Home Ownership and Divorce in Ontario: What You Need to Know
Divorce brings many difficult decisions, and one of the most significant is what happens to the family home. In Ontario, the matrimonial home holds a unique legal status that can significantly impact the division of assets during a divorce. Whether you’re deciding to sell, buy out your spouse, or continue co-owning the property, understanding your rights and obligations is crucial. This article explores the key considerations regarding home ownership and divorce in Ontario.
1. The Matrimonial Home: A Special Status
In Ontario, the matrimonial home is treated differently from other assets in a divorce. Under the Family Law Act, a matrimonial home is defined as any property that was ordinarily occupied by you and your spouse at the time of separation. This definition can apply to more than one property, such as a cottage or vacation home, if both were regularly used as family residences. This can include foreign property as well. Additionally, a matrimonial home can cease being a matrimonial home if it is no longer ordinarily occupied at the time of separation.
Key points about the matrimonial home:
- Equal Right to Possession: Both spouses have an equal right to live in the matrimonial home, regardless of whose name is on the title. This means that one spouse cannot force the other to leave without a court order.
- Exclusion from Deductions: Unlike other assets, you cannot get credit for owning the matrimonial home on the date of marriage. This rule is designed to ensure both spouses share in the value of the home, even if one spouse brought it into the marriage. This can lead to very unfair outcomes and only in rare circumstances will courts deviate from this approach.
- Treatment on Division: The matrimonial home is typically valued on the date of separation if owned by one party. It’s value would likely be determined by a certified home appraiser. On the other hand, if a matrimonial home is jointly owned, the courts can use its present day value instead of its date of separation value. If, as a result of one party’s actions and conduct, the value of the matrimonial home declined significantly between the date of separation and the present day, the courts can uncommonly grant an unequal division of property.
Understanding these special rules is essential for making informed decisions about the matrimonial home during a divorce.
2. Options for the Matrimonial Home in a Divorce
When it comes to the matrimonial home, divorcing couples in Ontario generally have three options:
1. Sell the Home and Split the Proceeds
- Pros: Selling the home and dividing the proceeds can be a straightforward solution, especially if neither spouse can afford to keep the home on their own. This option allows both parties to start fresh and may reduce the emotional strain associated with the home.
- Cons: The real estate market can be unpredictable, and selling the home may take time. Additionally, both spouses will need to find new housing, which can be stressful, particularly if children are involved.
2. One Spouse Buys Out the Other
- Pros: If one spouse wishes to keep the home, they can buy out the other’s share. This allows the children to remain in a familiar environment and provides continuity. The buying spouse must have the financial means to take over the mortgage and any associated costs.
- Cons: Determining the buyout price can be complex, and the purchasing spouse may need to refinance the mortgage, which could result in higher payments. This option requires careful consideration of both parties’ financial situations.
3. Continue Co-Owning the Property
- Pros: In some cases, couples agree to continue co-owning the home temporarily, especially if there are children involved. This arrangement can provide stability for the children while allowing both spouses time to adjust to their new financial realities.
- Cons: Co-ownership can be challenging to manage, especially if the divorce was contentious. Clear agreements on expenses, maintenance, and eventual sale or transfer are necessary to avoid future disputes.
Each option has its advantages and disadvantages, and the best choice depends on the unique circumstances of your divorce.
3. Valuing the Matrimonial Home
Accurately valuing the matrimonial home is critical to ensuring a fair division of assets. The value of the home is typically determined as of the date of separation, not the date of purchase or marriage.
Steps to valuing the matrimonial home:
- Obtain a Professional Appraisal: A professional real estate appraiser can provide an unbiased estimate of the home’s market value. This is often the most reliable method of valuation.
- Consider Market Conditions: Real estate markets can fluctuate, so it’s important to consider current market conditions when valuing the home.
- Agree on the Value: Both spouses should agree on the value of the home to avoid disputes. If there’s disagreement, it may be necessary to obtain multiple appraisals or seek mediation.
A clear and accurate valuation is essential for determining how much each spouse is entitled to when the home is sold or bought out.
4. Impact on Net Family Property and Equalization Payments
The value of the matrimonial home is included in the calculation of net family property (NFP) for both spouses.
How it works:
- In Ontario, the division of assets during a divorce is guided by the principle of equalization of net family property (NFP). This process involves several steps. First, each party’s net worth is calculated on two key dates: the date of marriage and the date of separation. This calculation is usually done using a Financial Statement (Form 13.1). Then, the change in net worth from the date of marriage to the date of separation is compared for both parties. Finally, the spouse whose net worth has increased the most is required to pay half of the difference in the change in net worth to the spouse whose net worth increased the least. These final steps are generally completed using a Form 13B Net Family Property Statement. While this process is relatively straightforward, there are some exceptions to the calculation.
Understanding how the matrimonial home affects your NFP is critical for negotiating a fair settlement.
5. Mortgages, Debts, and Other Financial Considerations
When dividing the matrimonial home, it’s important to consider any outstanding mortgage, property taxes, and other associated debts. These liabilities can affect the overall value of the home and the equalization process.
Key considerations:
- Mortgage Responsibility: If one spouse buys out the other, they must be able to assume full responsibility for the mortgage. This may require refinancing, which could lead to higher interest rates or extended loan terms.
- Joint Debts: Any joint debts related to the home, such as home equity lines of credit, must be addressed in the division. Both spouses remain liable for these debts unless otherwise agreed upon or ordered by the court.
- Tax Implications: Selling the home may trigger capital gains tax if it’s not fully exempt as a principal residence. It’s important to consult with a tax professional to understand the potential tax consequences of your decisions.
Addressing these financial considerations is crucial to protecting your interests during the division of the matrimonial home.
6. Negotiating a Fair Settlement
Negotiating the division of the matrimonial home requires a balanced approach that considers both financial and emotional factors. Whether you’re aiming to sell the home, buy out your spouse, or continue co-owning it, clear communication and a willingness to compromise are key to reaching a fair settlement.
Tips for negotiation:
- Be Prepared: Gather all necessary financial documents, including mortgage statements, appraisals, and tax records, to support your position.
- Consider Mediation: If you and your spouse are struggling to agree, mediation can provide a neutral space to negotiate and reach a mutually acceptable solution.
- Think Long-Term: Consider the long-term financial implications of your decision, including the cost of maintaining the home, your ability to afford a new residence, and the impact on your children.
A fair settlement ensures that both parties can move forward with financial stability.
7. Seek Professional Advice
Navigating the division of the matrimonial home during a divorce can be complex and emotionally charged. It’s essential to seek professional advice to ensure that your rights are protected and that you make informed decisions.
Professional support you may need:
- Family Law Lawyer: A lawyer can provide legal advice specific to your situation, represent your interests in negotiations, and help you understand your rights and obligations under Ontario law.
- Real Estate Appraiser: An appraiser can provide an accurate valuation of the matrimonial home, which is crucial for fair division.
- Financial Advisor: A financial advisor can help you assess the long-term impact of your decisions and plan for your financial future post-divorce.
- Tax Professional: Consulting a tax professional ensures you understand the tax implications of selling the home or dividing assets.
Working with professionals can give you the confidence and knowledge needed to navigate this challenging process.
The division of the matrimonial home is one of the most important and complex aspects of a divorce in Ontario. Understanding the special status of the matrimonial home, exploring your options, accurately valuing the property, and considering financial implications are essential steps in protecting your interests. With the right approach and professional guidance, you can achieve a fair and equitable outcome that allows both you and your spouse to move forward. Contact us at 1-800-838-9929 today!