Buyouts are often discussed in the context of a separation when one spouse wants to keep the house. But the reverse situation can also happen: if you own your home and have a new partner, you may want your new companion to own a share of your home.
There are many reasons why you might want to become a co-owner with your partner. Instead of selling the property you already own to buy a new home as a couple, it can sometimes be easier to sell a percentage of your home directly to your partner.
Is this possible? What is the process for allowing your partner to purchase a portion of your property? What are the tax implications of such a decision? Find out in the rest of this article.
Can I sell half of my home to my partner?
The answer is yes, you can! Instead of your spouse contributing to the cost of the home by paying you rent, you can agree to sell him or her a portion of the property. You will then be jointly responsible for paying off the house and, if applicable, the mortgage.
You can even choose the percentage of the share you want to sell. You can, of course, decide that each of you will own 50% of the property, as in most cases. Or you can choose a completely different ratio, such as 40%-60%, 30%-70%, etc. It is up to you to determine the percentage that works best for you.
How can your partner invest in a portion of your home?
Once you've determined how much of the property each of you will own, you and your spouse will need to take certain steps to allow your partner to purchase his or her share of the home. Here are the steps you will need to take.
1. Estimate the market value of the property
To find out how much your spouse will have to buy back, you first need to know how much your home is worth. The first step is to determine the market value of your property, which is the most likely price you could receive if you sold it on the market in the current environment.
You can do this by looking at comparable homes in your neighbourhood. By looking at homes similar to yours that have recently sold, you can get a good idea of your home's value.
However, the best way to get a fair and accurate estimate of the price of your home is to use the services of a certified appraiser. For a small fee, this real estate appraisal expert will be able to tell you the value of your property and justify his or her analysis in a comprehensive report.
Avoid relying on municipal appraisals, as they don't always reflect the true value of your property.
2. Determine home equity
Once you know the market value, you'll need to calculate the equity you currently have in your home. How do you do this? By subtracting the outstanding mortgage balance from the market value.
For example:
Your home has a market value of $400,000. You still owe $275,000 on your mortgage.
400 000 $ - 225 000 $ = 175 000 $
This means that you have $175,000 of equity in your home.
If you've decided that you and your spouse will each own 50% of the property, your spouse will have to pay you half of the equity. Using the example above, he would have to give you $87,500 to buy his half of the house.
3. Become a co-borrower on the mortgage
In addition to paying his or her share of the equity, your spouse must also pay his or her share of the mortgage. To add a second name to the mortgage so that your significant other becomes a co-borrower, you will need to contact the financial institution that gave you the loan.
There are usually no penalties for adding a new person to a mortgage. In fact, since the loan amount, interest rate and term remain the same, you may not have to pay anything. Check with your lender about the specifics of your situation.
4. Put your partner's name on the deed
Finally, you will need to make an appointment with your notary to have your spouse's name added to the title deed to formalize his or her status as a co-owner. You will then have equal rights to the property. This means that in the event of a dispute or future separation, you won't be able to evict your spouse, and vice versa.
Have you agreed not to split the property down the middle? At this stage, be sure to specify the percentage of each party's share. If you don't, you will automatically be considered equal co-owners.
What are the tax implications of selling part of your home?
Selling part of your home to your spouse is an important decision that will have a real impact on your life and your portfolio.
From a tax point of view, you can rest assured that the spouse who originally owned the home will not have to pay tax on the capital gain realized on the sale of a portion of his or her home. This is due to the Quebec principal residence exemption. Of course, you must meet the requirements for the exemption to benefit from it.
Additional protection for co-owners
Are you and your partner in a common-law relationship? Even if you add his or her name to the title of your home, that’s usually not enough protection.
In many ways, common-law partners do not have the same rights as married couples. For example, if one spouse dies, the other does not automatically inherit his or her share of the property. Instead, the legal heirs (children, parents, sisters, brothers, etc.) would inherit all or part of the rights to the home.
For their protection, de facto partners are therefore advised to draw up certain precautionary documents in advance. These include:
- A will;
- A mandate of protection;
- A Contract Between Common-Law Partners;
- A life insurance.
In this way, you can avoid potential complications in the event of death, accident or even separation.
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