Are you considering or planning for divorce? Do you need to know more about your options regarding your home or how to get it on the market so that you can sell it quickly?
Contact Us Today for More InformationDuring your divorce, you need to consider how you will split all of your assets--including your home. If you own the home you live in, rather than renting, it's critical that you make decisions about who will take ownership of your home after the divorce. Before you can make that decision, however, you need to know how possible decisions about the home will impact your mortgage, your taxes, and more.
Your Mortgage After Divorce
Do you still have a mortgage on your home? If so, after divorce, one spouse will likely need to take over the mortgage, removing the other spouse's name from the loan. That means your credit rating needs to be high enough to secure a new mortgage, ideally for reasonable rates that you can afford in spite of the financial challenges that often follow divorce.
Here's the good news: filing for divorce itself will not negatively impact your credit score . The bad news, however, is that your finances will change dramatically as a result of the divorce, since you may no longer have two incomes supporting your lifestyle. As a result, you may have a harder time affording the payments on your home.
Consider these questions when determining how your divorce may impact your mortgage.
1. How much do you still owe on the house?
If you're close to paying off the mortgage--or if you have already lived in the house for several years, building up considerable equity in the home as you have paid down the mortgage--you may be able to refinance with a new mortgage that may significantly lower your payments, making it easier for you to afford that home in spite of your divorce.
2. How much equity do you have in the house?
While having a great deal of equity in the home may mean that you can refinance and lower your payments, it may also mean that the spouse who keeps the home will have to "buy out" the spouse who does not. Your home is one of the assets that the judge will consider during your divorce, and unless you and your spouse arrive at a different agreement, the spouse who keeps the home will likely have to provide equal financial value to the spouse who does not. If you have a great deal of equity in the home, but you don't have a wide range of other assets, you may have to refinance the home and take out a larger mortgage in order to buy out your former spouse.
The Tax Impact After Divorce
In Canada, you will not face a capital gains tax if you sell the family's primary property. That includes property sold during your divorce. If you sell a secondary property, however, you may need to consider what taxes you may face--and how it may impact your finances after the divorce. Consult an accountant or tax professional to learn more about the taxes you will owe on your home if you sell it.
If you keep the home, on the other hand, make sure you know what your annual property taxes will look like and what arrangements you will need to make to pay for them. Keep in mind that property taxes can end up posing a more significant financial challenge than you anticipated if you don't plan for them ahead of time. Talk to an accountant about how to better manage potential taxes on your home.
Are you considering or planning for divorce?
Do you need to know more about your options regarding your home or how to get it on the market so that you can sell it quickly?
Contact us today for more information.
Your Options for Your Home After Divorce
When you get divorced, you have two key options when it comes to your home.
1. One spouse keeps the house, while the other moves out.
Often, you may choose for the spouse who has primary custody of the children to keep the home, since that can be less disruptive overall for the children. Other times, you may choose who keeps the house based on income and ability to pay the mortgage. If, for example, one spouse has provided the primary source of income for the family, and that spouse has the ability to continue to pay the mortgage while the other doesn't, that spouse may choose to keep the home.
Usually, if one spouse keeps the home, the other spouse will get approximately equal assets, including the cash value in your bank accounts, vehicles, artwork and collectibles, or retirement and future savings. If those assets aren't available, the spouse who keeps the home may need to refinance the home to be able to give the other spouse a fair and equitable settlement.
If you're planning to keep the home, make sure you carefully consider the costs that go along with it. It's not just about paying the mortgage! You must also consider:
- Homeowner's insurance
- Maintenance and repairs
- Overall upkeep, including mowing the lawn
Homeownership can quickly grow more expensive than anticipated. If you're newly divorced and you know your finances will be changing dramatically, you should carefully consider those elements before deciding to keep the house.
2. You choose to sell the home and split the profits from it.
Many divorcing partners choose to sell the marital home instead of leaving one partner in it. You may not have the assets you need to keep and pay for the home, especially if you have only recently moved into it. You may not want to stay in the home you lived in together. You may simply both feel that a move is in your best interests.
If you plan to sell the home, both spouses may choose to move out of the house while you show it, or one spouse may remain on the property until it sells, then move out. Consult an accountant to learn more about how selling your marital home could impact your finances following your divorce.
