Divorce is a time of emotional and financial turmoil, which is hard enough—but then you also have to tackle tough questions about who owns what, and who owes what. Here’s what you need to know to make those calculations, and decide what to do with the matrimonial home.
Photo created by rawpixel.com - www.freepik.com
Not every marriage is a match made in heaven. In fact, it’s widely acknowledged that 40% to 50% of marriages in Canada end in divorce. But some separations are more difficult than others. Just ask Melanie Patroni, 48, and her now ex-husband, John Reid, 45, who have been fighting each other through the courts since their 14-year marriage broke down in 2014—at a current cost of more than $500,000 in legal fees.
(Note, we’ve changed the names and a few identifying details to protect the couple’s privacy.)
Patroni and Reid met when the two were just finishing up post-secondary studies. She was embarking on a career as an architect, and he had his sights set on Bay Street finance. The two did well. Really well. Patroni started earning a six-figure salary at a boutique architectural firm and took on most of the child-rearing duties. Reid, pursuing a financier’s career, would see his earnings rise to about half a million a year.
But after almost 15 years, Reid was caught in an extramarital affair. That’s when Patroni asked for a divorce.
At stake for the high-earning couple: their matrimonial home, located in a well-to-do neighbourhood in the west end of Toronto; a winter-condo in Miami, Florida; spousal and child support as well as the custodial rights and responsibilities of two children, who, at the time of separation, were eight and 11.
Of course, some separations are less contentious than Patroni and Reid’s—but, even in the best of circumstances, when both partners amicably agree to the dissolution of the marriage, divorce is still a difficult process. Fears about failure, worries over kids, and the seemingly complicated mathematical formulas for divvying up the estate can be overwhelming and confusing. Even simple decisions, such as what to do with the family home, are wrought with emotional and financial minefields.
To help, we asked experts to lay out all the options available to each partner. While answers can be as unique as each family situation, there are some standard rules of thumb when it comes to dividing up the assets and dealing with the family home when a marriage ends. Read on for the tools to split from your spouse in a respectful, dignified way, without leaving anything on the negotiating table.
Watch: How to budget wisely after a budget
Divorce is the moment when the legal union between two people is officially and legally dissolved. To get to that conclusion, there is an entire process before a divorce—and this process starts with separation.
Separation, in the legal sense, is defined by a specific date—and this date is vitally important. It’s used to determine the fair market value of the family home (legally known as the “matrimonial home”) and the value of any other assets a married or common-law couple holds.
It’s also the start date used for the 365-day countdown when you can legally file for divorce. In Canada, there is no time limit on how long you can be separated, but in order to file for an official divorce, you and our soon-to-be-ex must live separate and apart for at least one year.
It’s that “separate and apart” phrase that often catches people short. For many, it implies a need to vacate the family home, but that isn’t the case. Separating spouses can remain under the same roof as long as they establish separate lives.
The simplest and cheapest way is to set up separate bedrooms, or other sleeping arrangements in the family home, and then to notify your spouse that you wish to end the marriage. To be clear, this notification must be in writing and it must be dated. An email is often sufficient as it offers an established timeline.
“This establishes a specific date that the courts can use,” explains Diana Isaac, a partner at Toronto-based Shulman Law Firm.
Go one step further and set up your own bank accounts and bill payments, and file separate tax returns once the separation date is established. The stronger the “paper” trail, the easier it is to establish a specific separation date.
Keep in mind, as well, that a momentary lapse—such as spending the night in your soon-to-be-ex’s bedroom—will not affect the separation date. While these actions can prompt strong emotional reactions, it does not reset the clock. However, if you and your spouse revive the relationship for more than 90 days (or revive the relationship for separate shorter periods of time equalling 90 days), then the separation date becomes void and, if you still wish to pursue a divorce, you’ll have to reset the clock and the separation terms. The purpose of this is to allow couples a chance to work on repairing the marriage without the fear of delaying a possible divorce.
READ MORE: 7 steps to take when dividing property during divorce
But there’s more. The year-long separation involves more than waiting; there is a process to follow. During this time, each spouse will need to make a list of assets, including property, income, retirement savings, pensions and business holdings. Each person will also need to make a list of their requests and demands, including the optimal plan for their care and concern for children and pets.
If both parties come to an agreement, this process of negotiation can be quite simple and relatively pain-free.
“Marital assets are divided based on the equalization of the net value of the marital estate,” explains Isaac. While calculations can become sophisticated, in the end, the process involves adding up the value of all assets acquired during the marriage and subtracting all debts. Each spouse is then entitled to half of this sum-total value of the estate.
“For example, if there is $200,000 equity in the marital home and a home equity line of credit [HELOC] of $60,000, then the total net worth is $140,000 and each person is entitled to $70,000,” explains Isaac.
There’s even an online calculator you can use to calculate how assets are split.
Typically, however, this is the moment when conflicts, if they exist, will appear.
While Patroni and Reid both agreed to divorce, it was during the separation that problems arose. Patroni felt Reid was hiding the Miami condo from the marital asset list. She disputed Reid’s assertion that the condo was purchased for his mother. Instead, Patroni claimed that the condo, acquired months after the two wed, was purchased as a vacation investment for the newly married couple. Over time, however, Reid’s mother began to use it more frequently. What made the situation more complicated is that the condo’s ownership was actually a numbered company; at the time of separation, the only shareholder of the company was Mr. Reid’s mother. Patroni and her lawyer argued that Reid was the beneficial owner of the condo and, as such, the condo should be included among the marital assets.
For most married couples, however, the asset that causes the most disagreement is what to do with the family home.
The family home—the place where a couple or family lives and grows together—has a special designation under Canadian law, and is known as the “matrimonial home.”
Under Canadian law, each spouse is entitled to half of the equity that’s accumulated during the marriage in the property that was used as the family home. This means that even if only one spouse is on the title or only one spouse holds the mortgage, both parties have a claim to the home’s equity.
To stake a claim in a matrimonial home, a person should be on title, explains Isaac. But there are a variety of legitimate reasons why only one partner would be on title. For instance, the stay-at-home spouse may have been omitted from the mortgage application because of a lack of income, or one spouse may have owned the home prior to nuptials or the partners living together common-law. In these situations, the spouse who isn’t on title can use a “constructive trust remedy.”
“This remedy proves that a person, even if they aren’t on title, has beneficial ownership to the home,” says Isaac. However, the spouse arguing this point needs to support their claim by showing proof of how they contributed to the home, such as through “domestic economy,” or through labour to maintain or improve the property or household.
Four strategies for dealing with the family home
Since both spouses have a claim to the family home, the key issue is how to deal with this property so that each person gets what they’re entitled to.
In general, there are four main strategies for dealing with the family home during a divorce:
If both spouses have agreed to sell the marital home and split the proceeds, then, typically, both are responsible for any costs and expenses associated with this process. Each will pay for half the renovations or upgrades required to put the home on the market; each will pay half the Realtor’s commissions and any other costs. The good news is that many of these costs can be deducted from the final sale price of the home, meaning that relatively few expenses will be out-of-pocket costs prior to the sale of the home.
Something worth noting is that during the separation and divorce process, the matrimonial home cannot be sold by one spouse without the knowledge and permission of the other spouse. Nor can one spouse take out a mortgage or loan or rent out a portion of the home, without the knowledge and agreement of the other spouse. If this happens, the deals will be considered illegal by the courts.
For the first three strategies, both parties will need to determine the fair market value (FMV) of the property. When selling, this is achieved by listing the property for sale and letting the market dictate the price. But when one spouse is buying the other out or if both parties decide to co-own and turn the home into a rental property, a market valuation will be necessary.
“For most lawyers, the best way to get a market value report is to hire a certified appraiser,” explains Isaac. “You can also get letters from banks on what to value your home, but banks won’t take into consideration the specific comparables, any upgrades or potentially deplorable conditions.” Plus, bank appraisals are notoriously conservative.
Another option is to use a Realtor that specializes in divorce. While any Realtor can provide a market comparison, an agent with a divorce specialist designation will appreciate the intricacies involved with listing a home for sale as part of a divorce settlement. Just be aware while real estate agents are professionals in their field, they are not trained appraisers and can only offer letters of opinion when it comes to a market valuation on the home.
When determining a property’s current market value, it’s the separation date that is used as the valuation date. This can be a problem if the home is located in a hot or volatile market, such as Markham, Ont., or Vancouver, where property prices can fluctuate as much as 10% from one selling season to the next. If the home does appreciate or depreciate dramatically after the specified separation date, it may be necessary to re-negotiate with your soon-to-be-ex, so that you may both agree upon another date for the market comparison.
If one spouse is buying out the other on the matrimonial home and there is a mortgage on the property, then there are two options. The first is to remove one spouse from the mortgage. This option comes with legal fees, appraisal fees and a discharge fee from your existing lender. To take this option, however, the following conditions must be met:
Another option is to keep both spouses on the mortgage during the separation period. While this option incurs no additional costs, it does mean that both parties will remain legally responsible for the mortgage debt, even if only one person is still living in the home. Also, for the spouse who chooses to move on and buy a new place, be mindful that the loan on the matrimonial home will, in most cases, need to be legally removed before you can obtain a new mortgage for a new property.
For the final two options—keep the property as a rental investment, or convert it into a duplex where both parties reside in separate units—both parties will need their own lawyers in order to draft and finalize a contract and agreement that stipulates who is responsible for what and how decisions will be made. Be mindful that these two options are really only available if both you and your ex are on exceptionally good terms and won’t mind making major financial decisions together in the future.
While it’s becoming more common for both parties to remain in the same home during a separation (often to save money), typically, one spouse will leave the matrimonial home and find temporary rental accommodation elsewhere. When this happens, both spouses must come to some agreement on who pays for what, and when. Usually, both parties will continue to make mortgage payments and cover household expenses (along with spousal and child support) during the separation period.
Keep in mind, however, that everything is negotiable. Deciding who pays for ongoing home expenses during the separation, who foots the travel costs to see the kids, even what utilities and discretionary expenses will be paid and by whom, are all part of the process.
Sadly, this is when nasty tactics might occur. For instance, the spouse who leaves the marital home can stop making mortgage and housing payments, or be routinely late in making those payments. It’s a technique designed to hurt the other spouse, who is relying on those payments, so that any settlement, even an unfair settlement, will start to look good. But don’t be fooled. Even if your soon-to-be ex is unco-operative or withholding financial support, it’s possible to proceed with a divorce and to sort out the family home.
The key is to remember this is all temporary and, eventually, a formal settlement will force your spouse to face reality. Until that formal hearing, however, just be sure you continue to pay your mortgage and all associated housing and utility costs. As long as your name remains on the mortgage (and other utility bills), you are financially liable for the debt even if you no longer occupy or have anything to do with the property.
“Even if you both agree that your spouse will keep the house, as long as your name appears on the mortgage, you are legally responsible for that debt,” says Judith Muratoff, a real estate agent in Maple Ridge, B.C., and one of the few divorce specialists in the province. Neglecting to make those payments could destroy your credit score and your chance at qualifying for a mortgage or loan in the near future.
Keep a paper trail of all payments and, when you head into court, bring the itemized and documented list of what you paid, and when. The courts will factor this into their calculations for the final estate split.
In Canada, family law is dictated by provincial law, but despite small differences, most jurisdictions make it fairly easy for a divorcing couple to predict, in advance, how assets and property will be divided, and the support entitlements each is entitled to.
For a minority of people, however, this ability to predict will prompt attempts to lie about income or hide assets, in an attempt to lower the possible hefty child or spousal support obligation to the other spouse.
These “creative” tricks can include dubious transfers to corporations or offshore accounts, or making notional “gifts” to extended family or friends. Regardless of the tactic, each is designed to put assets out of easy reach. One method is to transfer money or property to another family member in an effort to remove the asset from the equalization process.
Thing is, the courts are wise to these “strategies” and, as a result, have an arsenal of remedies to counteract them, including imputing income (in other words, prescribing an income the judge believes more accurately reflects what the spouse earned, regardless of what was claimed), and imposing costs on the spouse who’s attempting to hide assets.
It’s important—and possibly comforting—to consider that equalization measures don’t always have to involve a transfer of cash. You can work with your mediator or lawyers to find alternative ways to split your estate and provide support payments. For example, Isaac says, “We’ve had a spouse provide a car, free-and-clear, rather than providing a lump-sum support payment [to their soon-to-be ex]. It’s all about determining a way for each spouse to get what’s owed to them in the most co-operative, efficient manner.”
An inheritance received during the course of the marriage does not have to be part of the divorce equalization formula.
“You don’t have to share an inheritance you receive with your ex-spouse,” explains Lawrence Pascoe, an Ottawa-based family, and estate lawyer. “As long as you can show a paper trail that can trace the inheritance into a specific asset, you don’t have to include it in the marital estate.”
The only caveat is that, to be exempt, the inheritance money cannot have been used to pay down the marital home (or any other property). “While the smart thing to do [with an inheritance] would be to pay down a huge debt, like a mortgage, the fact is you wouldn’t get a cent [of the inheritance] back if you separated a year later,” Pascoe explains.
Perhaps the tactic is to stonewall—preventing the completion of renovations before selling the house, or quibbling over terms; arguing over dates and, generally, preventing the separation agreement and divorce from proceeding.
“It only takes one person to be unreasonable to find your way into court,” says Isaac.
Muratoff recalls one situation where the wife refused to leave the house, and then began to hoard. “She hoarded items in every room of the house and made the property unsellable.”
Eventually, the home was sold but, according to Muratoff, for much less than it should have. “She did it to get back at him and, in the end, they both lost out.”
Another tactic is for one spouse to attempt a forced buyout of another spouse. Usually, the spouse being pressured isn’t the primary breadwinner and, during the separation, will find money much tighter.
The spouse being pressured to sell can obtain some protection from the courts. Known as “exclusive possession,” this legal arrangement means that the one spouse is entitled to live in and use the matrimonial home, while the other is required to vacate and stay away. At that point, both spouses need to prepare for the sale of their home on the real estate market.
It’s in the interest of both parties “to invest in showing your home in the best possible light,” explains Michael Schuster, a Toronto-based Realtor, and a certified divorce specialist. “The higher the sale price, the more each person walks away with when the divorce is finalized.”
Once you’ve decided to leave the matrimonial home, you may be eager to start fresh and move into your next home. The experts advise that you resist this urge.
“Divorce is so emotional,” explains Muratoff, who went through her own divorce a few years ago, after 23 years of marriage. “A lot of people rent while going through separation and it’s a strategy I strongly suggest. The priority should be figuring out your finances and boosting up your credit score. Then, when the divorce is finalized, you will be in a better financial and emotional position to buy.”
Keep in mind, too, that most lenders won’t look at you favourably if you haven’t cleared the debt and obligations that were acquired while married. If you wait, you’re likely to get better remortgage terms and have additional funds for a down payment or closing costs, courtesy of your share of equity from the sale of the matrimonial home.
Finally, there’s also the potential for a legal backlash should you buy a place too quickly. While different provinces have different laws and regulations regarding the purchase of property during a separation, the acquisition of another home can set up potential problems for you. For instance, your ex could become suspicious: “Where did you get the money?” And this suspicion could lead to court action. Typically an ex has two years from the date of divorce to file a claim against a property. This claim would argue that the property purchased during the separation is actually part of the marital assets and should be included in the equalization calculations.
For common-law spouses, the rules change slightly, where the two-year timeline starts from the date of separation, not the date of divorce.
While separation can be stressful for all members of the family, it’s a time where you need to be practical and, as much as possible, put your emotional struggles aside during financial negotiations.
If you and your soon-to-be-ex are unable to find common ground, consider hiring a mediator or allow the courts to settle the situation for you; keep in mind, though, that either of these options can come at large emotional and financial cost.
Patrioni and Reid ended up spending more than half a million dollars in legal fees to finalize their divorce—that’s on top of what each might consider they “lost” in the settlement. The couple’s divorce cost almost twice as much as what was paid for the Miami condo, which was one of the biggest points of contention during the divorce process. In the end, the court ruled in favour of Patrioni: The condo was part of the marital assets. For all involved, however, the case was an extraordinarily expensive lesson in the price of resentment.
Quite opposite from Patroni and Reid’s experience, the vast majority of divorces can reach a settlement and become finalized without the expense and stress of a court battle. Once an agreement is made, a judge will review all the materials and, if everything is according to the regulations, the court will issue a Divorce Order and you will obtain a Certificate of Divorce.
Now you’re officially divorced and entitled to remarry, if so inclined.
If a link has an asterisk (*) at the end of it, that means it's an affiliate link and can sometimes result in a payment to MoneySense (owned by Ratehub Inc.) which helps our website stay free to our users. It's important to note that our editorial content will never be impacted by these links. We are committed to looking at all available products in the market, and where a product ranks in our article or whether or not it's included in the first place is never driven by compensation. For more details read our MoneySense Monetization policy.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
If you want to be a home owner in...
Canadians with extra savings overseas may wish to invest...
The federal government will launch the FHSA as part...
Inflation and banking fears ease (or do they?),...
Canada’s new first home savings account nicely complements earlier...
Should you plan your retirement savings around paying the...
What is Canada’s First-Time Home Buyer Incentive program and...
The Consumer Price Index shows inflation is starting to...
In this article you state the separation date is used as the valuation date…the value of our matrimonial home has increased from 500,000 to 725,000 separation date 2018 ….according to my legal advice my buyout of my spouse in based on todays market value of 725,000 even though spouse has made no contributions before, during or after the separation date as both names are on title, she vacated the home on the separation date…this is conflicting information..can you comment as to received your information to this regard? Thanking you in advance.
Thanks for the question. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
And of course Quebec is completely different especially if it a common law relationship. The name on the asset is much more important here than elsewhere. It is only in child support where things would be similar across jurisdictions.
RICARDO
Carolyn Fleck…. they didn’t post an answer to your question below and I’m curious of the result. My situation is/was: Common Law marriage with 1 kid. We have an agreed upon separation date of February 2019. We finalized the “legal separation” (ie. signed) in September 2020. All assets were divided up to the recognized February 2019 separation date, I refinanced and paid the agreed upon equalization payment. Lawyers were involved. This should be a done deal, I hope…. . However, she is still living in MY house in a non-marriage type setting (separate rooms, no sex, separate trips, etc.), even though its been 2.5 years past the separation date. Reason being is young kid, Covid 19, and a VERY competitive real estate market (she has been actively viewing and bidding on several houses for months but to no avail). My concern is that the value of my house has gone up at least $150,000 since we legally separated and she could try to state the agreement was unfair (not my fault the markets went up post separation!) or make some claim that we are still in some sort of relationship, or we could possibly be considered common law again since she has technically lived here more than 2 years post separation- sort of reset, and therefore go after the increased valuation of my home again. I previously owned house before she moved in and am the sole person on the title then and now. I’m trying to be understanding that the markets are competitive and she doesn’t want to waste money on rent elsewhere in the meantime, so I am paying 100% of the utilities and Mortgage and she is essentially living here rent free. Pretty good deal for her except for the increasing housing market she will eventually have to buy into. If I ever had to pay her off more, all the sudden I will owe more mortgage than what I owed 17 years ago before even knowing her. That would seem very unfair. I just don’t want to get burned for essentially being a nice guy and letting her stay here. Any chance of that happening?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.