Even in the most amicable circumstances, the end of a marriage is never easy. Married couples come together with property and other possessions and valuables which they have each purchased while single and are legally known as assets. While each spouse has assets when they enter a marriage, they then collect new assets, and potentially new property, during their time together.
For many married couples who own a home and are going through a separation, the family residence, known in law as the matrimonial home is the most valuable asset that the parties share. The parties’ decision on what to do with their matrimonial home on separation is often pivotal to the outcome of the parties’ negotiation of a property settlement.
Ontario law sets out how various rules for how these assets must be accounted for and divided at the time of the married couple’s separation. In most separations, both partners’ assets and debts are accounted for and then divided, so the partner who has greater assets accumulated during the marriage will likely owe money to the partner who has fewer assets at the end of the marriage. The law takes this approach in an attempt to re-balance the scales, so that neither party is significantly disadvantaged by having been in the marriage. As part of this balancing process, parties can get a credit for the value of a property they owned on the date of marriage, known in law as a marriage date deduction. There are exceptions to these calculations though, such as gifts and inheritances received during the marriage. There is also a significant exception made for the matrimonial home.
Division of the matrimonial home is governed by a unique set of rules – ones which have been made infinitely more complicated by the presence of a red hot housing market. While one party may be yearning to continue living in the property, separation can make what was once a dream home into a financial nightmare.
How It Works
Ontario’s Family Law Act defines the matrimonial home as every property that the person and their spouse “ordinarily occupied…as their family residence” to be the matrimonial home. This means that there can be more than one matrimonial home if the couple made frequent use of a cottage or vacation property for example. The matrimonial home does not need to be one that the couple purchases together during the marriage. If one party moves into the home that their future spouse or spouse already owns, it then becomes the matrimonial home. The party that owned the matrimonial home before the marriage will not be able to claim a marriage date deduction for the purpose of determining the re-balancing as they could for other property that they brought into the marriage. While common-law couples do not have the benefit of ‘matrimonial home’ status, they may jointly hold title on the property if the owner had added their new partner’s name onto the title.
When parties separate and they both own the home, their entitlement to the matrimonial home is different than other property in existence at the end of the marriage. With the matrimonial home, both parties can claim shares in the value of the matrimonial home, but both parties also have an equal right of possession in the property as well, even if only one spouse owns the property. To put it simply, one person cannot kick their former partner out of the house just because the couple is separating, even if that person had purchased the home as an individual prior to their marriage.
When a married couple separates, one question that arises is what to do with the parties’ matrimonial home. When the parties are negotiating their separation agreement and there is a jointly owned matrimonial home, they effectively have two choices. One option is that one party can buy out the other’s interest in the home, and then can stay in the home outright. The other option is that they can agree to sell the home and divide the proceeds. While the first option may be preferable, especially if the parties have been in the home for some time and are attached to it, the latter option is often today’s reality due to the current housing market.
A Hot Market
For some separated couples, selling the home and splitting the proceeds equally may be a natural choice. Home prices have increased significantly from where they were twelve or even six months ago, so sellers may choose to strike while the iron is hot. The separated couple can then potentially walk away from the marriage with increased profits from selling the home in the hot market.
However, not all spouses are willing or comfortable with the idea of selling the matrimonial home. Some individuals forge emotional connections with their property, especially if they have sought to build a ‘dream home’ that they envisioned staying in forever. In many cases, one party seeks to stay in the matrimonial home while the other wants to sell. The spouse who wants to stay can offer to buy out the spouse who wants to sell out of their interest in the matrimonial home, but the other party may insist that if a buy-out occurs at all it must be at fair market value. In the current climate, fair market value can be a sizable amount if the house has appreciated since the initial purchase. For couples that have been married for decades, their home may be worth ten times their initial investment today, and it can be impractical to expect a party to have such a large sum of money easily available. This is especially true if one of the parties had not worked in recent years, including due to the COVID-19 Pandemic, and may have trouble obtaining financing for any large amount.
The unfortunate reality is that not everyone who wants to stay in their home can afford to. If one spouse desperately wants to keep the home, they need to be able to secure the financing to buy out their former partner’s interest, and this is a significant challenge if mortgage lenders are unwilling to support their purchase. Additionally, the spouse who may be fighting to keep the home may simply be unable to afford the carrying costs of doing so. That spouse could be solely responsible for the taxes, utilities, and other carrying costs for that property that they had likely shared with their former spouse. Further, the costs of maintaining the property may be prohibitive even if the spouse receives support from their separated spouse, be it child support or spousal support depending on the circumstances.
Unfortunately, not all marriages last forever and separation is sometimes a difficult reality. It can take many months, or even years, to negotiate a separation agreement, and the value of your home may change radically within that time. That change in value can significantly impact whether or not it is practical to stay in the home.
Our family lawyers at Pavey Law take a practical approach to negotiating separation agreements for our clients. While the real estate market is inherently unpredictable, our familiarity with the Cambridge, Kitchener, and Waterloo areas allows us to advise our clients based upon current trends, and we can work together to plan for potential outcomes that we may see during the separation process. Ending a marriage is never easy but our goal is to work with our clients to strike a deal that leaves our clients in the best position to move forward. Contact us today for more information on our process and how to get started.