No one enters into a marriage or homeownership with the intention of future separation. Divorce can be one of the most difficult and stressful times for a couple, both emotionally and in turn, financially. The important thing to remember is that you are not alone. There are professionals that can help make the transition a little less painful. The following information will help provide you some insights regarding your shared property and the potential outcomes when facing divorce.
First you will have to decide what your intention is with the shared home.
The principal options are:
- Sell the house and split the proceeds as per the divorce settlement
- Buy out your former spouse’s share in order to keep the home
- Allow your former spouse to buy your portion out and they can keep the home
- Continue joint ownership and instate specific living and financial arrangements to best suit both parties
Option 1: Sell the House
Many couples find this option to be the most appealing as both parties get a portion of the sell price and have a chance to start fresh. How the property and assets are divided is based on the terms of the settlement, as well as the property laws in your geographic regions and who or where the initial down payment came from. After selling the house, the mortgage is essentially dissolved once your outstanding is paid back to your bank or borrower. This makes for a cleaner break for many couples as there is no outstanding documents with both names.
Option 2: Buy out your former spouse’s share
This option is often the most attractive to those that wish to stay in the home due to kids, work, sweat equity, etc. Where the option sours is with the legal fees, costs to purchase outright, and of course the discord between the couple when it comes to settling a fair price and distribution. It is best to leave this process to a third party of professionals. An appraiser will assess the home and determine its worth, while the legal proceedings determine the share of the home that legally belong to each party. It is imperative to note that the sum owed to the selling party will come with a finite date of payment, which can be tough to meet. Talk to your broker regarding refinancing. Take preventive measures to ensure the home and paperwork are transferred to your name once the purchase is complete to prevent any future claims.
Option 3: Sell your share to your former spouse
In this reverse option, you would be the party receiving the cash settlement and relinquishing ownership. Now, it is important to take all precautions to remove your name from legal documents to ensure no financial liability going forward. You should meet with your mortgage broker to assess whether or not your co-signing will leave you with any responsibility or difficulty procuring a new mortgage in the future.
Option 4: Joint Ownership
This option is best for separated couples who need time to figure out what’s best for the home and their relationship. It is all great for couples with kids that need some time to establish a game plan for living arrangements and schooling going forward. In this case, legal representation can still rule on payments to keep the house in good standing.
While the combination of divorce and a joint mortgage can affect direct living situations, finances, credit scores, and future eligibility for loans and mortgages, every situation is different. Be sure to speak to a professional for the best possible outcome in your own state of affairs.
Jonathan Baker is working as a consultant for finance and education at Ontario. He keeps himself constantly updated about the latest news and trends in finance world through reading and also shares his insights and about these topics through his blogs. He lives with his wife in Toronto. He can be followed on twitter.