SELLING A HOME WHEN SEPARATING OR DIVORCING
The purpose of this article is to provide general information about selling your home(s) while in the process of separating or divorcing. As everyone’s circumstances are different, the information contained herein is intended simply to provide guidance that may reduce the stress and to better prepare you to meet with professionals who may be involved in the sale of your home. These professionals could include lawyers, realtors, and lenders. Hence, this information
is not intended to replace the advice of additional experts. After all, the decisions you make during this time could be some of the most important in your life. Why would you not get some help?
At the end of this article, you will find a few anecdotes about some of the situations I have found myself in when handling sales of homes belonging to couples going through a separation. I hope some of them will make you smile and encourage you to think that you will make it through this. I have titled the anecdotes ‘I AM NOT MAKING THIS UP’.
Over the course of my 25-year real estate career, I have found that clients who are selling a home because of a separation or divorce experience the most stress during this process.
Selling a home can be stressful enough particularly when there are school-aged children involved, people are moving to a different city or changing jobs, or perhaps they are moving to a more expensive location and have to ‘downsize’ their expectations for a home. Combined, my wife and I have 50 years of military service and are very familiar with how challenging it can be to juggle careers, young children, and moving to a different province or to a remote part of the country.
To the stress of a move, now add the stress of a divorce. If you have been lucky enough not to have gone through a separation or a divorce you are in the majority – but not by much. According to Statistics Canada data from 2018, about 40% of all marriages end in divorce. Those statistics do not include common law couples who likely end relationships at a comparable or higher rate. In fact, moving and divorce rank in the top five most stressful experiences. My parents separated in the early 1970s when divorces were not as common and the process was not as orderly as it is now. I can attest to the fact it was a very stressful time in our lives, particularly for my mother and sisters.
As a former Air Traffic Controller, I was often told that ‘stress kills’. One of the most important things one can do to minimize the stress of a move and divorce is to hire experienced professionals who can provide clear, concise, and timely direction, thereby moving a lot of the burden from your shoulders to theirs. Experienced divorce lawyers, real estate lawyers, Realtors, and money lenders can help guide you through the process so your interests and assets are protected. Not only will these professionals provide guidance during this stressful time, but they will expedite the process so you can move on with your life quicker and, hopefully, to a happier and healthier place.
To understand your position, liabilities, and opportunities we need to examine some of the key aspects of the Ontario Family Law Act, which I show in bold below.
Married is defined as a couple who have or had a legally recognized marriage; that is, the ceremony was performed by someone who had the legal power to marry them such as a judge, a justice of the peace, or religious official.
When it comes to the division of property, the rules are different for couples who are, or were, living in a common-law relationship than for couples who are, or were, legally married.
Rights to property are different if you are in a ‘legally recognized marriage’ as opposed to a ‘common-law relationship’. For example, in most cases, a married couple automatically equally share the value of their matrimonial home(s)/property if they separate or if one spouse dies as part of a process called equalization. This is not necessarily the case for common-law couples, where the law starts with the presumption that ownership is based on registration.
If you are in a common-law relationship, the matrimonial home usually belongs to whomever is registered on title. This might not be the case if you have a previously signed cohabitation agreement or trust agreement that specifies who is allowed to live in the home and how the value of the home will be divided. Further, in common law relationships you typically leave with what you came into the relationship. If your partner owns the home you would not normally be entitled to stay in the home after a separation, nor would you have rights to a share of the value of the property. However, you could receive monies for contributions you may have made to the property during your time in the relationship based on what is called a ‘trust claim’ or ‘joint family venture’ claim, but these are based on contribution, are complex, and are not automatic rights, rather something you would need the assistance of an experienced family law lawyer to assess.
If you are not on title, and only common-law, the other side has the right to sell the home without your consent unless you determine you have a trust interest in the property, and secure what is called a ‘Certificate of Pending Litigation’ which requires you to commence court action.
For those that are married, the Ontario Family Law Act refers to the matrimonial home as any residence or property in which one or both spouses have an interest. Or, a matrimonial home may be a home that is owned and ordinarily occupied by both spouses and their family or by the spouses and their family on the day of separation. It normally includes only the home and about one acre, and not the value of additional land over this approximate amount. Given that the matrimonial home is a family residence, the matrimonial home could include any type of housing including condominiums and mobile homes. The matrimonial home can be a home that spouses rent together or a home that they own together. More than one property can be deemed a matrimonial home i.e., a principal residence plus a cottage, but the court normally find only one property to be the matrimonial home.
The matrimonial home has a unique legal status and, legally, both spouses have an equal right to possess it, even if one spouse is not on title. This right of equal possession continues until a Separation Agreement or Court Order is reached.
A Separation Agreement is a contract between two people who used to live together but who now, or want to now, live apart. You can prepare this contract yourself but I would strongly recommend it be completed by a professional to confirm it protects you in all regards, now and in the future, and to ensure that the contract is written in a manner that will be binding and acceptable to third parties that may require it, such as lenders. Items to be delineated range from division of assets, to child custody, to support payments, and much more. Until a fully signed Separation Agreement is in place, you will not likely be able to obtain a new mortgage
or bank loan.
In some cases, the courts may order Exclusive Possession of the matrimonial home. This means that one spouse will have the sole right to live in the home, regardless of who has legal title to the property. Orders for exclusive possession are usually temporary and are difficult to secure without domestic violence and often require the injured party to apply to court for this relief, so it usually means abandoning a separation agreement for a court action. It is important to note that an order of exclusive possession does not give that party the right to sell the home, simply to reside in the home on a temporary basis and sometimes requires the party remaining in the home to pay the expenses of the home themselves or ‘occupational rent’ to the other party in return. This is only available to married spouses.
The decision to sell the matrimonial home should be made jointly by both spouses. However, if one spouse does not fully cooperate with efforts to bring a sale to fruition, an application to the court may be initiated to speed up the process. This is known as a ‘vesting order’ and is a court order that transfers the property to one spouse only and dispenses with the consent of the uncooperative spouse in order to allow for a sale to occur. I have seen it take a year or more to get a home sold, most often also resulting in higher legal expenses, lost time at work and, of course, increased stress.
Divorcing couples must retain different lawyers from separate firms to represent them. However, most often, only one Realtor is hired to represent both homeowners. Therefore, the selection of the right Realtor is an important factor in minimizing the stress and time involved in the selling process. While one party may want to use a Realtor they’ve previously worked with, it might be necessary to choose someone different to ensure both parties are treated fairly.
Choosing a Realtor who has experience working with divorcing couples is a far better option than selecting a Realtor who is a friend or family member of one of the parties.
As a Realtor, it is important to ‘walk the middle of the road’ and to create a trusting relationship. In other words, treat both parties fairly and in a timely fashion. This can be accomplished in several ways. Hiring a Realtor who has a team of agents is recommended so each party can have a different agent within the team advocating for them. And using a Team should not cost you any more money. Your Realtor should also hold meetings in neutral locations such as his or her office, and correspond with both parties via email so they get the same information, at the same time. Written and simultaneous communications certainly reduces the chance of a
misunderstanding or a ‘he said, she said’ scenario!
This becomes particularly important when an offer to purchase the property is received. For example, an offer will always have a deadline by which the seller must respond, as well as what is to be included in the home. If one party does not want to sell the matrimonial home, he or she may not respond by the deadline or may not agree to other terms of the offer. In this scenario, there is a ‘paper trail’ showing how that party has been uncooperative and may have scuttled the sale. In the event the couple has to return to court for further ‘direction’, this paper trail will be beneficial to the injured party.
Friction when choosing a Realtor to list the matrimonial home for sale is usually a red flag for larger issues that may occur when a written offer has to be agreed upon in a timely and fair manner for both parties!
Occasionally, a divorcing couple may choose to continue to own the home together for the sake of the children. With that in mind, the couple will likely have to reach an equitable agreement regarding the maintenance and utility costs associated with running the home. This includes heat and hydro, property taxes and insurance, as well as unanticipated costs such as a furnace replacement. The responsibilities for these liabilities should be delineated and spelled out clearly to reduce the chance of more friction between the couple. There are risks with this approach that are often not considered. For example, post separation debts (CRA liens,
judgements, unpaid credit cards) could be secured against the joint asset or, if one party defaults in their obligation to pay the joint debts it could negatively impact credit.
In my experience, in the end, the couple usually sell the home and divide the equity anyway as it is very difficult for this to work, when new partners and new financial obligations come into the picture.
This brings us to the financial portion of the separation puzzle. If the matrimonial home is not sold, the mortgage and deed may need to be changed. For example, one party, or a family member, may buy out the other party. This change of ownership will likely involve a financial consideration. For example, it may require a new mortgage with a larger down payment, perhaps there will be stricter mortgage qualifications (as you will have to qualify on one income or obtain a new co-signer), or there could be increased mortgage insurance costs.
When thinking about the possibility of ‘buying out’ the other party, the financing aspect should be investigated as soon as possible to determine its viability. The lender may need answers to some of these questions if you are considering a new mortgage or re-mortgaging the home to take sole possession of the matrimonial home.
• Who is retaining the primary residence or is the matrimonial home to be sold in the end?
• Will there be spousal support and, if so, how much?
• Will there be child support and, if so, how much?
• Will there be a buyout from one spouse to another and, if so, what is the amount/ parameters?
• Who will be taking over any joint debts? A ‘credit bureau’ may be needed to verify debts.
• Will there be a clause in the separation agreement that states that the house is to be sold if the subject matrimonial house cannot be refinanced?
• Is there another individual that will be added to the mortgage/title when one spouse is taken off?
A recent mortgage statement confirming the current balance will be needed if you are looking at different lending institutions other than your current mortgagor.
Finally, when someone is trying to decide whether their best option is to sell the matrimonial home on the open market or to buy out their partner, I am always asked “am I paying my partner too much for the house?” or “are they paying me enough for the home?” Fortunately, I have a solution to this conundrum.
First, you can buy someone out using ‘market value’. This is a number that can be determined by a Realtor or Real Estate Appraiser who will use recent sales of similar properties to establish a value for your home. This is not a science by any stretch of the imagination. I have seen these values vary greatly depending on the experience of the evaluator, evaluator bias, and the data used.
By contrast the ‘market price’ of a home is what it actually sells for once it has been exposed to the open market. In a sellers market and/or when a property is underpriced and offers are held for a specified time to obtain multiple offers, it will often sell above ‘market value’.
The problem then becomes how to determine market ‘price’ so each party can confirm they have been dealt with fairly. In this case, I would suggest listing the home for sale and ‘exclude’ the partner who wants to buy the property. Then, when an offer to purchase the property is received (perhaps over asking price), the excluded party has the first right of refusal to match that price with a cash offer. If he/she is able to match the price, the home can be sold to him/her with no commission payable. At this point, both parties can be confident that they have not overpaid or undersold the home as it has been exposed to the market.
In conclusion, I hope this article has shed some light on what one might expect when selling a home during a separation or divorce. To avoid having to sell an important investment under duress, one should educate themselves and hire professionals who are in step with current processes. Knowing you have been treated fairly, and in a timely fashion, will go a long way in enabling you to move on with your life.
I'M NOT MAKING THIS UP
One party in an argument yells, “I gave you the house! What more do you want?”. The other party responds, “All you are giving me is a 25 year mortgage!”
One party doesn’t want to give his relatively ‘new wife’ any of the proceeds from the sale of the matrimonial home that he had owned for a number of years before he married her. He stalls the process for months and months. In the end, the court orders the home sold. It ‘sells’ for a lot more money on the open market than he offered her months earlier. Now, because he still wants to keep the house, he has to match the open market price and ends up paying her a lot more money than he would have had he settled months earlier. And the icing on the cake…the judge ordered that he pay the entire real estate commission – not just his half.
Not wanting to move, a husband tries to sabotage the sale of the matrimonial home. The gentleman still resides in the home and his wife has moved out. They had several budgies in a huge cage in the basement. Before the first showing to potential buyers, the gentleman released the budgies in a bedroom where they defecated everywhere and flew toward the buyers when they opened the door. Not surprisingly, those buyers had no further interest.
A judge orders a property sold as one party does not have the money to buy out the other party and, consequently, has been ‘dragging his feet’ for over a year. I arrived at the rural property to perform a market evaluation where I discovered a dead deer at the door and the owner drunk. He tried to scare me off with the deer and did not want to co-operate with the sale. In the end, his 80 year-old mother came up with the funds to pay his wife her share.
Two parties are separating amicably and call me to provide a market evaluation and to list the home for sale as soon as possible. I suggest they keep the reason for the sale ‘quiet’ so I can get them the most monies for the property. They agree and tell me no one knows about their situation. By the time I arrive back to my office, I have already received two calls from potential buyers about the home. Both buyers are convinced they will get a good deal because they know the owners are getting divorced and they ‘need to sell’. We got two offers and more money than we were asking for.
A party did not want to sell a beautiful matrimonial home because she was living in the house while her spouse, who was living elsewhere, was paying all the bills. She knew that she would have to ‘downsize’ when the house sold. When I arrived at the home for the first time I saw yellow Post It notes everywhere. They were on the floor, on the walls, and in other very conspicuous places throughout the house. I asked her about the purpose of the Post It notes. She said that she wanted all the imperfections to be noticeable to any potential buyers. Then, when I left the house I noticed a large brick on the roof. Apparently it was placed there to hold down a single roof shingle that was starting to curl a bit. This would not normally be considered a show stopper for a home buyer.
On my initial visit to a home, the woman showed me around her house. The house was to be sold so that both parties could move on with their lives. Without me asking, she assured me that the split was amicable and there would be no problems from her with making a sale happen. I quickly noticed that there was still a lot of her husband’s clothes and personal items in the house. Thinking the split was quite recent, I asked her when he was coming to collect his things. She replied that he had been with his new girlfriend for about 4 months and she would see to it that he never got his stuff back. Not everyone wants more closet space!