Divorce and Family House
Unfortunately, a divorce doesn’t only result in emotional pain. It can often lead to financial turmoil, especially when a family house is involved. After all, you’re not just breaking up a family unit but an economic unit too.
Besides, the divorce application, the legal process, including spousal support, child support, parenting arrangements, and deciding how to deal with financial issues—especially those involving the family house—can be the most intimidating and potentially devastating part of ending your marriage.
You’re not alone if you’re thinking about a divorce application or marriage has broken, and you are already going through a separation or divorce. The sad truth is that more and more Canadian families are experiencing the same thing even though the divorce application and divorce orders went down during covid-19 pandemic.
As your local Mississauga mortgage broker, I have many years of experience dealing with mortgages and divorce.
I’ve learned that the best way to achieve a successful outcome is to approach the divorce just as you do the dissolution of any financial partnership. It means keeping emotions out of the process while developing a rational, workable plan.
Having some unemotional, straightforward information and advice during this uncertain and confusing time is necessary. Once you know how a divorce affects your family, house and mortgage, making important decisions becomes much more manageable.
You must consider these 3 complicated issues as you navigate the minefield of divorce with family house involved
- who occupies the family house during divorce?
This is a starting point when a divorce involves a family house. Be decisive if it is you, your spouse, or neither will continue living in the house. If you decide to stay in, divide the bills, such as utilities and mortgage payments, equitably. You can look for a loan modification or refinance if needed.
If both of you decide to stay in the home, then living arrangements must be discussed upfront. If both of you agree to sell the house, consider hiring a real estate agent specializing in divorce. This will help ensure that the process runs smoothly.
- who will pay for the mortgage and other household bills during divorce?
Unless the house is already paid off, you must decide who will pay the mortgage while the divorce continues. If neither can afford the payments, then budgeting and refinancing should be discussed.
Other bills, such as utilities, must also be factored in to determine how to divide costs during this difficult time.
- what is your equity position in the family house?
Figure out how much equity each of you holds in the house. Generally speaking, under Ontario marriage act, a matrimonial house is split equally between both spouses.
Given the market situation, stress test and high-interest rates, you need to carefully consider the type of house you can afford, i.e. single-family home, townhouse or condominium.
Careful consideration that matters
- Will the familiar surroundings be comforting or bring back unpleasant memories?
- Would you instead move to a new place and make a clean start?
- If you have children, does one parent have custody?
- Does it make sense to keep living in the same neighbourhood to minimize disruption for the children?
- Would you and your ex prefer to have separate residences close together so the kids can attend one school and visit both homes easily?
Once you decide on your emotional and family needs, below are six critical considerations to make before you sell your family house and move on;
Below are 4 solutions to handle the family house matter during a divorce
Of course, how the proceeds are divided depends on the divorce settlement or separation agreement, where the original down payment came from, the divorce act, family laws, and real estate laws in your area. But regardless of how large a share you end up with, maximizing your home’s selling price is essential.
I can ensure the financing structure is attractive to buyers. I will introduce you to some of my expert real estate brokers who can help you get the best price. Remember that the selling expenses, legal fees, etc., will reduce the proceeds and your share.
Determining how much this will cost you depends on a lot of factors. Your spouse may put a marital lien on the property, or there may be a court order specifying how the home’s equity has to be distributed. You may need more time to obtain the funds to buy out your spouse. Once you know what percentage of the equity belongs to your spouse, the home’s value needs to be determined by an appraiser.
This will tell you what actual dollar amount you owe. The next challenge is coming up with the funds. This usually involves refinancing the home to access the equity you owe your spouse (see below).
No matter which decision you make, there will be financial repercussions. Buying out your spouse requires you to come up with a significant amount of money in a relatively short period. It’s often made possible by refinancing the house or getting a second mortgage so you can take out enough equity to pay off your spouse.
All these strategies work when implemented correctly with the right exit strategies.
But keep in mind that you’ll be making increased mortgage payments on only ONE salary—not to mention all the utility payments, medical bills, etc. If you used two incomes to qualify for the original mortgage, qualifying for refinancing on your own may be difficult.
This is where I can help!
As an independent mortgage broker, I can access specialized mortgage lenders who offer innovative solutions for situations like this. I can also counsel you on ways to improve your credit score, see if you can use child support payments or alimony to help qualify for refinancing, and help you develop a new budget and saving plan that recognizes your new financial realities.
Be careful when you allow your spouse to buy you out and pay you a lump sum. Suppose your spouse buys you out without refinancing the mortgage. In that case, most lenders will continue to consider both of you—as original co-signers—to be liable for the loan. Even though you won’t have legal ownership of the house, this financial liability will make it difficult to purchase a new home.
This can be an attractive option if you do not make immediate decisions. But again, beware of the pitfalls. If you’re sharing the mortgage payments, ensure BOTH spouses continue to pay—or the home could go into arrears or foreclosure and destroy BOTH of your credit ratings.
Also, if one spouse lives in the house during this arrangement, make sure you agree on rental payments and what happens if payments stop.
4 Critical tips to plan ahead to buy a house after divorce
Documentation of support payments.
Accepting support payments from your spouse in cash is a good idea. But if you decide to use your support payments to help qualify for refinancing your existing home or purchase a home away from home, you could run into problems.
Lenders require proof of income. It would be best to have a paper trail—an official record of on-time payment in full so that the lender can count your support as income.
Without it, you may not get your mortgage approved. These are precisely the kind of potential difficulties I help my clients avoid every day!
Take charge of mortgage payments
When you apply for a divorce as a couple, it’s important to know that all the joint debt and credit ratings are LINKED until they separate their obligations. This means making payments on time is in both spouses’ best interests.
However, the stress of divorce can sometimes lead people to behave in financially unreliable or even irresponsible ways. A few missed payments on the part of your spouse and your credit score, not to mention your family homes, may be at risk.
That’s why I always advise my clients to take control of payments that affect their credit rating as soon as possible.
Many couples believe a divorce decree relieves a spouse of a joint financial obligation. But the truth is court orders, and divorce decrees can’t save you from financial risk if your spouse doesn’t make agreed-upon mortgage payments.
When a married couple signs a joint loan application, both spouses legally agree with the lender to pay back the debt. A court can’t overturn this contract without the agreement of the lender.
Therefore, working with a mortgage broker who understands these legal issues and can help you save your credit and real estate is vital.
Protect your credit score.
Your credit score is what gives you the ability to finance future purchases. Moving on can become extremely difficult if your score becomes damaged during a divorce. As I said, part of my mortgage service advises you on ways to preserve and improve your credit score before, during and after divorce.
Remember, if mortgage payments are missed because your spouse has failed to make a court-ordered payment, your credit score will suffer too. Regardless of what your divorce decree says or what’s fair, if you have a joint debt, you’re responsible for it.
Here are some ways to protect your credit score BEFORE any payments are missed:
• If possible, close all joint credit cards immediately. If you can’t close one because there’s still money owed on the account, freeze it so no one can continue using it (make sure you make at least the minimum payments in the meantime). Then agree with your spouse on transferring the joint debt to individual credit cards.
• If you don’t have a credit card in your name, get one now. Building your credit history takes time. Click here to learn more about credit here.
• While waiting to sell or refinance your home, make sure your mortgage payments are current, even if they come from your own money. It protects your credit score, and you’ll likely be able to claim the funds back under court order.
• As I said, remove your name from the property title and mortgage to lower the impact on your credit after moving out.
How to finance your next home after divorce?
If you’ve received funds from the sale of your previous home or a buy-out from your spouse, this will likely give you a healthy down payment for your next home. But before you start shopping, it’s important to recognize your new realities:
You got a single income. One person handling all the maintenance and repairs. The effect that shared custody of children may have on the location of your new home and more…
I can analyze your current credit situation and income (including any allowed child support or alimony payments) and help you get pre-approved for a mortgage as a home buyer. I can also introduce you to trusted real estate broker partners who can help you find a suitable home for your new life.
If you prefer to purchase a home before the court grants, a divorce, I can look into your situation and make some recommendations. Remember that in some cases, as long as you’re still technically married, your spouse will continue to have a marital interest in the assets you purchase. Also, you’ll have to qualify for the new mortgage without considering any support payments because there will yet be a final divorce decree.
This route requires you to proceed cautiously, but I’ll be there to help and offer advice every step of the way!
As you can see, there are many financial traps you can fall into as you sell and buy a family house during a divorce. The advantage of working with a seasoned mortgage broker like me is that I’ve dealt with these issues many times and helped my clients achieve the new start they’re looking for.
The best time to talk to me is NOW i.e. before filing a divorce for civil marriage and before you start looking for a new house. I’ll sit down with you, analyze your situation and outline the options available.
Once we’ve determined your financial ability to proceed—or set in place a plan to improve your creditworthiness, I’ll present a range of innovative mortgages that answer your needs, then provide objective advice to help you choose the one that fits you and your family the best.
We have access to products and lenders who understand your needs and are willing to work with your unique situation.
Looking for unbiased mortgage advice? The Mortgage Delivery Guy has you covered!
Through our extensive experience and understanding of the many options out there, even if your credit is less than stellar, we will help customize a mortgage solution that suits your needs AND financial situation.