Tag Archives: spousal buyout

How to protect homes in the event of divorce

As the cost of living soars, more couples are cohabitating, even getting married sooner. But, as Statistics Canada showed, there were 2.64 million divorced people living in Canada last year, and when you throw a family gift into the mix, things get hairy.

“Family gifts are a very complicated area of the law and there are two different ways of looking at it,” said Nathalie Boutet of Boutet Family Law & Mediation. “A gift received before marriage is treated as a pre-marriage asset. There’s a huge exception if that gift is the matrimonial home.”

In other words, pre-marital exclusions don’t apply to matrimonial homes—the reason for which is to rectify a historical transgression that saw women spend most of their time in the matrimonial home but have their name excluded from title, effectively leaving them no recourse upon divorce.

“Parents who want to give money to their child need to understand before marriage that if it goes into a matrimonial home, they end up sharing that with their spouse if there’s a separation,” said Boutet. “If the parents have a condo and they give it to their child who gets married, that becomes equal sharing with the spouse. A parent should understand that first and have a conversation with their child. Sometimes when a person owns a house, they ask the person to sign a marriage agreement as a way to get themselves out of that mess should it ever occur.”

Boutet recommends that in-laws-to-be have the dreaded conversation about signing an agreement that will protect them from relinquishing their asset in the even their child gets divorced.

“I often get called in when parents still own a home and let someone go live in it,” said Boutet. “Sometimes, for planning, have them sign a prenup, or a cohabitation agreement if they’re not going to get married. At the time they begin living together, sign the agreement in case they separate.”

Another interesting scenario divorced couples and their in-laws sometimes find themselves in pertains to cottage ownership. What happens if the couple is married for a period of time during which the cottage was renovated with contributions from the outgoing spouse?

“I have a case right now where the parents own a cottage and the family has been using it for upwards of 30 years, but their child is getting divorced and his wife wants to know what her rights are to recoup renovations,” said Boutet. “The husband’s parents had been very well-advised by their own lawyers and, because they paid for all the materials, the wife could not pinpoint any specific expense she paid out of her own pocket. It was determined that she had done a little here and there, and it offsets the cost of free accommodations she’s had over all the years—she didn’t pay for the land, heating, repairs, things of that nature. So she was entitled to nothing.”

Source: Real Estate Professional – by Neil Sharma 18 Sep 2019

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How divorces affect mortgages


How divorces affect mortgagesThey say about half of all marriages end in divorce—whatever the figure, complications arise when it comes to dividing assets like homes, and determining who keeps making mortgage payments.

“It’s a commercial transaction irrelevant to marital status,” said Nathalie Boutet of Boutet Family Law & Mediation. “If one person moves out and the other stays in the house, they still have an obligation to pay the mortgage to the bank, so the sooner the separating spouses make an arrangement the better because it could impact credit rating.”

According to Statistics Canada, there were roughly 2.64 million divorced people living in Canada last year—a figure brokers may not find surprising. While divorcing couples often fight over their marital home as an asset, the gamut of considerations is in fact more onerous.

“With the stress test, it’s a lot harder,” said Nick Kyprianou, president and CEO of RiverRock Mortgage Investment Corporation. “The challenge is qualifying again with a single salary. The stress test adds a whole other level of complexity to the servicing.”

Additional complexities include a new appraisal, application, and discharge fees.

“If you have a five-year mortgage and you’re only two years into it, there will be some penalties,” said Kyprianou. “Then there’s a situation of whether or not the person will qualify as a single person for a new mortgage.”

As an equity lender, RiverRock has welcomed into the fold its fair share of borrowers whose previous institutional lender wouldn’t allow one of the spouses to come off title because they were qualified together.

If one spouse is the mortgage holder and the other is not, Boutet explains how the law would mediate.

“Let’s say she owns the house and he moves in and pays her something she would put towards the mortgage but it’s still below market rent, she’s effectively giving him a break,” she said. “Would part of his rent go towards a little equity in the house because he helps pay the mortgage? Or is he ahead of the game because he pays less than he would to rent an apartment? What they have decided in this case is that a percentage of his payment will be given back to him as compensation for helping her out with her mortgage and he will never go on title.”

Boutet recommends that cohabitating couples, one of whom being a mortgage holder, should have frank discussions at the outset about where the rent payments go.

“Sometimes the person who pays rent has a false understanding of paying the mortgage. They have a misunderstanding of what that money is going towards.”

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DLC on how to manage mortgages during divorce proceedings

Traversing the thorny issue of mortgages amidst divorce proceedings can prove to be problematic, and a Red Deer-based agent recently offered insights on how to handle the situation.

In a contribution for The Red Deer Express, Dominion Lending Centres – Regional Mortgage Group broker Jean-Guy Turcotte noted that it is possible to purchase a matrimonial home for up to 95 per cent of its value, should one desire to do so.

“[It] feels more like a refinance, but technically one spouse is buying out the other,” Turcotte explained. “The funds can be used to pay off the amount owing to your spouse and debts listed in the separation agreement – keep in mind not all lenders allow payouts and rules are changing on us all the time, so time can be of the essence.”

To qualify for the Spousal Buyout Program offered by banks, lenders, and mortgage insurers, the party who wants to purchase the matrimonial home should first complete a Legal Separation Agreement, “with the bare minimum that a lawyer provides each party with their own Independent Legal Advice (ILA).”

“[Both lawyers] do need to sign off to ensure that your rights are protected and to determine what liabilities are remaining from each other, if any (i.e., child support, alimony, etc.),” Turcotte said. “Ensure you talk about all the debts you jointly have so they can be separated appropriately and can be managed inside the separation agreement.”

An appraisal of the property’s value will also have to be conducted, as “[there] can be large value differences between what you think it’s worth and what it’s really worth.”

Creating a purchase agreement should follow, which can be done quite readily with the help of lawyers. Tapping the assistance of a mortgage professional to help with the other qualifying criteria would also benefit both parties as the process would be expedited.

Source: CANADIAN REAL ESTATE WEALTH – by Ephraim Vecina22 Feb 2017

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