning you must take on not only the existing mortgage but also pay out your spouse’s half of the house’s equity. For many, this means assuming the existing mortgage and often refinancing the mortgage to include the amount owed to your spouse.
For instance, if your house is worth $800,000 and your current mortgage is $300,000 that means the remaining equity is $500,000 of which your spouse would be owed half ($250,000).
Therefore, if you choose to keep the marital home, you will assume the existing $200,000 mortgage and increase it by another $250,000 to pay out your spouse. You will now carry the new mortgage in the amount of $450,000.
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
3 Ways We Can Help You RIGHT NOW
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How Do I Value The Matrimonial Home?
There are typically two methods to assess the value of the matrimonial home during the separation process:
- Sale to a Third Party: If you and your spouse plan to sell the home to a third party, its value is determined by its market selling price. It’s essential to finalize your Separation Agreement before selling, as the sale proceeds will be held in trust by your real estate lawyer until the agreement is settled.
- Buyout Between Spouses: If either you or your spouse is buying the home from the other, the value is established through a formal appraisal conducted by a certified Home Appraiser.
Keep in mind when refinancing, banks typically provide a list of their approved Home Appraisers. To avoid double payment for the appraisal, consider using the appraiser recommended by the bank from which you’re obtaining the mortgage.
Can I Use a Realtor to Value Our Home?
If both you and your spouse are in agreement, you can assign any value to your home. Some couples simply agree on a price together, while others consult a realtor. Realtors have access to recent sales data in your neighborhood.
However, it’s important to recognize that a realtor’s assessment is an expert opinion and doesn’t serve as a formal appraisal for purposes like re-mortgaging.
HAVE YOU CONSIDERED
ONLINE MEDIATION?
New technologies and legal innovations are changing the Divorce process for thousands of Canadians.
Learn how ONLINE MEDIATION may be a perfect solution for your family.
How Is The Matrimonial Home Dealt With For Common Law?
In Ontario, Common Law partnerships are never legally regarded as marriages, regardless of how many years you have lived together. Therefore, the regulations regarding the matrimonial home do not necessarily extend to common law couples.
Usually, ownership of the home is determined by the individual whose name is on the property’s registration. For common law relationships and the matrimonial home, though there are exceptions, as a general guideline: what was your property before entering the relationship remains your property upon leaving 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. Similarly, divorce and the status of the matrimonial home are strongly intertwined with complex mortgage responsibilities and tax obligations that will need to be addressed.
How Do I Qualify For A Mortgage After a Divorce?
In today’s market there are notable limitations in acquiring a mortgage. 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.
To qualify for a mortgage in Canada, you generally need to meet certain requirements set by lenders and financial institutions. The specific criteria can vary slightly from one lender to another, but here are the common factors that determine your eligibility for a mortgage:
- Separation Agreement: Your lender will require a finalized and legal Separation Agreement signed by you and your spouse, clearly explaining the child and spousal support obligations.
- Good Credit Score: A strong credit score is crucial. Most lenders require a credit score of at least 680 or higher.
- Steady Income: You’ll need a consistent and verifiable source of income that demonstrates your ability to make mortgage payments.
- Employment History: Lenders often prefer at least two years of consistent employment in the same field.
- Debt-to-Income Ratio (DTI): Lenders assess your DTI, which compares your monthly debt payments to your gross monthly income. A lower DTI is preferable, typically below 43-50%.
- Property Appraisal: The property you’re purchasing will need to be appraised to ensure its value aligns with the mortgage amount.
- Mortgage Stress Test: Introduced in recent years, this test evaluates your ability to make mortgage payments if interest rates were to rise. You need to qualify under a higher interest rate than the actual rate you’re applying for.
It’s important to note that these are general guidelines, and each lender may have slightly different requirements. Consulting with a mortgage broker or a lending professional can help you understand the specific requirements for your situation and guide you through the process of applying for a mortgage in Canada.
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 facing tax penalties, as long as the withdrawn amount is used for the acquisition 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?
When you’re on the verge of separation or have recently separated, and your mortgage term is expiring, it’s crucial to approach the situation with care. One significant mistake to avoid, if separation is on the horizon, is renewing your mortgage. This mistake often leads to additional, substantial and costly penalties that can arise when either party seeks to buy out the matrimonial home or when the home is being sold.
Here’s what you should keep in mind:
- Avoid Renewal: Renewing a fixed mortgage prior to separation can result in hefty penalties, especially when dealing with the division of the matrimonial home.
- Debt Consolidation: Refinancing your mortgage before divorce to consolidate debt might not be wise. Rolling unsecured debts, into a secured mortgage can hinder your ability to individually address those debts later on.
- Separation Agreement: When you separate, the handling of your debts should be addressed in your Separation Agreement. If your separation is imminent, leave debts out of the mortgage and deal with them according to your agreement.
- Contact Your Bank: If your mortgage matures during a separation, promptly inform your bank about the situation.
- Bank’s Assistance: Many banks are willing to offer options like extending your current mortgage for a few months or placing you in a temporary mortgage to provide time to address your divorce matters. While the interest rate might be slightly higher, this approach is significantly more cost-effective compared to potential mortgage penalties.
By communicating openly with your bank and considering the implications of mortgage renewal, you can navigate this critical financial aspect more effectively during a separation.
