Divorce and Real Estate
Divorce and Real Estate
Divorce is not easy, and it gets more complicated when the separating spouses own real estate together. Between dealing with excluded property, figuring out how to factor in the fair market value when dividing family property, and managing new mortgage payments, the added stress can feel overwhelming.
Spouses separate for a variety of reasons but the following is a good look at what to expect when you divide family property during a divorce.
How to value your home in a divorce?
When it comes to the value of a marital home in a divorce, each situation is unique. Generally speaking, if the home is owned by both spouses as joint tenants or tenants in common, then its value will be divided equally. If only one spouse owns the home, that spouse will be entitled to the entire value of the property.
Depending on the terms of the divorce settlement, your may end up in a situation where you divide property in a different fashion. When one spouse takes on financial compensation while the other spouse retains ownership of the entire house.
If, at the start of the relationship, there was a marriage contract or cohabitation agreement (in the case of a common-law relationship) about how assets would be divided then both you and your ex-spouse will have to abide by the terms of that contract, exceptional circumstances notwithstanding.
If no such agreements were made and one partner or both feel like the division of assets is unfair then it can go to divorce court. At this point, a court would only divide marital assets unequally if it was deemed that it would be "significantly unfair" for the assets to be shared equally.
What are the differences for common law couples?
A common law relationship is a marriage-like relationship but without the legal protections that come with marriage. This means that when a common-law couple separates, they are treated as two individuals who were never in a relationship.
This can have serious implications for couples who have been living together for many years and have amassed significant assets jointly. In a situation where a common-law couple separates, each individual is entitled to one-half of the value of any asset that was acquired during the relationship. This can be a major problem if, for example, the couple owns their home together.
If you are in a common-law relationship and are considering separation, it is important to get legal advice right away to protect your interests.
What happens to the mortgage when you get divorced?
Most of the time, a home is bought on the real estate market with a mortgage. It's a long commitment that involves a significant amount of money. It's common for married people to pool their resources to afford the mortgage and that makes them both legally responsible in the eyes of the lender.
Divorcing couples need to be clear about what will happen to their mortgage after the divorce. If you are leaving the house to your ex-partner, for example, you both need to get in touch with the lender to clarify the situation with them. In BC for example, even if the matrimonial home is not in your name, it is considered family property. The associated debt with regard to that property, family debt, is something shared by both spouses.
In the case of a joint mortgage, you have a few options. You could sell the house and use the proceeds to pay off mortgage pre-payment penalties then divide up what's left. Your former spouse could take over the home and refinance the mortgage by taking into account child support payments and new mortgage rates.
When bringing up these issues to your lender have a separation agreement ready with a clear separation date.
If the appraised value of the home goes down significantly or if the house does not have much equity in it, then you may have no other choice but to keep the house until it builds up enough equity to sell.
If you are unsure of the full value of the home or how you compare to a divorcing couple if your relationship is considered common law, then it's time to look into lawyers specializing in family law. Even with all the goodwill in the world, the divorce process can make one party's judgement clouded to the long-term ramifications of some agreements.
What about excluded property?
Excluded property is property bought before the start of the marriage or the common-law relationship. This property escapes the definition of family property but it needs to be proven by the spouse making the claim.
As opposed to family property where both parties are equally responsible, exclusive possession means that only one person is entitled to the home. This can lead to what can seem like an unequal division of assets. Depending on the circumstances of the divorce, other assets can be used to satisfy the needs of one party without touching the house.
When is the best time to sell a home during a divorce?
There is no definitive answer to this question, as the best time to sell a home during a divorce will vary depending on the specific circumstances of each case. However, there are some things to consider when making this decision.
One important factor to consider is how divided the home will be after the divorce. If one spouse is keeping the home and the other is moving out, then it may make sense to sell sooner rather than later. This is especially true if the spouse who is leaving needs to move quickly and does not have the time or resources to wait for the home to sell.
Another factor to consider is the market conditions. If the housing market is strong, it may make sense to sell sooner to maximize the profits from the sale. However, if the market is weak or uncertain, it may be wiser to wait until conditions improve.
Can you buy or sell a home before or during a divorce?
This is something you have to be very careful with since, if you have joint accounts, the new home may complicate matters.
Assuming you are the spouse who is leaving, buying a home before the divorce is finalized can be a way to ensure you have a place to live. It also gives you some security in case things do not go your way during the divorce. However, this is not advised in most cases.
It's often a better call to wait until you and your former spouse are considered separate legal entities - decoupling your joint accounts and debts - before buying a new piece of property. You will not know the true state of your finances until after the divorce is done.
It is important to speak with a lawyer before making any decisions about buying a house or not. It may be complicated to get financing as well until the issues with your joint property and its associated mortgage are resolved.
However, getting in touch with a real estate agent early on is a good idea, if only to get the ball rolling.
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