November 13, 2018

Mortgage Options During Separation And Divorce

divorce

Separation and divorce can impact a family on multiple levels, including financially. Splitting assets can be messy business. Many couples end up selling the family home to pull out their equity, which can cause additional stress. Before you opt for this approach, you should know about the spousal buy-out option. 

Here’s the scoop: 

If one spouse prefers to stay in the home, it may be possible to get a new mortgage to purchase the property from the other spouse for up to 95% of the property’s value.  

Here’s how: 

A spousal buyout allows one spouse to keep the home while paying the ex-spouse their portion of the home’s equity. This can create some stability for the family during this often-trying time. 

Similar to other mortgages, the purchasing spouse must qualify to carry the loan.  A legal Separation Agreement and a Purchase Agreement is also required. 

While each province and territory have their own laws regarding the division of family/marital property, marriage is generally seen as an equal partnership in the eyes of the law. For the most part, anything that has been acquired during a marriage and is still owned at the time of separation would be divided equally.  

The “matrimonial home” is the space where both spouses have their primary residence at the time of separation, and regardless of whose name is on the title of the house, both parties have an equal right to the home unless there is an agreement that states otherwise. 

Here are the specific requirements: 

  • Lender will require a signed separation agreement with the details of asset allocation. 
  • Net proceeds can only be used to buy out the other owner’s share of equity and/or to pay off joint debt as explicitly agreed upon in the finalized separation agreement. 
  • The maximum equity that can be withdrawn is the amount agreed upon in the separation agreement to buy out the other owner’s share of property and/or to retire joint debts (if any), not to exceed 95% loan to value (LTV). 
  • Maximum LTV is the lesser of 95% or remaining mortgage + equity required to buy out the other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV).  
  • The property must be the primary owner-occupied residence. 
  • An appraisal is required.  

If you find yourself facing separation or divorce, it’s important to know your options. Selling the matrimonial home isn’t the only option. If you want to know more about spousal buy-out, give us a call. 

The Blake Wilson Group