While experts agree divorce rates will rise sharply as Canadians come out of the COVID-19 lockdown, couples who are homeowners face the double whammy of seeing their property value fall at the same time as their relationship is disintegrating. Here's some advice for those in that situation.
Let's address the home value issue first and why it matters in divorce proceedings during a pandemic.
When judges determine the equalization-fee structure between former spouses, they always look at a home's value at the time of separation. If your relationship ended in the first few months of this year, your dwelling's value at that time will be what is important, not the slumping prices that can be seen now.
If both partners agree to sell the house as part of the divorce, they will equally share in its reduced value, as there could be quite a difference between January versus May home prices. But let's say one of you wants to buy the other out. In that scenario, which home value should you use?
Determining a Home's Value
While legal statutes dictate the value at the time of separation is all that matters, the courts have recognized special circumstances when an asset's worth has fallen dramatically during the period between separation and divorce.
In a 2009 Ontario Court of Appeal case, a husband claimed the value of his textile company had decreased dramatically due to market conditions beyond his control since separation, and to base the firm's value on the previous date was grossly unfair. The judge agreed, noting in his decision that equalizing net family properties on basis of separation-date value of assets would require him to make equalization payment which exceeded his total net worth [and is] unconscionable under s. 5(6)(h) of Family Law Act.
The court stressed that it takes more than ordinary market fluctuations to deviate from the norm of assessing a home's value in a divorce, but I'm confident our current pandemic could meet that test.
Common Law vs. Marriage
Let me next address the common misconception that married and common-law couples are bound by the same rules when claiming the matrimonial home's value in a divorce.
If a house is acquired by a spouse during marriage, its value must be divided equally between the couple, even if it is only in one person's name. But if that same couple live common law and only one name is on the title, the other person is not entitled to any of its value when the relationship ends.
This legal reality has been a shocking wakeup call for some of my clients in the past, who assumed they would receive half the value of the home where they had living for a decade or more.
Trust Claims can be Launched
There are some exceptions, of course, such as in the case of a common-law spouse who is not on title but who contributed to the upkeep and improvement of the home during the period they were there. Maybe they stayed home and raised the kids and prepared meals so the other spouse could pursue professional work. In those cases there would be good grounds to launch a trust claim, arguing the other partner was benefiting from unjust enrichment.
Selling the matrimonial home after divorce also causes many problems. Often there is one person who wants to sell the property and move on with their life while the other person drags their feet. This dynamic is a real challenge for real estate agents and lawyers and sometimes can only be solved by going to court and getting an order for partition and sale, as no one has the right to tie up their spouse's equity in a home indefinitely.
This situation is further complicated if there are young children in the home, as the court may be reluctant to order a sale because of the impact on them. That is why an agreement about selling the home, before legal intervention, is always the preferred option.
In cases where conflict and resentment between the couple run deep, reaching this consensus can be elusive, especially when it comes to agreeing on a listing agent or deciding whether to accept offers.
With second marriages or where one spouse comes into the union with a home or other sizable assets, I always recommend they protect themselves with a prenuptial agreement or marriage contract to avoid such issues.
Divorcing during a pandemic can be complicated, but with the proper legal advice you will get through it. Stay well, and let me know how I can help.