Three “Watch-outs” When Selling or Buying a House Prior to Your Divorce
With Ontario’s divorce rates for 1st marriages at close to 40% and 2nd marriages at closer to 60%, the housing market is one of the first to experience the impact of divorce. Most marriages involve a matrimonial home; some even have rental properties and cottages. And many times the sale of the family home is part of the financial reconciliation.
Realtors are often the first people to know that a separation is happening as couples seek to understand the equity they have in the home and how it may be divided. The decision to keep or sell the house can be a challenge. Many times people make decisions based on emotions and/or misinformation. Mediation (much different from litigation) is all about helping people explore their options. And that’s where a good Divorce Mediator, trained in complex financial aspects as well as conflict management, can help you avoid the following problems.
Three common real estates ‘watch-outs’ to avoid
In my divorce mediation practice in Waterloo Region, I have come across many people who find out the hard way that even though the house has sold, they may not have access to proceeds of the sale. This is one of the most common ‘didn’t know that’ scenarios of a separation.
Without a separation agreement, (banks usually don’t accept a DIY/kitchen table agreement), finalizing the sale of a home can present unique challenges. Although the sale can happen so long as both spouses consent to the sale, the releasing of the funds can be another matter altogether. “Why is that?” people ask. “It’s our money. We have sold our house, why can’t we access the funds?” When asked how a separation affects sale proceeds, Kitchener real estate and family lawyer Jennifer Breithaupt of Breithaupt Law says: “the simple answer is that the real estate lawyer can’t know how to divide the proceeds without the separation agreement, and so my only choice is to hold the funds in trust. Not all couples decide to divide the proceeds of the house equally and one spouse may be receiving more than ½ of the net proceeds. The separation agreement spells everything out so that there is no confusion.” In higher conflict litigation cases, funds may be held for months, even years.
Buying a home too soon
You’ve got your pre-approval letter and your mortgage expert tells you to “start shopping”. But is it really that simple? A second common pitfall for separating spouses is purchasing or putting offers on a new home only to later find out the lender won’t send the funds without proof of a signed separation agreement. Can you imagine putting a firm offer on a house and then find out the financing cannot be finalized? Working with a divorce mediator can help people sort out these details in a proactive and timely manner – before they run into problems so that both spouses can move on more quickly and with less drama.
Should I sell or keep the house?
Another consideration that separating couples face is: should one spouse refinance the house and buy the other spouse out? The right answer usually involves more than just finances. For example, you may be very attached to the home emotionally, but can you afford to keep it? There is more to affording a house than the mortgage payments. Have you considered the operating costs (taxes, utilities, maintenance)? Do you qualify for the new mortgage? Exploring options regarding keeping or selling the house should be part of your separation discussions. A good mediation process will have you develop a budget and explore those questions so you can make informed decisions. Even though they may be able to afford it, many people decide not to keep the house once this conversation is explored. Your mediator will have these important conversations with both spouses so they can decide the best path forward. Even though the children may tell you they don’t want to move if keeping the home is a huge financial burden, you owe it to yourself to ask the question, how will this affect us as a family?
No one said buying or selling a house was a piece of cake. And if you are in the middle of a marital separation, it can be a lot more complicated. Save yourself some headache and heartache and find yourself a good realtor, a good real estate lawyer and most of all, a good divorce mediator.