What happens to real estate during a divorce? | MoneySense

These “creative” tricks can include dubious transfers to corporations or offshore accounts, or making notional “gifts” to extended family or friends. Regardless of the tactic, each is designed to put assets out of easy reach. One method is to transfer money or property to another family member in an effort to remove the asset from the equalization process.  

Thing is, the courts are wise to these “strategies” and, as a result, have an arsenal of remedies to counteract them, including imputing income (in other words, prescribing an income the judge believes more accurately reflects what the spouse earned, regardless of what was claimed), and imposing costs on the spouse who’s attempting to hide assets.

It’s important—and possibly comforting—to consider that equalization measures don’t always have to involve a transfer of cash. You can work with your mediator or lawyers to find alternative ways to split your estate and provide support payments. For example, Isaac says, “We’ve had a spouse provide a car, free-and-clear, rather than providing a lump-sum support payment [to their soon-to-be ex]. It’s all about determining a way for each spouse to get what’s owed to them in the most co-operative, efficient manner.”

How is an inheritance treated?

An inheritance received during the course of the marriage does not have to be part of the divorce equalization formula.

“You don’t have to share an inheritance you receive with your ex-spouse,” explains Lawrence Pascoe, an Ottawa-based family, and estate lawyer. “As long as you can show a paper trail that can trace the inheritance into a specific asset, you don’t have to include it in the marital estate.” 

The only caveat is that, to be exempt, the inheritance money cannot have been used to pay down the marital home (or any other property). “While the smart thing to do [with an inheritance] would be to pay down a huge debt, like a mortgage, the fact is you wouldn’t get a cent [of the inheritance] back if you separated a year later,” Pascoe explains.

Dealing with an unco-operative spouse

Perhaps the tactic is to stonewall—preventing the completion of renovations before selling the house, or quibbling over terms; arguing over dates and, generally, preventing the separation agreement and divorce from proceeding. 

“It only takes one person to be unreasonable to find your way into court,” says Isaac. 

Muratoff recalls one situation where the wife refused to leave the house, and then began to hoard. “She hoarded items in every room of the house and made the property unsellable.” 

Eventually, the home was sold but, according to Muratoff, for much less than it should have. “She did it to get back at him and, in the end, they both lost out.”

Another tactic is for one spouse to attempt a forced buyout of another spouse. Usually, the spouse being pressured isn’t the primary breadwinner and, during the separation, will find money much tighter. 

The spouse being pressured to sell can obtain some protection from the courts. Known as “exclusive possession,” this legal arrangement means that the one spouse is entitled to live in and use the matrimonial home, while the other is required to vacate and stay away. At that point, both spouses need to prepare for the sale of their home on the real estate market. 

It’s in the interest of both parties “to invest in showing your home in the best possible light,” explains Michael Schuster, a Toronto-based Realtor, and a certified divorce specialist. “The higher the sale price, the more each person walks away with when the divorce is finalized.”

Should you buy another property during your separation?

Once you’ve decided to leave the matrimonial home, you may be eager to start fresh and move into your next home. The experts advise that you resist this urge. 

“Divorce is so emotional,” explains Muratoff, who went through her own divorce a few years ago, after 23 years of marriage. “A lot of people rent while going through separation and it’s a strategy I strongly suggest. The priority should be figuring out your finances and boosting up your credit score. Then, when the divorce is finalized, you will be in a better financial and emotional position to buy.” 

Keep in mind, too, that most lenders won’t look at you favourably if you haven’t cleared the debt and obligations that were acquired while married. If you wait, you’re likely to get better remortgage terms and have additional funds for a down payment or closing costs, courtesy of your share of equity from the sale of the matrimonial home.

Finally, there’s also the potential for a legal backlash should you buy a place too quickly. While different provinces have different laws and regulations regarding the purchase of property during a separation, the acquisition of another home can set up potential problems for you. For instance, your ex could become suspicious: “Where did you get the money?” And this suspicion could lead to court action. Typically an ex has two years from the date of divorce to file a claim against a property. This claim would argue that the property purchased during the separation is actually part of the marital assets and should be included in the equalization calculations. 

For common-law spouses, the rules change slightly, where the two-year timeline starts from the date of separation, not the date of divorce. 

Finalizing the divorce

While separation can be stressful for all members of the family, it’s a time where you need to be practical and, as much as possible, put your emotional struggles aside during financial negotiations. 

If you and your soon-to-be-ex are unable to find common ground, consider hiring a mediator or allow the courts to settle the situation for you; keep in mind, though, that either of these options can come at large emotional and financial cost. 

Patrioni and Reid ended up spending more than half a million dollars in legal fees to finalize their divorce—that’s on top of what each might consider they “lost” in the settlement. The couple’s divorce cost almost twice as much as what was paid for the Miami condo, which was one of the biggest points of contention during the divorce process. In the end, the court ruled in favour of Patrioni: The condo was part of the marital assets. For all involved, however, the case was an extraordinarily expensive lesson in the price of resentment. 

Quite opposite from Patroni and Reid’s experience, the vast majority of divorces can reach a settlement and become finalized without the expense and stress of a court battle. Once an agreement is made, a judge will review all the materials and, if everything is according to the regulations, the court will issue a Divorce Order and you will obtain a Certificate of Divorce. 

Now you’re officially divorced and entitled to remarry, if so inclined.

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