What Happens to Our Home When We Get Divorced?
As Divorce Lawyers, this is one of the most pressing concerns facing our clients. The most significant asset that many families have is the family home. To most people, the house is more than just a house, it is a family home. It has special significance to both spouses and can often be a cite of contention within the separation process.
The Ontario Government recognized the special place the matrimonial home plays in many families and has created special rules for how the home is to be treated within the divorce process. This blog post will address some of the main questions people have concerning the matrimonial home including:
- What is a matrimonial home
- How is the matrimonial home treated in property division
- What does possession of the matrimonial home mean
- What happens when parties can’t agree what is to happen to the matrimonial home
- What can you do to protect your home in the event of a divorce
It is important to note at this stage, that this post is intended only for married spouses. There are separate legal considerations that are relevant to your situation if are cohabiting spouses (otherwise known as “common law” spouses).
What is a matrimonial home?
The Ontario Family Law Act defines a matrimonial as “Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home”. For example, if you buy a house prior to the date of marriage and your spouse moves in with you after you are married, this house becomes your matrimonial home because it is ordinarily resident by you and your spouse.
The definition of matrimonial home also does not limit the designation to only one home, as it includes “every property …”. For example, if you also have a cottage, which you and your spouse spend time a significant amount of time at. This cottage may be considered ordinarily occupied by you and your spouse as a matrimonial home and will be treated as such, even though it is not your primary home.
It is also possible for a house to lose its designation as a matrimonial home. Let’s say you retire. Upon retiring you decide you want to move to the cottage and no longer want to live in your home. You then rent out the house for income, and no longer reside there. This house is no longer considered a matrimonial home, because the parties are no longer ordinarily resident there. The house will then loose its designation as a matrimonial home and be treated similar to any other asset in family decision process.
How is the Matrimonial Home Treated in Property Division?
In order to understand how the matrimonial home is treated in property division, it is important to have a basic understanding of how property division work. Basically, each party determines their net family property and then the party with a higher net family property is responsible for paying half the difference between the two amounts. In order to calculate net family property, both parties take their total assets on the date of separation and subtract their total debts as well as anything property which is exempt from property division, such as inheritance or gifts. Each party then subtracts the value of their pre-marriage property from their separation date property. These numbers are compared, and the party with the higher number must make an equalization payment.
The matrimonial home is given special treatment within property division in several respects. The first is that if a party owned the matrimonial home on the date of marriage, the pre-marriage value of the home cannot be subtracted. For example, you owned a home worth $300,000.00 on the date of marriage. The home is worth $500,000.00 on the date of separation. You cannot deduct the $300,000.00 as pre marriage property, as you would be able to do with other assets. You must include the entire $500,000.00 as part of your net family property
Another way that the matrimonial home is treated differently is that exemptions related to gifts and inheritance does not apply, if they were used to buy or improve a matrimonial home in some way. Typically, inheritance and gifts are exempt from equalization and therefore are not included in equalization payments. In addition, assets to which gifts and inheritance can be traced are also exempt from equalization. However, once these gifts or inheritances are used to improve the matrimonial home, an exemption can no longer be claimed. For example, let’s say you inherit $30,000.00 from a relative. This amount would typically be exempt. If however, you use it as a down payment to buy a new house; you lose the protection of this inheritance.
A further issue arises if you inherit a house and decided to use it as the family home. A house that would otherwise be exempt as inherited property loses its exemption when you and your spouse decide to live there. For example, if your mother leaves you a beautiful fully detached Victorian home in downtown Toronto, and you decide to live there with your wife and kids, the entire value of that property will be included in your net family property calculation for purposes of equalization.
What Does Possession of the Matrimonial Home Mean and Should I be Concerned?
It comes as a surprise to many people that, in property division, spouses do not share in the underlying property itself, but in the increase in value of the property across the marriage. This means that if you own a house, you still own that house upon equalization, even if the house was the matrimonial home.
It is important however, to distinguish ownership form possession. In other words, you can potentially own something but not be in possession of that thing. A good example is if you lease a rental property to someone else. While you are still the owner of that property, you have a contract setting out that your tenant will have the right to possess the property for a fixed or indefinite period of time.
There are also special provisions surrounding possession of the Matrimonial home. First, spouses have an equal right to possession of the matrimonial home while they are spouses. This means that you cannot unilaterally exclude your spouse from the matrimonial home, even if you own it. This remains true after separation, until the parties are no longer spouses, or there is a separation agreement or court order that addresses this issue.
A spouse may apply to the court for exclusive possession of the matrimonial home. This means that regardless of ownership of the house, one spouse may be excluded from the property for a period of time that the court directs. There are several factors a court will consider in deciding whether to order exclusive possession of the matrimonial home. These include the best interests of any children affected, any existing property orders and any existing support orders or obligations, the financial position of both spouses, any written agreement between the parties, the availability of other suitable and affordable accommodation, and any violence committed by a spouse against the other spouse or children. A spouse to whom exclusive possession is order may be required to pay occupation rent to the other spouse.
If an order for exclusive possession is made against you, it is important that you follow it. There can be significant consequences for breaching an order for exclusive possession. This includes a fine up to $5000.00 or a prison term of up to three months or both for a first breach. In the case of a second breach, a court may order a fine of up to $10,000.00 and to imprisonment for a term of not more than two years or both,
What if We Cannot Agree on What to Do With the Matrimonial Home?
If the parties both have a property interest in the home and are unable to agree on what to do with the matrimonial home, one party may apply to court for an order of partition and sale. The court will order that the parties are to sell the house and split the proceeds based on their interest in the property. There is no right of first refusal within family law. If the house is ordered to be sold, the party wishing to stay in it, must bid on the open market with all other buyers.
I Have a Home and I am About to Get Married. What Can I Do to Protect My Home?
If you own a home or are contemplating buying a home for you and your current or future spouse to move in with, you may consider entering into a domestic contract with your spouse. A domestic contract is an agreement between you and the other party that sets out each party’s rights and obligations upon separation. For example, if you own a home, part of the agreement might say that the home will not form part of net family property. This means that your house will not be considered as part of your net family property when you determine whether or not an equalization payment is owed. A domestic contract can be negotiated either in anticipation of marriage or after a marriage has already happened. It is important to note, however, that possession of the home cannot be subject to a domestic contract. Courts always retain discretion to grant one party possession of the matrimonial home for a period determined by the courts.
If you decide to enter into a separation agreement, it is important that you retain a lawyer to help you with the process and give you legal advice. The lawyers at Galbraith Family Law (GFL) have assisted many clients in negotiating and drafting domestic contracts. Retaining one of our lawyers will ensure you comply with all of the requirements required to enter into a valid domestic contract and that the contract itself is clear, concise, and anticipates issues which may arise in the future.