Red-Hot Housing: How to Buy a House After Divorce
The Canadian housing market has been skyrocketing for many months since the onset of the pandemic. Many things are likely contributing to this increase in housing prices such as the shift to remote work, the lowering of interest rates, increases in international and institutional investors and a paradigm shift in how we view city-living.
It is unknown at this point what the future of the Canadian housing market will look like in the upcoming future, but as family lawyers we do know that attempting to buy a house post-divorce/separation can be a difficult task.
Who Gets the House?
The first thing to consider in this situation is who will get the house during a divorce/separation. This will highly depend on the facts but the law in Ontario with respect to the home is called “equalization”.
Essentially, what happens is both parties will compare their financial assets and debts, and then make a determination of how much will be divided. In practice, the wealthier party will usually be making an equalization payment to the other party.
With respect to the house itself, the parties will typically proceed with one of two options. First, one party (usually the parent that has primary parenting time) will attempt to buy out the other party’s interest in the home in order to remain living there with the children.
Second, if neither party can afford to live in the home as a single parent, then the house will likely be sold, and the proceeds of the sale divided in line with equalization considerations as identified in the parties’ financial statements.
Family lawyers often see other scenarios play out as well. Such as when one party, usually the one who can afford the buyout, wants the house but the other party refuses to co-operate. Non-cooperation could be for several reasons: the reluctant spouse has nowhere to go, cannot afford rent, wants to maintain a parenting status quo or is spiteful and wants to inflict harm on the other spouse for some other or improper purpose.
It should be noted that a court will not order or force a buyout. If one spouse thinks the red-hot housing market will yield multiple offers, a bidding war, and likely offers above asking price (sometime hundreds of thousands above asking price), then that spouse can seek an order for the sale of the property pursuant to the Partition and Sale Act. There are very few defences to oppose a sale and the court will almost always permit a spouse to sell the house on the open market. The reluctant spouse would then have to put in an offer to purchase likely against competing bidders.
The Impact of Red-Hot Housing
Since housing prices have skyrocketed in recent months, this poses the issue of affordability for either the party whose interest has been bought out, or both for parties if the house has been jointly sold.
This is an issue because either one or both parties will be in the position where they have to seek new housing albeit without the benefit of a) joint incomes, and b) half of the sale proceeds of the previous home.
What Can Parties Do?
The parties can create flexible options and settlement terms using collaborative practice techniques that suit their goals and interests; such as a delayed equalization payment(s) until the housing market settles.
They can also agree to delay the sale of the property in exchange for a set off of other claims and considerations such a “vacation” from child or spousal support payments for a set period of time, or a reduction of support obligations.
The parties can also consider non-traditional lenders with the assistance of a mortgage broker. Interest rates may be less favourable, but the qualifications standards may be more generous and forgiving than some the stress test currently being applied by “A” list lenders and traditional banks.
Parties may also have to rely on friends, parents, or other family members to secure financing so they can enter the difficult red hot housing market.
Also, many are considering moving to smaller more remote communities that have experienced less fluctuations in the housing market. This may correspondingly impact career advancement opportunities and parenting arrangements if one parent decides to move and the other remains in the red-hot market.
The red-hot housing market has provided an unfortunate outcome for couples usually resulting in lose-lose outcomes. But by being creative and cooperative it may be possible for both parents to secure acceptable housing despite the current market volatility.
If you are going through a separation or other family law related issues, to ensure you understand all of your options and rights, you do not need to wait and you can get started online with us today or get in touch with us.