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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