For many divorcing couples, a home is the most valuable asset. It is important to seek legal advice, as well as the advice of a mortgage agent, very early in the process. As a mortgage agent in Grande Prairie, Alberta, I can assess overall expenses you would incur, with different scenarios, in regard to your mortgage loan.
In Alberta, the laws which involve assets between married couples differ from other Canadian provinces. It is important to consult with a legal professional to get informed as to what would be considered joint with your former spouse.
For Common Law relationships there are also legal stipulations that need to be considered. Common law relationships in Alberta are now referred to as Adult Interdependent Relationships. Effective January 1, 2020 there were changes made to the law to ensure that adult interdependent partners have the same property division rules and protections as married spouses.
When Are You Considered Common Law in Alberta?
In Alberta, a couple is considered “common law” or is seen as an Adult Interdependent Partner (AIP), when one of these circumstances are true:
- the two individuals have lived together for three (3) or more years
- the two individuals have lived together with some degree of permanence, and has a child together
- the two individuals have entered into an Adult Interdependent Partnership
In contrast, to enter into a marriage, a couple need only apply for and obtain a marriage license and then go through a legal ceremony.
|Age||Must be 16 years or older||Must be 18 years or older (persons between the ages of 16-18 must have consent from a legal guardian.)|
|Marital Status||Cannot be currently married or in another AIP relationship.||Cannot be currently married to another person.|
|Personal||People may not enter this relationship under duress.||The marriage must be voluntary.|
|Property||Upon separation, property is divided between the parties as may be fair in all the circumstances.||Basically, everything obtained during the marriage is divided equally.|
|Support||Each partner may have an obligation to support the other financially, and definitely has an obligation to support any children resulting from the union.||Each partner may have an obligation to support the other financially, and definitely has an obligation to support any children resulting from the union.|
|Relation||Partners can be related to one another.||Partners cannot be closely related to one another.|
These are the options with regards to mortgage loans when a divorce takes place:
Some couples will choose to break the mortgage contract entirely and sell the home. Note: This may result in costing thousands of dollars in pre-payment penalties.
Another option would be keeping the home and the person staying in the home buying out the former partner/spouse. Generally, in this case the mortgage will need to be refinanced for the person staying in the home to pay a lump sum to the former partner/spouse. This scenario typically offers refinancing up to 95% Loan to Value.
Refinancing also means going through the re-qualifying process. The lender needs to make sure the spouse taking over the mortgage in full can make the mortgage payments on their own. Part of this process also includes the lender asking for a separation agreement, amount of any child support payments and amount of any spousal support payments.
Once qualified for the mortgage, the partner/spouse removed from the mortgage will be removed from the home’s title.
There is always the option of keeping the mortgage between the two parties and continuing to share the mortgage payments. This scenario would mean that the person not living in the home would still have to include mortgage payments on any future loans, mortgages, or credit applications.
Regardless of which scenario works best for your situation, it is critical that both parties make sure all mortgage payments, and any credit payments, are made. Any late payments or delinquencies will show up on your credit bureau reports and that will affect both of your abilities to move on in the future.
Many people that have been married for awhile do not remember what joint debts are in place. It is important to make sure that any individual debt, as well as joint debts are accounted for. If you are unsure of your credit responsibilities, it would be best to request a credit report from either Equifax.ca or Transunion.ca.
Whether you are in a common law relationship or married, when a breakup occurs, it is critical to consult with a lawyer as well as a mortgage broker like myself to make sure there is an understanding of what steps need to be taken for both parties’ best interest.