Divorce, Spousal Separation, and Spousal Buyout Mortgages
Few people enter into a marriage thinking that it will end in separation or divorce. Of course marriage is supposed to be a good thing which can be amazing through the ups and down of life. But unfortunately, for many couples marriages break down and eventually end. If you find yourself in this situation you may be wondering what your options are? You may have a lot of questions such as.
Can I afford to buy another house for myself?
Can I take over the mortgage of my current home?
Can I buy out my ex-spouse and still keep the existing house?
Can we consolidate our debts into a new mortgage?
Should we sell our existing property and each buy another home?
Will we end up having to rent?
The answers to these questions totally depend on your own particular scenario so at any point email us or call us to learn about your individual options. In the meantime read on to learn a bit more about the basics of mortgage financing for those considering separation and/or divorce.
Below is a list of key terms and concepts that you may want to familiarize yourself with as you move through this process. Banks and mortgage lenders consider these when determining if you can qualify to either take over your current existing mortgage as is, or to buy-out your ex with a new mortgage for up to 95% of the homes market value. This program is commonly referred to as the spousal buyout program. You may even decide to purchase a new home if your spouse/partner is planning to buy you out of the matrimonial home OR if the home is going to be sold and neither of you will remain there.
Separation Agreement/Divorce Agreement
This legal document details how you agree to dissolve the legal relationship. Typically this would look at the division of assets, debts and liabilities, pensions, how the equity in the matrimonial home will be handled, matters of the children and income disparity between the spouses/partners if applicable. This is typically created with the assistance of a lawyer or mediator. There are “do it yourself kits” available for those whose situations are less complicated and fairly straightforward. There is some doubt as to whether this type of document would stand up if contested in court at a later date but as always you should speak to a lawyer before moving forward or signing any legal document.
Key components of a separation agreement that affect your potential mortgage financing options are listed below:
The agreement must state the value or price of the matrimonial home, and if either party wants to purchase it from the other, how much of the current existing equity in the home is to be credited to each party.
The agreement must document any joint debts that you wish to have paid out by the new spousal buyout mortgage approval. The spousal buyout mortgage can only payout the existing mortgage, equity in the house due to the other spouse, and joint debt obligations of the couple.
The agreement must detail any child support and/or spousal support that is required to be paid or received by the parties.
This is the home that either you and/or your spouse lived in while you were married.
This is the mortgage financing term used when applying for a new mortgage that will transfer the title of your matrimonial home solely into your name. This transaction can be treated as a purchase under CMHC rules so it’s possible to mortgage up to 95% of the home's value. The funds from this mortgage can only be used to payout the following things:
Existing mortgage on the property
Joint marriage debts (car loans, credit cards, lines of credit, mortgages etc. - these must be listed clearly in the separation agreement to be included in joint debts)
Payment owed to the other spouse for their portion of the equity and/or other marital assets. This is sometimes referred to as an equalization payment.
Due to a disparity in incomes earned by your and your husband or wife, sometimes a monthly payment that will be required from the higher income earning spouse to the lower income earning spouse. This is typically for a pre-arranged time period that is negotiated. Spousal support is treated separately from child support.
Depending on the agreed upon arrangement of how much time the kids will spend with either of their parents homes there is often a child support obligation where the spouse with whom the kids live with the most receives a monthly payment from the other parent. Below is a basic tool which will help you estimate what a required payment would be.
Release of Dower Rights
The Dower Act is a legal statute that protects the spouse of any registered owner of real estate. This protection requires their consent to finance or sell the real estate in question even if they are not on title. This applies to any property that either spouse has occupied as a residence or will occupy while they are still married. What this means in common terms is that even if you are not on legal title to a property, if you or your spouse has lived in it, you may have legal rights to that property. Contact a lawyer to get a more detailed explanation or read up on the Act yourself (very dry reading) here. The Alberta Dower Act
If you have any additional questions. Please give us a call to discuss your specific situation and we will be happy to help you determine your particular mortgage options during this difficult time.