A divorce or separation is an emotional time. One of the most challenging decisions when you’re going through a separation is what to do with your home. You might also have other properties to consider such as rentals or a cottage, but the home that you’ve lived in always has an emotional attachment.
The most common question that we receive is should I sell the home or buy my ex-partner out? Here are some tips to help you through this transition…
The first important step is to finalize the separation and get an agreement together. The separation agreement outlines how your assets will be divided and how other important financial decisions will made. If you don’t have a separation agreement and there are no children or other larger assets involved and it’s a friendly split, some financial institutions will accept a statutory declaration instead of a full separation. This means that both parties have agreed to the division of the equity in the home and only Independent Legal Advice may be needed.
In the event you decide to buy another home from the equity you’ve received, things to consider include:
- Will you be keeping or selling the existing house?
- If you are buying another home for yourself, it’s likely that your ex has decided to keep the matrimonial home and will give you the equity or “cash” from the house. They will have to refinance the home and remove you from title. Selling the house can be a little more complicated depending on the market conditions and if a bridge loan will be required. We often see spousal disputes on bridge financing because both parties have to sign off on the bridge loan.
- What can you afford relative to your current financial situation?
- Getting pre-approved is essential and will help you with this decision. Many mortgage bankers or even other brokers don’t have the experience to walk you through this discussion. That’s where we can help you as we’ve had hundreds of these conversations. Meet with us and we’ll put together a clear path forward that you wouldn’t get anywhere else.
If you are staying at the existing home these things should be considered:
- Can the equity in the property be used to consolidate joint liabilities?
- There are normally debts outside of the mortgage that need to be paid out. If you have joint debts like vehicle loans or a line of credit, you’ll need to agree on how these debts will be paid. For example, if you’re taking the vehicle and it has a $20,000 loan on it – the portion of your equity in the home would go to pay for that car loan.
- Is there enough equity in the home to provide a cash payout to your ex?
- In most cases there is enough equity in the property to refinance the home and use that equity to buy your ex out of the home. The most complicated decision will be around your budget and handling the monthly payment on the new mortgage. Sometimes it requires creative thinking to put a plan together so that you can stay in the home. That’s where The Mortgage Centre can help! If you have children, one partner normally stays in the home to offer children stability during a difficult transition.
The Mortgage Centre @skipthebank.ca can work in partnership with your lawyer to help navigate whatever scenario you’re in. We’ve helped many people build their new financial future sometimes from scratch. Often debts can be a dispute, but regardless of who pays the bills it’s important to maintain a good credit history. If your ex. decides not to pay some of the credit cards or lines of credit on time it will have a negative effect on your credit history and will affect your ability to get good mortgage financing.
Please contact us as we have the experience and expertise to move you ahead with your new life.