Separating is hard. Figuring out what happens to the house often makes it harder. It’s usually the biggest financial asset tied up in the marriage, and more than that, it’s home. Especially if kids are involved, the thought of leaving can feel like another loss on top of everything else. So, what do you do? Sell it and split the cash? Or can one person stay?
One option people talk about is a “spousal buyout.” This is where one person keeps the house and pays the other for their share. Sounds simple enough. But like most things in a separation, it gets complicated fast, especially when money and Ontario law mix.
The House Has Special Rules
First, you need to understand that in Ontario, the house you lived in together as a married couple – the “matrimonial home” – is treated differently than other property when you split up. It doesn’t really matter whose name is on the title, or who owned it before the wedding. Both spouses generally have an equal right to live there after separating (unless a court says otherwise) and, crucially, both have a right to share in its value.
Here’s the part that often surprises people: When you calculate how to divide property value (a process called “equalization” ), the entire value of the matrimonial home on the day you separate gets included in the calculation for the spouse who owns it. Unlike other assets you might have owned before marriage, you don’t get to deduct the home’s value from your marriage date. The law essentially says the full value of this specific home is part of the marital partnership to be shared. This rule can greatly impact who owes what in the final settlement.
The Buyout Idea: Keeping Things Stable
So, if one person wants to stay, they usually need to “buy out” the other’s share. The main reason people try for this is stability – keeping kids in the same school, staying in a familiar neighbourhood, avoiding the upheaval of moving during an already tough time.
How Much Does It Cost?
Figuring out the buyout price starts with knowing the home’s current worth. You need a proper appraisal from a certified professional. For legal or mortgage purposes, a real estate agent’s opinion or an online estimate won’t cut it. It’s often best if both spouses agree on the appraiser to avoid arguments about the value later.
Once you have the value, you subtract what’s still owed on the mortgage. The result is the home equity. In many cases, the buyout amount is simply half of that equity.
But—and this is important—the buyout isn’t calculated in a vacuum. It’s part of the bigger equalization calculation examining all assets and debts accumulated during the marriage. The house equity is just one piece. Who owes whom an equalization payment overall will affect the final cash needed for the buyout. Maybe the person staying is owed money anyway, which could reduce the amount they need to pay for the house share. Or maybe they owe more. It’s all connected.
Getting the Mortgage Money
Here’s where buyouts often hit a wall: money. The spouse staying needs to qualify for a new mortgage, in their name only, large enough to cover the existing mortgage balance plus the buyout payment to the other spouse.
And they have to qualify based on their current, single income and financial situation. The lender doesn’t care what the combined income used to be. They look at your income now, your debts, your credit score. If you receive regular spousal or child support payments formalized in an agreement, that can sometimes be counted as income. If you pay support, that counts against you as a debt. It’s a tough qualification for many people suddenly on a single income.
A Mortgage Program That Can Help: The 95% Rule
There’s another wrinkle. Normally, when you refinance a mortgage, lenders let you borrow only up to 80% of the home’s value. If the equity you need to pay out is more than that 20% buffer, a standard refinance won’t work.
Recognizing this problem, there are special mortgage programs often called “Spousal Buyout Programs”. These are backed by Canada’s mortgage insurers (like CMHC, Sagen, or Canada Guaranty). The key feature is that they allow the spouse who is keeping the home to borrow up to 95% of its appraised value. This extra 15% access can make the difference between keeping the house and having to sell.
Because it’s over 80%, mortgage default insurance is required, and the premium is usually added to the mortgage balance. Depending on the insurer and lender, these programs might also allow you to roll other joint debts specified in the separation agreement into the new mortgage, up to that 95% limit. Getting the right advice on these specific mortgage products is crucial. You need someone who deals with them regularly. Experts like the team at the Mortgage Centre KW understand the nuances of these buyout programs.
The Paperwork: The Separation Agreement is Key
This whole buyout plan hinges on one critical document: a legally binding, signed Separation Agreement. This agreement, ideally drafted with help from lawyers for each spouse, lays out all the terms of the split – including who gets the house, the agreed value, the exact buyout amount, how and when it will be paid, and confirmation that the departing spouse gives up all claims to the property once paid.
Mortgage lenders absolutely require a finalized, signed Separation Agreement before they will approve and fund a spousal buyout mortgage. Some lenders might even prefer agreements drawn up by lawyers rather than mediators, possibly due to concerns about enforceability.
Don’t Forget the Other Costs
Besides the buyout payment itself, there are other costs:
- Lawyers: Each spouse needs their own family lawyer for the separation agreement. The buyer also needs a real estate lawyer for the title transfer and mortgage registration.
- Appraisal Fee: Someone has to pay the appraiser.
- Mortgage Penalties: If you break your joint mortgage early, there could be hefty prepayment penalties. The separation agreement needs to be crystal clear about who pays these.
- Mortgage Insurance Premium: This is mandatory for buyouts over 80% LTV.
What About Taxes?
Generally, transferring the matrimonial home between spouses as part of a separation is tax-deferred in Canada. Thanks to rollover rules and the principal residence exemption, the transfer itself usually doesn’t trigger immediate capital gains tax for the person leaving.
However, the spouse keeping the house takes it on at the original cost base, which could mean a bigger capital gain for them down the road if they sell it. It’s wise to get specific tax advice. Also, Ontario Land Transfer Tax is typically exempt for transfers between separating spouses based on an agreement or court order.
If the Buyout Doesn’t Work
If you can’t agree, or the spouse staying can’t qualify for the mortgage, the most common alternative is selling the house on the open market. You pay off the mortgage and selling costs (like real estate commission), and split the remaining cash according to your separation agreement. It provides a clean financial break but means everyone has to move. Sometimes people try co-owning it for a while, maybe renting it out, but that keeps you financially tied together and can get messy.
The Bottom Line
Keeping the house through a spousal buyout is possible in Ontario, but it’s not a simple path. It requires agreement, careful calculations, navigating specific legal rules for the matrimonial home, and, most critically, securing the necessary financing – often relying on the 95% LTV buyout programs.
Don’t try to figure this out alone. Talk to an experienced family lawyer early on. When it comes to mortgages, find a broker or specialist who really understands the ins and outs of spousal buyout financing. Our team at the Mortgage Centre KW focuses on these situations and can guide you through the specific requirements. Getting the right advice is the best way to see if keeping the house is a realistic option for you.
