How Mortgages and Property Division Work During a Divorce
Unfortunately, you and your partner will never be free of your shared debt obligations.
It’s just like a marriage: no matter how badly things go, you can’t get out of your mortgage. And your mortgage is just like a relationship: it will take what it is entitled to. Spouses can dissolve their marriages, but unfortunately, they can’t dissolve their mortgages.
And just like relationships, mortgages get more stressful when they expire. Fairly dividing debt obligations can be difficult during a divorce or breakup. Your mortgage is typically your largest liability, and it must be managed fairly in the face of high emotion and arguments at home. While you may be worried about what's going on inside your relationship, your mortgage lender will never know how you feel about the split.
What the homebuyer usually does not realize is that they are making a crucial decision during their purchase: which one of them will be on the loan and which one of them will be off the loan. If you've gotten yourself into this situation, you should know how to divide the loan fairly.
Determining The Home’s Value
If you and your spouse still own a house together, before splitting the mortgage, you should determine the home’s value. The best way to do this is to hire a professional appraiser or real estate agent to give you a fair assessment.
When determining the home’s value, including the costs of selling the home, such as realtor fees and closing costs. Ideally, you and your spouse would both hire a real estate agent and come to a 50/50 stalemate. Although the house may not sell for what you paid for it, it should sell for a fair price that is close to the original value.
Can You Buy Your Partner Out?
You can buy your partner out and keep the home if you like. However, you still need to qualify again with the lender. Since you likely used both incomes to qualify before, you might not be able to qualify by yourself. You may need to sell the place anyways.
Keep In Mind
When dividing your mortgage loan fairly, you’ll want to keep in mind these things:
1. WHAT’S MOST FAIR?
The first thing you should consider is what’s most fair to both parties. In almost all cases, if you both want to keep the home as your residence after your divorce, you’ll need to work out a fair agreement on your own. If you and your spouse can’t come to a mutual agreement, then you’ll need to hire a third party to settle on a better solution. A solution may be to sell the house and split the profits. If you and your spouse can’t agree on a fair solution, a judge will have to decide for you.
2. CONTRIBUTION TO DEBT
If you have a joint mortgage, you both contributed to the debt. You’ll probably both want to get out of the debt together. In this case, you should divide the debt equally, but if you’re in a disagreement, it may be best to sell the house and divide the money from the sale. If you have a significant difference of opinion on this matter, consider mediation or arbitration to settle your dispute.
3. WHAT ARE THE TAX CONSEQUENCES?
If you’re selling the house, you may need to consult a tax professional. For example, if you have a taxable profit from selling your home, your profit will be taxed at a capital gains rate. This is a great reason why you should consult a tax professional before selling your home.
4.. HOW WILL YOU BE AFFECTING THE PROPERTY?
If you have a joint home with a mortgage, you both have a responsibility to help maintain your property. If your ex won’t help out with the maintenance of the house, you need to consult a third-party mediator before selling the house. In this case, you’ll probably need to sell the house.
5. HOW WILL YOU BE AFFECTING ANYONE ELSE?
If you’re married when buying a home, a joint mortgage has a beneficial impact on your partner. If you file for a divorce, a joint mortgage can help your spouse get a fair share of the property.
THE BOTTOM LINE
Fairly dividing debt obligations can be difficult during a divorce or breakup. It is important to understand how mortgages and property divisions work. We hope that we you’ve learnt a thing or two about this in this article.
Level Up Mortgages provides alternative lending in Canada to fiscally responsible couples. Contact us now for your mortgage and investment needs.
See what you qualify for or contact Paul to get your pre-approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
See Our Google Reviews in BC & Ontario: bit.ly/GoogleReviewLUM ⭐️⭐️⭐️⭐️⭐️