What to do With the Family Home When You Separate

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In Family Mediation the issue of what to do with the family home is a hot topic. The family home is often a couple’s biggest asset. Besides the financial value there is often an emotional value attached to it. Sometimes working through the emotional piece is harder than figuring out the financial piece.

In this article I want to look at your options in terms of the financial value of your home. There are basically 3 options you can choose when determining what to do with your home.

Option 1 - Sell the home

This is sometimes the simplest option. It can also sometimes be the only option if neither spouse is in a position to qualify for the mortgage on their own.

Things to think about with this option

  • Possible capital gains if the real estate you are selling is not your primary residence, for example, an investment property.

  • Will you qualify for a mortgage on your own? If not, selling may be the only option.

  • Do you need the cash? Sometimes you need the cash out of the home in order to pay off other family debt in the separation.

Option 2 - Buy Out Your Spouse

With this option one spouse buys the other spouse’s half of the house. For this option to work you will need to come to an agreement on the value of the home to determine equity. You then need to determine the dollar amount of the buy out. You may want to adjust it to take into consideration projected selling costs or possible capital gains.

You may need to look at refinancing the mortgage in order to buy out your spouse.

Another option is to draw up an instalment loan with terms agreeable to both of you.

As an alternative to cash for the buy out other assets could be transferred to the spouse who surrenders the home.

Things to think about with this option -

  • An instalment loan creates a creditor/debtor relationship. How will that impact your ongoing relationship as co-parents?

  • If you are surrendering the home and are taken off title but remain on the mortgage you will likely be on the hook if your ex ever defaults on payments.

  • If you surrender the home but remain on the mortgage you may not qualify for a mortgage of your own because you may be considered overextended.

Option 3 - Joint Ownership of the Home

This option may work for couples who want their children to remain in the family home until they finish school or reach a certain age. Usually the couple agrees to sell the home after this contingency occurs. The most common arrangement in this scenario is that the resident spouse pays the mortgage and other costs associated with the house such as property taxes, maintenance and repairs are shared equally between the ex-spouses.

Things to think about with this option -

  • It creates a financial tie that may cause stress, especially if there are disagreements over maintenance and repair costs.

  • The spouse who moves out needs to rent or purchase something else and may not qualify for another mortgage due to still being on the current mortgage.

It’s never an easy decision. You really want to weigh all of the pros and cons. You’ll also want to think about where you see your life 5 years from now. Sometimes that can help to determine whether it makes sense to hang on to the house or not.

If you have any questions on this topic or any other family mediation issues please get in touch!