Jun 17, 2022
Housing woes, higher rates present big challenges for divorcing couples
Rising rates will bend, not break, the Canadian housing market: Desjardins report
The swift decline in Canadian home prices, rising borrowing rates and the skyrocketing cost of living are presenting challenges for many Canadians, but couples going through a divorce are being hit particularly hard by these new financial realities, according to experts.
Aside from the mental and emotional toll a divorce can take on a family, those looking to sell their matrimonial home or buy out their spouse from the property are finding out that the current market conditions are increasingly becoming unfavourable for them.
“In a situation where the parties are jointly on title or have a joint interest in the property, one possible solution that we could normally discuss is, ‘Hey, are either of you interested in maintaining that property [and] buying the other party out of their interest?’” said Kevin Caspersz, senior associate lawyer at Shulman & Partners LLP, told BNN Bloomberg in an interview.
“The party purchasing the other party's interest should go and get some sort of preapproved financing and demonstrate that they have the financial ability to do that. With increased interest rates and the stress tests that are implemented now, it's become a lot harder for that option.”
He said getting rid of that choice could force a couple to unwillingly sell the property on the open market at a time when home prices are sliding.
The latest Canadian Real Estate Association (CREA) data showed national home prices fell for a second straight month in May as the cost of borrowing jumped and buyers continued to sit on the sidelines.
The benchmark price of a home fell 0.8 per cent to $822,900 in the month, with several major cities in Ontario reporting the biggest drops, the CREA data showed.
Typically, the easiest option divorcing couples can opt for is to list the home for sale and divide the net proceeds among the two parties, Caspersz said. But some couples may want to keep the home in the family for a variety of reasons including maintaining a certain lifestyle for the children.
“It becomes a very, very different circumstance, where now you have two households, and now you have to use the same amount of income for two separate households,” he said.
“And that can really change the lifestyle [and] the way those finances are used between those two residences as compared to when it was one household and one financial unit. So you're not wrong when you say that the financial impact can be significant, if not the most significant impact when a party separates or divorces.”
While Caspersz said he doesn’t have specific examples, he said it’s “very possible” that some couples are delaying divorce to wait for the housing market to rebound.
“Perhaps they're in a circumstance that's not extremely confrontational or high conflict and they're holding on to their property in terms of maximizing their return -- very possible. Also, there are circumstances where parties continue to reside in what we call ‘separate and apart’ but in the same residence. So they're technically separated but they're still living in the same home because of the financial impact,” he said.
The thought of having to survive on one income in this rapidly-changing economy can also be very intimidating for couples thinking about splitting up, according to one real estate professional.
“I’ve spoken to people -- several people -- in the last little while who have been contemplating divorce and they're definitely intimidated by the financial aspects, not just from a housing perspective, but the overall cost of living,” said Cailey Heaps, president and chief executive officer of the Toronto-based Heaps Estrin Real Estate Team, in an interview.
“What will they net on their house sale? How do they ever get back into the real estate market? There's just so much happening in the economy that I think it's creating more concern about the financial aspects of divorce than we've historically seen.”
She said when divorcing couples want to sell their home, she tries to determine what their main motivator is: are they looking to sell quickly or are they willing to wait in order to get the highest selling price.
If the couple has a tight timeline, she said her strategy in today’s housing market would be to price the property attractively to generate offers.
“I think the other thing for divorcing couples is if they want to sort of wait it out and wait for the market to fully return to its peak. You know, how long will that take? No one really knows but I expect it will probably not happen before 2023 or later,” she said.
She said one option for divorcing couples is to rent a smaller secondary apartment so children can remain in the matrimonial home while spouses take turns living in the main home.
As a lawyer, Caspersz said his best advice, ironically, is for couples to sort out the terms of a hypothetical separation when they’re on good terms and document it in a marriage contract.
A marriage contract is a formal agreement a couple can enter into before they get married which details how property and finances will be divided should the two parties separate.
“You can talk about things and there's no conflict or minimal conflict. That's the time to say -- and yet, the worst time to say, ‘Hey, what would happen if we separated?’” he said.
“[If] you can never have to rely on that contract, that's wonderful, right? You stay together. But if you do separate, simply pull out that contract.”