There’s no stress like the end of a marriage. And one of the least fun parts of the divorce process is divvying up assets.

But it doesn’t end there. If the parties have a mortgage, they’ll also need to divvy up responsibility for it.

The best way to deal with a mortgage post-breakup can vary by province. But most of the time, in the absence of a prenuptial agreement, responsibility for a mortgage is split equally between the parties.

In Ontario, for example, the law states that the matrimonial home (where the couple lived when married) belongs to both spouses, no matter whose name is on the title.

Available Options

Here are some of the more common possibilities for dealing with a mortgage when one’s relationship has soured.

1. Sell the house.
   • The mortgage is paid out and any supplementary funds are sent to a lawyer’s trust account until a Separation Agreement can instruct how the funds are to be dispersed between the parties.
   • If the house doesn't sell for enough to pay off the mortgage, both parties are jointly responsible for paying the balance.
     • Note: In many cases (Alberta being one exception), lenders can sue for the balance if it’s not repaid

1. One party leaves the house and sells their interest to the remaining party.
   • The new mortgage is processed as a purchase, even though it's technically a refinance.
     • Normal minimum down payment rules apply
     • The lender pays out the remaining party their portion of the equity
     • A full appraisal is performed
     • Note: Mainstream lenders will require a legal Separation Agreement before granting the new mortgage

1. Both parties hold onto the house and continue to make their share of the mortgage payments.
   • This is usually a last-resort option for couples going through divorce, perhaps because they can’t sell the home and neither party can afford to buy the other out.
   • This option comes with inherent risks, as each is relying on the other to hold up their end of the agreement and continue making payments.

More to consider

It’s important to note that a prepayment charge will likely apply in cases where the existing mortgage is discharged. This is where variable-rate mortgages come in handy. They usually entail just a three-months' interest penalty for early termination.

Those with a fixed mortgage rate (especially one that’s not from a “fair-penalty” mortgage lender) could face a penalty that’s substantially higher.

If you’re a spouse who plans to hold onto the house, it’s important to be realistic about your ability to manage the new mortgage and maintenance costs on your own. Qualifying for a big mortgage is a lot tougher today with only one income, thanks in part to rising home values and the higher “stress test” rate that the government imposed in June. The individual who keeps the house will also need to pay out the other spouse’s share, as noted above, which can boost the mortgage amount by tens or hundreds of thousands of dollars.

If you’re in this predicament, contact a mortgage broker to scope out your options. If you can’t qualify for a new mortgage with a bank but have 20%+ equity, a broker can recommend non-prime financing. The borrowing costs may be a few points higher than a bank, but that might be the price for keeping your family home.