In Canada, the divorce rate as of 2019 is about 42% or 4 out of 10. Chances are, you or someone you know, has experienced such difficulties.
Aside from debt consolidation, separation and divorces are one of the top requests we see for a mortgage refinance.
When marriage or common-law relationships break down, there are usually two ways to buy eachother out. The first is to sell the house and split the proceeds. The second is for one person to keep the home while paying (by way of a mortgage refinance) the other spouse their share of the home equity.
Many couples do decide to sell the home and start fresh on their own but we more often see one spouse wanting to remain in the home if at all possible.
This is more frequent when children are in the picture as it creates less disruption to their lives.
So, how do you determine how much you need to buy out your spouse and how do you apply for the required funds?
Step 1: Determining Home Equity
We strongly recommend that both parties first speak with a Family Law lawyer who specializes in legal separations and divorce. They will help you to come to an agreement and determine fair and equitable division of assets, including the home equity.
The next course of action is to speak with an independent Mortgage Advisor who will help to establish your affordability to payout your spouse.
We suggest taking this step before signing the finalized Separation Agreement. Reason being, that you need to know if you can afford or qualify to remain in the home and grant your ex their portion of proceeds. If not, a home sale may need to be considered and the separation agreement revised.
Step 2: Apply For A Mortgage
Now that you have a drafted Separation Agreement, it’s time to apply for a mortgage pre-approval.
A licensed Mortgage Advisor will walk you through the process with the goal of qualifying for a mortgage large enough to buy out your former partner’s interest in the property.
If qualified, we encourage you to connect with your lawyer and proceed with the finalization of the Separation Agreement.
Once the lender has received a copy of the Separation Agreement and has approved the mortgage, the funds will be ready for disbursement to your ex and removed from the title.
For more information on the separation process and how to best prepare yourself, please visit the British Columbia government website by clicking here. We understand there are a couple of other options when dividing home equity between estranged partners but the above two scenarios are the most common.
If you are thinking of separating or are in the process of separating/divorcing, please speak with one of our Mortgage Advisors so they may discuss a customized plan tailored to your unique situation. For a free no-obligation consultation, please click here.
