In Vancouver, making decisions about whether (or when) to sell your house can be overwhelming at the best of times. Contemplating those decisions in the context of a family law dispute can cause that overwhelm to tip into panic.
The good (or bad, depending on how you look at) news is that some of these choices are actually out of your hands, or at least simplified, if you’re going through a separation or divorce.
In this month’s post, we share some little-known family law-related facts that can have a big impact on the future of your family home post-divorce:
Fact #1: The value of your family home is not fixed until a court or settlement agreement divides your family property.
Before we explain, a brief refresher on how property is divided under BC’s Family Law Act (FLA) when spouses separate:
- Family property includes property that is owned by at least one spouse on the date of separation and that was not acquired by that spouse before the relationship began, and the increase in value of any property that was acquired before the relationship.
- Absent an agreement or court order saying otherwise, on separation, each spouse has a right to an undivided half interest in all family property as a tenant in common.
So, even if your family home has only one spouse’s name on title, if the property was purchased after your relationship started, both of you are entitled to half of the home and that entitlement arises on the day you separate. (If your spouse bought the house before the relationship, you are still entitled to half of any increase in the house’s value since the relationship began.)
The value of your half interest, however, is not set until the date of your trial or the date that you and your ex settle your dispute out of court. (Contrary to the popular belief that the value is set on the date you separate.)
This means that if only one of you lives in and pays the mortgage on your former family home for a year following separation and the property’s value increases during that time due to market trends, the spouse who moved out is still entitled to half of the increase as of the valuation date.
As for how the property is valued, the FLA requires the use of fair market value (FMV), which is the amount a reasonable buyer would pay for the property in its current condition. Practically speaking, the FMV of a house is usually established by a formal appraisal done in anticipation of your trial or settlement.
If you and your ex are unable to settle your family law dispute without going to court, decisions about if or when one of you should buy out the other’s interest in your home or sell it all together will be subject not just to the housing market, but the pace of the justice system. Because you both have a ½ interest in the home, if one of you wishes to sell before your other issues are resolved through litigation, you must get your spouse to agree or ask a judge to order an interim sale before trial (which can be very hard to get, especially when your children are living in the home).
Fact #2: If you need to take out a mortgage following your separation, a mortgage broker will likely review your family law settlement agreement or court order to see if you qualify.
For many couples, especially those with children, ongoing financial support obligations are an expected outcome of separation or divorce. What may come as a surprise, however, is how such obligations can affect the future of their family home.
In recent years, it has been challenging enough for one ex-spouse to buy out the other’s interest in a Vancouver property given the housing market in this city. The introduction last fall of new Canada-wide mortgage “stress test” rules, which require borrowers to qualify at a much higher rate than the current average, has made it that much more difficult.
A spouse who plans to buy out their ex’s interest in the family home and will need a mortgage to do so could be thwarted by any ongoing obligations he or she has to pay child or spousal support. A mortgage broker will want to take a look at the couple’s final separation agreement (or court order) to see how much support is owed. Even if the payor spouse earns a decent income, the size and duration of any support payments will factor into whether he or she will qualify for a mortgage.
In the case of spousal support, separating spouses can structure how these amounts are paid to increase the payor spouse’s chances of qualifying for a mortgage. Specifically, they can agree that the payor spouse pay the full support amount in one lump sum so that he or she does not have an ongoing financial liability (which could theoretically interfere with his or her ability to pay their mortgage).
The same is not true for child support, which is nearly always paid periodically except in rare circumstances.
Fact #3: If your name is not on title to the family home, you can prevent your spouse from selling without your knowledge.
If your family law dispute is going to court, you can protect your interest in the family home through a certificate of pending litigation (CPL) which is registered against the title to the property. A CPL lets a potential buyer know that ownership of the home may change as a result of the litigation, which usually prevents the sale of the house.
But what if you’re not going to court, either because you plan to settle with your spouse another way, or because you haven’t even made a final decision yet whether to separate or divorce? The law provides protection in these situations as well through the Land (Spouse Protection) Act, which allows a spouse whose name is not on title to put a charge on the house that operates in the same way a CPL does.
Whether you’re separating, divorcing, or neither and whether you litigate, negotiate, mediate or otherwise settle your family property dispute, your interest in the family home is protected, even if your name is not on title.