How to handle your largest asset during the painful process of separation
We’ve all heard the statistics. In Canada, close to 50 per centof marriages end in divorce or separation. No one plans for this heartbreaking event when the love is new and the couples hopeful and happy. Having gone through the painful process of separation myself, I know first-hand what it’s like to become part of that statistic. In my experience, there are three major sources of why the separation process takes as long as it does and why couples end up fighting and going to court. The first being your children and custody or living arrangements, followed by money/support payments and finally the matrimonial home.
Not to say there aren’t others. Everyone’s situation is different. In this blog, I will focus on real estate. Your matrimonial home, the residence in which you lived primarily as a family, tends to be the largest asset for most couples. Deciding what to do with that asset can often bring out fighting, resentment and tons of hours and money spent on lawyers. Let’s go through some factors you should consider if you are facing this grim reality.
1. Determine the Value of Your Home
Agreeing on what the matrimonial home is worth is crucial, regardless of what you decide to do with the house. For some couples this means listing their home for sale; for others it may mean that one spouse buys out the other and stays in the home. Either way, the couple has to agree on the value.
To start, the least expensive option is to get a letter of opinion from a local realtor or two, who are familiar with the area. Realtors determine value on what the real estate market is up to at the time and most recent sales and listings in your neighbourhood. For my clients, I provide this service free of charge and develop a detailed report which includes a market analysis of your neighbourhood, which shows how your home compares to others sold recently in the area.
If your separation is contentious enough to end up in court however, a judge will likely want to see an official appraisal from a licensed home appraiser or one provided by the bank or lender who uses their own professionals. If you need to hire a professional appraiser, the cost can amount to upwards of one thousand dollars for such an appraisal and can be very conservative in terms of value.
No appraisal, regardless of who prepares it, offers a guarantee on what the home will actually sell for. That’s the tricky part. If one spouse decides to buy out the other, you are making assumptions based on a professional opinion. If you decide to list it, you will always get what the market is willing to pay at the time. In that case, an appraisal can provide initial guidelines when all the assets are being valuated for the purpose of splitting them up.
2. Enlist the Right Professionals
Whether your separation is amicable or not, you should consult a family lawyer or mediator to help you with the process. If you and your spouse can still have civilized discussions and truly do what’s best for your family and children, congratulations, you are the anomaly and not the norm these days. And, you can shape the course of your future co-parenting style and living arrangements, instead of allowing a judge to decide in the end. You can come to major agreements yourselves and then consult your legal counsel or mediator to help you finalize it all for sign-off.
If however, emotions are running high and constructive communication is lost, it might be best to communicate through lawyers or meet with mediators who will help you focus and stay on course.
Hiring a real estate professional is also crucial. Anyone can list your house or valuate it, but in cases of contentious divorces, hiring an agent who has experience with the process is important for a variety of reasons. The right sales person will be have tons of patience. That’s needed when two people can’t even be in the same room together, or one spouse is not co-operating and requires extra attention to bring two parties back to the table.
The right realtor will be able to commiserate and show a lot of empathy. Let’s face it; the process sucks! And at the end of the day, both people just want to be heard and want someone to understand their position. Having someone with the ability to stay impartial and focused can make the process less stressful.
The right realtor will be well-versed in the legal process of selling a matrimonial home, which is treated differently than any other joint asset. Some realtors don’t want to deal with divorcing couples because there is a possibility of interacting with judges or even just lawyers and lenders. It’s a complicated process.
3. Consider Other Factors And Expenses
Determining home value is only one factor. You must also determine how much equity is in the house, ie money leftover once you subtract existing mortgage out of the potential selling price. Don’t forget about other expenses associated with selling a home, such as commission fees, legal fees and others associated with breaking your existing mortgage.
Does the home need repairs or staging? Did either of the spouses invest inherited money when the house was bought? Consult your lawyer on the last one. Inheritance money is not eligible for division during a separation and may be a factor in the matrimonial home value division.
Sometimes there may not be enough equity left for a buy-out after all the expenses are factored in but at least it will help you determine next steps. If a buy-out is possible, ensure the spouse keeping the house can afford the mortgage and expenses on their own.
4. Get the Highest Selling Price for Your Home
Experienced realtors can smell a divorce when showing your property to their buyers and can capitalize on your tragedy by offering less money for your home. The right realtor will ensure your home is staged to look like a couple still lives there versus a single or two single adults.
It’s important to stage the house properly because in some cases, such as in mine, couples continue to live in the same home while going through the separation. Or if one moves out, there can be furniture missing making it look suspicious or even worse, the home is vacant and potential buyers may sniff out desperation. Staging sells homes!
When you have a client relationship with a realtor, that professional is working for you and has to ensure confidentiality about your situation and your motivation for selling your home. The right realtor will also be skilled in negotiation and have excellent marketing skills to ensure your home is sold quickly and for the highest possible price so you can move on with your lives.
5. Consider Your Future Budget
When deciding what your future living arrangement will be, consider your budget. If you want to stay in the matrimonial home, will you have the funds necessary for a buy-out? Will your income support a mortgage, bills and living expenses as a single person?
If you are selling, what can you afford once you are on your own? Will you have a large enough settlement, income and/or support payments to cover mortgage payments, bills and expenses but also closing costs on a new purchase such as legal fees, land transfer taxes, home inspection or other upgrades to the new home? If home ownership isn’t an option, consider renting or moving in with family. Make a plan and stick to it. Seek out the help of professionals if you need to.
6. Do Your Research
In my line of work and in personal life, I come across people who just assume they can’t afford to own a home. Or their bank or lender told them they need to see a separation agreement first (that can take time!), or they were declined because of too much debt or low credit score.
If you don’t do your research, and by that I mean getting more than one opinion, you will never know what you can afford or steps you need to take in order to own a home in the future.
Anytime I get a call from a potential client asking for help in finding a rental, I ask them why they are renting vs buying. In some cases, the person is misinformed and just gave up on the idea of home ownership.
Talk to your bank but also speak to a mortgage broker or two. Mortgage brokers work for you and not the lenders and their job is to shop your application around a variety of lending sources, to find ones who will approve you and give you the best rate. A mortgage broker will also tell you what you can afford on your own, so you can make the best decision for you. This could include buying out your spouse, buying a new home or renting.
If you are in the position to buy a home, do not rent. Why pay someone else’s mortgage when you can move your separation funds into an investment that grows in value, securing your future?
I have a roster of amazing professionals I work with, including mortgage brokers, who have counselled and helped my clients plan their next move towards home ownership.
7. Buying or Leasing a New Property
Once you’ve made a decision on buying or leasing a new home, speak to your realtor who will help you find your next property. I love helping my clients build their future which includes a fresh start in their new home. It’s such an emotional time, full of hesitation and fear. I’ve been there. Every parent worries about their children, and during a separation it’s important to help them feel secure and maybe even build a little excitement by involving them in the house hunting.
When looking for my new home post separation, I brought my sons to open houses and viewing appointments to include them in the decision making process. We created a shopping or wish list of things we needed and wanted in a new home and by the end of the process, my kids became little real estate experts, by commenting on a home having “good bones” or “dated kitchens”.
While the separation process was undoubtedly painful for them, they appreciated feeling involved in ultimately choosing our new home.
8. Manage Your Expectations
Whether you are buying or renting a new home, manage your expectations. This next house will likely not be your forever home. While I absolutely love my little townhouse for the freedom and peace it has brought me after a bitter end to my marriage, I consider it a transition property and a place to park my money while I rebuild my life and finances. I had to get used to moving from a spacious, detached home I worked so hard for, into a much smaller townhouse but I’m glad I own a property vs paying rent to someone else.
The priority is to get you back into the real estate game. Property values and home sale prices continue to rise each and every month. If you wait too long, owning a home will be more expensive with every passing month. What’s worse, you may end up spending or mismanaging your money and not having enough left for a downpayment in the future.
Your next home doesn’t have to be a dream home. We need to make sacrifices here for long-term success.
If you are going through a separation or even contemplating it, you know there are so many factors which you will stress and lose sleep over. It can feel like you’re losing a piece of yourself. While Alex can’t offer legal advice or magically take the pain away, She can help you with real estate. She works with clients in the Greater Toronto Area, focusing on Peel, Dufferin and Halton Hills regions. Alex offers concierge services which means she will stand by you and guide you every step of the way in the real estate process, and take on or outsource anything and everything in my power, so you don’t have to worry about it. She has been through this and has found happiness in her new life that she didn’t have in my former. Divorce can be a nightmare, but this too shall pass. You will rebuild, you will heal and your children will adjust. Give it time.
Alex Cygal To learn more about Alex and how she can help you click https://www.thedivorceangels.com/vendor/alex-cygal/