When a separation or divorce happens, figuring out asset ownership can get complicated, especially when a house and mortgage are involved. Thankfully, there are several solutions to consider.
While selling the house and splitting the proceeds may seem like the most straightforward option, there may be alternatives that better suits your unique situation. For instance, one spouse could buy out the other’s share or opt for an assumption agreement. Let’s take a closer look at these options.
Married or common law partners: understanding property ownership upon separation
It’s essential to understand that when spouses separate or divorce, both parties share responsibility for the distribution of resources and debts, including mortgage obligations.
However, this responsibility varies based on whether the couple is married or in a common-law relationship. Each situation has unique implications for property ownership and debt management upon separation.
Separating or divorcing when married
In a marriage, the law views both partners as equals, meaning each is entitled to half of the family patrimony. This includes the home.
Indeed, both spouses have the right to half of the profits from its sale, even if only one of the spouses is listed on the title. Additionally, the non-owning spouse has the right to stay in the family home and cannot be evicted by the other spouse.
Separating in a common-law relationship
In a common law relationship, property division does not follow the same rules as in a marriage. If the partners have a cohabitation agreement that outlines the terms of separation, that document will dictate how property, including the home, is divided.
If no such agreement exists and only one partner owns the property, that owner has the authority to decide whether the other partner can stay or must leave, as long as they don’t abuse this power.
If both partners are co-owners and their names are on the property deed, they must mutually agree on who will remain in the house and who will leave. Since both have legal rights to the property, neither can forcibly evict the other.
In these situations, it can be helpful to consult a lawyer or mediator to assist both parties in reaching an agreement regarding property division and other shared assets.
Selling of keeping the house: options for couple upon separation
When couples separate, they generally have 3 options regarding the family home:
- Sell the property and divide the proceeds.
- Buy out one spouse’s share and keep the house.
- Make an assumption agreement.
1. Selling the property and dividing the proceeds
Selling the house is often the most straightforward option and allows for a clean break for both spouses. In the case of married couples, the profits from the sale are typically divided equally. For common-law partners who co-own the property, they must mutually agree on how to divide their assets.
If you’re considering this option, keep in mind that selling your property before the end of your mortgage term may incur early termination fees that could amount to thousands of dollars. That is why it’s essential to check with your financial institution to understand any applicable penalty fees before choosing this route.
Additionally, avoid rushing the sale if you want to maximize its value. Selling impulsively could result in lower profits, alongside the penalty fees. In any case, working with a real estate broker can be beneficial to guide you through the selling process effectively.
2. Buying out one spouse's share and keeping the house
If one of the spouses wishes to keep the property during a divorce or separation, it’s possible to transfer the mortgage solely to that spouse. Before proceeding, it’s important to consult with your financial institution to understand any penalties for breaking the mortgage contract if it hasn’t yet expired.
Next, you’ll need to assess the property’s value. A certified appraiser can provide an accurate evaluation of your home. To calculate the amount required to buy out your spouse’s share, use the following formula:
Home value - mortgage balance - penalty fee = net profit
Net profit ÷ 2 = amount to pay to the other spouse
Before the buying out the share, the spouse retaining ownership must demonstrate the ability to pay for the house independently. This includes having sufficient income, a good credit history, and being current on mortgage payments.
If the spouse does not qualify for the mortgage alone, they may seek a co-signer (endorser) with a solid credit history to guarantee the loan. However, it’s important to fully understand the responsibilities of both parties before co-signing.
In some cases, the bank may allow the mortgage to be assigned as is to one spouse, but typically, a new mortgage will need to be secured. Remember, you are not required to obtain a new mortgage from the same financial institution, as any breach of contract penalties will have been addressed.
3. Signing an assumption agreement
When one spouse agrees to take over the mortgage and assume full responsibility, both co-owners can sign an assumption agreement. This option is often seen as a last resort, helping them avoid selling at a loss, incurring penalty fees, and renegotiating a new mortgage.
However, it’s important to note that the assumption agreement keeps both spouses’ names on the mortgage. This can complicate future plans for both ex-spouses, particularly hindering the one who leaves from securing another mortgage.
---
Regardless of your situation, it’s advisable to seek professional assistance to navigate this complex process. A professional can significantly ease the challenges that arise during separation or divorce.
Are you seekig legal advice from a notary?
XpertSource.com can help you find a notary. When you tell us about your project, we put you in touch with qualified resources for FREE. Simply fill out our form ( it only takes a few minutes ) and we will connect you with professionals.
