Many folks who are going through separation and divorce have assets and liabilities that they are jointly responsible for. Though it might seem complicated, let’s explore a few of the options and what are likely the next steps for someone who is separating and divorcing and wants to know what to do about the mortgage.
In Saskatchewan, the family home gets some special treatment, and it comes from two different laws. The first, The Homesteads Act, 1989, means that neither spouse can sell, mortgage, or lease the family home without the other’s written consent — and that holds true no matter whose name is on the title. It is worth knowing that this protection does not last forever, however; it ends once you are divorced, or, for common-law spouses, once you have been separated for two years. The second law, The Family Property Act, is the one that deals with dividing things up — it treats the value of the family home as split equally between the two spouses, unless that would be unfair and unjust. Between the two of them, it is easy to see why decisions about the mortgage can feel higher-stakes than other property questions.
Who will keep the asset?
Something that many folks get hung up on related to what to do about a mortgage in a separation and divorce, is what to do about the asset associated with the mortgage.
Usually, the person who is retaining the asset will also have to assume the liability, however, in some circumstances that is not possible or practical.
Often the first step is to negotiate and determine together who is going to retain the asset.
If you are in a situation wherein you cannot negotiate directly with your former spouse, hiring a mediator or other dispute resolution professional, like a Collaboratively trained lawyer, can be helpful.
Will we sell the house?
Many folks who are going through separation and divorce face the difficult decision about liquidating property that may have a lot of sentimental as well as monetary value.
Unfortunately, the financial reality might require the selling of the family home, however, working with a mediator or other dispute resolution professional can be helpful in determining whether it is necessary or if one of the parties involved can retain the home.
Often, a primary reason why someone might not be able to retain the family home is because they cannot afford the mortgage payments on their income alone or because they cannot qualify to assume the mortgage on their income alone.
Some folks are able to come to a creative arrangement where they both stay on the mortgage for a period of time after separation or they share the mortgage payments, however, many folks want to end financial ties as soon as possible.
When possible, negotiate together first. If that’s not possible, using a mediator to help build consensus might be an appropriate next step. This is a more amicable route than hiring a litigation lawyer, and it can help build consensus rather than escalating the conflict.
How can I get off the mortgage?
What is done with a family home is greatly dependent on the financial picture at the time of separation and divorce. If you have recently purchased a house with your former spouse, renewed a mortgage, or still have many months left on your mortgage term, it might not make financial sense or even be possible for you to immediately get off of the mortgage. Calmly approaching these conversations can be difficult, because often the end of a long-term relationship is emotionally fraught, however, that is the best way to reduce the risk of conflict escalation and get an outcome that will work for both parties.
Chat with your former spouse about their income, credit score, and goals for the future. If possible, they may be able to assume the mortgage themselves, however, if not, brainstorm what can be done to reduce financial liability for you, while allowing them to continue on with the mortgage and retain the asset.
If you cannot discuss with your former spouse directly, engaging a mediator can help in resolving this type of issue.
Pacing is important – many folks want to move on with their life as soon as possible, however, untangling a long-term relationship often takes a lot of time and investment. Plan for the separation and divorce process to take at least one year, if not two, and prepare yourself emotionally that your financial situation might be complex until all matters between yourself and your former spouse are resolved.
What kind of paperwork do I need?
If one spouse is retaining the family home and assuming the mortgage, you will likely need a fully executed separation agreement. Furthermore, you may both need independent legal advice, meaning that you will both have to see separate lawyers to ensure you both understand your rights and obligations under the separation agreement.
It is often helpful for folks to work together to build an agreement and then give those instructions to their lawyers, however, some people need the assistance of a mediator or a Collaboratively trained lawyer to negotiate a separation agreement. If you are using the mediation process, remember that it is helpful to also have a lawyer provide legal advice throughout the process. If you are using any dispute resolution professional to assist you, the process will likely take longer than if you can negotiate matters between yourselves. Slow and steady can often mean that you get a sustainable and mutually satisfactory agreement. Rushing through the process might result in future frustrations, so ready yourself for an in-depth process that might take months or years.
Qualifying for a mortgage post separation and divorce
Something that many folks encounter when they are trying to unravel their long-term relationship is the issue of qualifying for a mortgage after separation and divorce. This can be particularly frustrating because qualifying for a mortgage is often needed to effect the agreement as to who is retaining the family home asset.
Something many folks assume is that the spousal support or child support they receive won’t count when they go to qualify for a mortgage. The good news is that it usually can, however, the lender will have some conditions. They will typically want to see that the payments are steady, written into a court order or separation agreement, and likely to continue for a while yet — often they are looking a few years ahead, and want to see a payment history of a year or two. They will also usually only let support make up part of your income, rather than all of it. The flip side is worth knowing too: if you are the one paying support, the lender will usually count that as a debt, which can shrink how much you are able to borrow. For the spouse who is leaving the home, that is often the bigger hurdle.
Many folks, post separation and divorce, have a friend or family member co-sign for them. If you are struggling with qualifying for a mortgage to retain the family home, this could be an option to explore. A spousal buyout — refinancing the mortgage to remove one spouse from both title and the loan while the other retains the home — is another common route, and often the more direct one where the numbers work. If neither is an option for you, creative negotiating with your former spouse will be necessary if your goal is to retain the family home.
Summary
Through this blog post, we have explored the various complications that might occur related to how to deal with a mortgage post separation and divorce.
- Often, the first step is determining who will retain the asset. This can be done directly between the spouses or with the help of a dispute resolution professional.
- The next step will likely be formalizing a separation agreement. It is often helpful to have independent legal advice to ensure that both parties understand their rights and obligations under the agreement.
- Qualifying for a mortgage is another important element of this process. Be realistic and emotionally prepared for the difficulties that you might encounter during the process of trying to qualify for a mortgage.
- Be patient. Though you might want to sever ties as quickly as possible, to ensure that the separation and divorce process goes smoothly it often takes months or years to finalize.
If you have more questions, we encourage you to book a consultation with a Collaborative trained lawyer today:
306-975-7151
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