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Going through a divorce is one of the most emotional experiences a person can go through.   It often brings about a lot of change all at once and can be overwhelming.


One of the major questions someone going through a divorce has is surrounding where they will live and what their financial situation will look like after the divorce.   If the divorcing couple owned a home together, one of the first things to figure out is if one of the parties is keeping the matrimonial home or if they will choose to sell it.   A huge part of this decision is usually what each person can qualify for, or afford, in terms of a mortgage and house.  Understanding what one qualifies for early in the divorce process is key.


As a mortgage broker with TMG The Mortgage Group for over 11 years, and going through a divorce myself, I am educated on the different solutions available to someone going through a divorce. Not only am I able to show you your options, I also understand what each partners goals, fears, and concerns are which allows me to make the entire process much less stressful for you!


Before We Begin…


The first thing to understand is the essential differences between separation and divorce. Separation is the process where both partner reach a written agreement pertaining to the custody, child support, spousal support and the division of the relationships assets and debts. Where as a divorce is simply means the marriage is legally ended and both partners are legally free to remarry. This typically comes after the separation process.


It is important to note that there are other situations where the breakdown of a relationship can put strain on a mortgage agreement, such as common law, when siblings purchase a home together, or when an individual has cosigned for a mortgage. If these relationships break down it can also put you in a situation where you need professional advice pertaining to your mortgage. The options below will also apply to many of those situations.


What You Need To Know


As long as your name is on the mortgage, you are financially liable for the debt, regardless whether you occupy the home/property or not. So even if you come to a settlement with your partner, as long as your name is on the agreement you are also responsible should they fail to make payments. This can happen in situations where the partner who agrees to keep the home loses their job, comes down with severe illness or other similar situations. Leaving your name on the mortgage can also impact your ability to qualify for another mortgage in the future. You don’t want this to happen to you!


Another important detail is understanding that child/spousal support payments can impact your future qualifying ability. Since these payments are viewed by lenders as liabilities, it will impact how much you can borrow. Lenders will need to see any agreements you have in writing, even if the payment amount is $0.


On the flip side of this, if you receive support payments, this can be viewed as monthly income and can be combined with your employment income to increase you borrowing power.



Your Options

Now that we have laid out some basic principles, lets look quickly at your options.


1)    Sell – If both parties agree to end the mortgage contract and sell the house, you can pay off the lender and any associated fees. If there is excess cash, it can be split however you agree.

2)    One Occupant Stays (No payment required)  - If you decide you want to leave the home, you can request a “release of covenant” from the lender. This will remove your name from the mortgage and the persons name who remains will assume the mortgage responsibility. They must requalify in order to keep the mortgage on their own and generally a separation agreement is required to confirm no money is owed to either party.

3)    One Occupant Stays (Cash payment required) – If you have owned your home for a while and there is equity in it, the other party may ask for some of that as a settlement payment. The person who is staying in the home must be able to refinance the mortgage on their own. This will release the other party from the agreement and hopefully release enough cash to payout the party who is leaving. This transaction does require a mortgage broker and a separation agreement.

4)    No Equity, Cant Sell or Refinance -  as unfortunate as it is, it does happen. This is called negative equity and the only way to get out of this agreement is to keep the home until there is enough equity to sell it. In this case, one of the best options I have seen is for both parties to rent the property so the rent payments cover the mortgage, property tax, and insurance. This income will help you both to reduce the impact of that expense on your future borrowing ability.


What to do now


In separation & divorce situations, emotions are often running high and it is easy to make the wrong decision, despite your better judgment. Often times, talking to a team of professionals is a necessity; a lawyer, life insurance specialist, financial planner, and a broker like myself are all integral pieces to your divorce process.   We will provide you with clarity and help you move forward in a smart way in all aspects of your financial picture now and in the future.


Although I have laid out the 4 common options above in simple terms, each one does have more to it and can require the help of the professionals listed above.


If you are going through a separation or divorce, send me a message however you prefer and we can schedule a time for me to connect with you.   As I work closely with many people going through a separation or divorce, I have developed a trusted team of divorce experts I can connect you with depending on your situation.


Phone: 403-391-2053

Email: nicki@mortgagegrp.com

Facebook: Mortgage With Nicki

Instagram: @mortgagewithnicki

Helping clients keep mortgages simple in Red Deer, Central Alberta, Calgary, Edmonton, and other various parts of Alberta. 

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