Couples grappling with the fraught decisions that come with separation and divorce are feeling an added burden this year: The downturn in Canada’s real estate market is causing more clashes when it comes to dividing the family home.
Climbing interest rates are also ratcheting up the financial stress for couples who are paying for a mortgage, says Alyssa Bach, an associate with the Toronto-based family law firm of Shulman & Partners LLP.
“When we see a lack of financial stability, across the board we expect more marriage breakdown,” Ms. Bach says.
Ms. Bach is accustomed to dealing with distressed clients, but he has seen a noticeable increase in conflict since sales and prices began to slide in the housing market.
The numbers tell the story of a moribund market in the Greater Toronto Area: By the end of November, cumulative sales had fallen 48.4 per cent since February, according to National Bank of Canada economist Daren King.
He points out that transactions are at their lowest level since the 2008 global financial crisis, with the exception of the uncertain first few months of the pandemic, when sales were all but ground to a halt.
Couples had a much easier time agreeing on selling the family home during the turbocharged market of recent years because both would reap the benefits of peak prices, Ms. Bach says. As sales slowed down, however, and interest rates began to rise, conflicts began to increase too.
Some of the thorny issues that couples need to navigate include the timing of a sale and the all-important asking price, Ms. Bach says. She has encountered spouses who dragged their heels on listing a property for sale, only to face a host of new problems.
“When people were looking to sell at the peak, the decision got put off,” said Ms. Bach. “Now they’re stuck in a different market.”
The few who do agree on those aspects still face longer days on the market.
Maintaining civility was easier when many couples could move out of the house or condo for a week or so, schedule a date for reviewing offers, and accept an eye-popping bid that night.
Sale prices have fallen since the spring and the Bank of Canada’s benchmark rate sits at a 14-year high.
In Canada, married spouses are each entitled to half of the equity in the matrimonial home after it is sold, Ms. Bach explains.
In the case of common-law couples with both names on title, the partners must agree to sell the family home and divide the money, or agree that one buys out the other. Common laws vary by province, and the legal tangle may become harder to sort out if both names are not on title, Ms. Bach cautions.
She recommends that couples draw up a cohabitation agreement at the time of moving in together. Some balk at the idea, he said, but the paperwork helps to prevent confusion.
“If you don’t have an agreement, your agreement is the law,” she said. “You are stuck with what the government decides for you.”
In some situations, Ms. Bach says, a spouse who has a sentimental attachment to a home wants to buy the other partner out.
An added tension at the moment is that high mortgage rates make it more difficult to do so.
Ms. Bach points out that buyouts of a jointly owned property need the consent of both spouses, so he advises couples to resist any compulsion to play games.
For example, the partner selling their stake in a down market may delay causing the value appreciation in the hopes of a rebound in prices, he says.
In another scenario, a spouse who wants to hang on to the property but is betting prices will continue to fall may drag out the process with the aim of paying their partner less.
If one spouse is trying to manipulate the process, the other can demand a sale instead, she points out.
“Trying to take that back door route can backfire because the buyout has to be on consent.”
Dalle Morrison, broker with Bosley Real Estate Ltd. in Toronto, says real estate agents are often thrust into the role of referee when couples are splitting.
Ms. Morrison recently worked on one listing where the atmosphere became increasingly tense as the house lingered on the market.
“It was very acrimonious,” she said. “Ultimately we had to drop the price drastically. These people just needed out. They don’t need to be involved with each other any more.”
Ms. Morrison notes the start of a New Year often spurs people to make big life changes. Some couples decide to separate in January after another dreaded holiday with relatives.
Visits to divorce lawyers spike in January, she points out.
But a lot of coupling happens too as people become engaged or decide to move in together.
She expects to see a spurt of activity in January and February as a result.
No matter the wrangling surrounding a real estate transaction, Ms. Bach advises couples who break up to start the legal separation process with their lawyer so that one area of their life is on track.
“It doesn’t have to be contentious just because you speak with a lawyer.”
She points out that both partners can stay in the home and still be considered separated under the law if they keep boundaries between their lives, including having separate bedrooms.
Ms. Bach advises warring couples to do their own cost-benefit analysis.
“How much conflict can you stand?” is a good question to contemplate, in her experience.
Even spouses willing to drag their partner into court have no guarantee that a ruling will go their way because the judge is dealing with the same uncertainty surrounding the outlook for the real estate market.
In many cases, couples are better off going to mediation and saving the emotional and financial burden of going to court.
“We want people to maintain their autonomy whenever possible,” she says.
Ms. Bach says many couples are able to work through tough economic times and maintain a sound relationship. But, generally speaking, finances can be a major stress in any relationship.
If economic turbulence worsens in 2023, an uptick in separation and divorce may follow.
If a partnership cannot be saved, Ms. Bach recommends quelling the rancour as much as possible.
“Do your best to stay amicable,” she urged. “It’s a tough time for everyone.”