Splitting up but want to stay in the house? Here's how a spousal buyout works

Hamilton Spectator

7 days ago

There's a lot of uncertainty that comes with divorce, but when Alessia Scauzillo separated from her now ex-husband in 2022, she knew one thing for sure: she wanted to stay in the Toronto house they'd purchased together five years prior.
'The market had largely gone up and it would be extremely difficult to find another house like this,' says the 34-year-old content creator, adding that the home had recently been renovated. 'I really just didn't want to let go of it.'
Many Torontonians like Scauzillo are considering buying their spouse out of the matrimonial home (the home they occupy at the date of separation) after divorce, due to an increasingly unaffordable housing market.
'When a married couple have joint ownership of the matrimonial home, meaning they're both on title, they have options when they separate,' says Olivia D'Ammizio, a family law lawyer and associate at Shulman & Partners LLP.
They can choose to list and sell the home, or they can choose a spousal buyout, where one spouse pays the other for their equity in the home and takes sole ownership. For example, if a home is valued at $600,000 with a $200,000 remaining mortgage, the equity would be $400,000. If splitting this equity 50/50, one spouse would need to pay the other $200,000.
In today's market, more people want to buy their spouse out 'because they're not going to be able to sell for as much as they'd like,' explains Mary Sialtsis, a mortgage broker with Concierge Mortgage Group. 'If somebody's been in a house for 10 to 15 years, there's probably significant equity built up,' Sialtsis says. Buying back into the same neighbourhood may be impossible.
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When pursuing a spousal buyout, one of the first steps is to determine the value of the matrimonial home, which is typically done through an appraisal from a neutral third party. If both spouses have appraisals done and there's a difference, they can negotiate a number somewhere in the middle. You and your ex can also get a letter of opinion from a real estate agent, D'Ammizio says. Whatever option you choose, both partners must agree on the number.
Once the value of the home is established, any debts associated with the home (such as a mortgage or home equity line of credit) are subtracted from the value. 'That gives you the equity of the home to then divide,' D'Ammizio says.
In Ontario, the full value of the matrimonial home must be shared equally between spouses — even if one spouse owned the home before the marriage or inherited it. This is important when it comes to the calculation for the equalization of net family property.
This process ensures that the wealth accumulated by both spouses during the marriage is shared equally. The spouse with the higher net family property (including the value of their interest in the matrimonial home) may have to make what's called an 'equalization payment' to the other spouse.
The person doing the buying has to ensure that they can secure financing and afford to cover the mortgage going forward. That means qualifying for a mortgage independently. A lender will consider factors like income and credit score.
A mortgage broker can determine if you would qualify for a spousal buyout mortgage, says Sialtsis, adding that many people who initially consider a spousal buyout don't realize how much money is involved.
People often think they only have to pay for half of what the house is worth, but they're actually taking on all of the debt associated with the home plus an equity payment (their ex-spouse's half of the home's value after the mortgage is paid off). That means 'the person who wants to buy the other partner out is taking on almost three quarters of the value of the home,' Sialtsis says. That's where things can get tricky; it can be hard to qualify for a higher mortgage on your own.
All three of Canada's mortgage insurers (Sagen, Canada Guaranty and the Canada Mortgage and Housing Corporation) offer a spousal buyout program, which allows one spouse to pay off the other spouse's share of the equity and become the sole owner.
If the value of the matrimonial home is $500,000 or less, the spousal buyout mortgage can cover up to 95 per cent of the value of the home. In a traditional refinance, you can only borrow 80 per cent, Sialtsis says, but with a spousal buyout, you get access to an extra 15 per cent of financing. A signed separation agreement is required to qualify.
There's also mortgage default insurance, which is mandatory for mortgages where the down payment is less than 20 per cent of the home's purchase price. If you're purchasing a property for $500,000 or less, you can make a down payment as low as five per cent.
Sialtsis says you should look into whether or not you are on title before considering spousal buyout as an option, because it is a requirement for both parties to be on title to qualify for a spousal buyout mortgage. Other than that, the qualifying rules are the same as any other mortgage.
Most lenders will require that there's a fully executed, legally binding separation agreement in place before you can qualify for a spousal buyout mortgage, Sialtsis says. The agreement should outline the terms of the buyout.
Cutting off accounts. Withholding money. Hiding assets. Financial abuse is a common tactic used
If the buying spouse is not on title, says Sialtsis, then the purchase of the home would have to be done as a regular purchase and mortgage. It could be handled as a private sale.
D'Ammizio says some people may take out private loans to finance the purchase of the home, or they may get a co-mortgager to be able to afford taking it on.
Scauzillo and her now-ex-husband owned the matrimonial home as well as a condominium they rented out to tenants. They decided that she would buy him out of the house and he would buy her out of the condo. Scauzillo wasn't aware of spousal buyout mortgages, but luckily, 'there was no animosity' between her and her ex-husband, so negotiations were smooth.
In a common-law relationship, if both partners are on the property title, they get the same options of a buyout or sale. If only one partner is on title, the other could make a claim that based on significant contributions to the property, it would be 'fair' for them to be compensated.
That claim would have to be proven before any kind of payment for equity would be made, D'Ammizio says, adding that the outcome would depend on the specific facts.
If both parties can't agree on the terms of a spousal buyout, they'll likely need court intervention. A court can't order a spousal buyout, but it can order the sale of a jointly owned property where proceeds would then be split 50/50.
Before deciding to pursue a spousal buyout, check in with a mortgage broker or your bank to see if you are in a position to take over whatever debts are associated with the home, says D'Ammizio. You may also want to get legal advice from a family law lawyer.
There's no rule about who must move out of a shared home when a couple separates, write Lisa
If a buyout is an option, there are other moving parts that can come about when dealing with the financial issues, D'Ammizio says. For example, in some cases, an ex-spouse may choose to deduct any future spousal and/or child support from the proceeds as part of an equalization payment.
A year after buying out her ex, Scauzillo realized the mortgage was too expensive for her and there was a lot of space she didn't need, so she rented out the home and moved into a smaller, more affordable apartment. Now, she's planning to move back into the house with her new partner.
'I still feel so grateful that I did the spousal buyout, because now it's giving my partner and (me) the opportunity to have this beautiful life in a home in Toronto that we may not otherwise be able to afford.'