The swift decline in Canadian home prices, rising borrowing rates and the skyrocketing cost of living are presenting challenges for many Canadians, but couples going through a divorce are being hit particularly hard by these new financial realities, according to experts.
Aside from the mental and emotional toll a divorce can take on a family, those looking to sell their matrimonial home or buy out their spouse from the property are finding out that the current market conditions are increasingly becoming unfavourable for them.
“In a situation where the parties are jointly on title or have a joint interest in the property, one possible solution that we could normally discuss is, ‘Hey, are either of you interested in maintaining that property [and] buying the other party out of their interest?’” said Kevin Caspersz, senior associate lawyer at Shulman & Partners LLP, told BNN Bloomberg in an interview.
“The party purchasing the other party's interest should go and get some sort of preapproved financing and demonstrate that they have the financial ability to do that. With increased interest rates and the stress tests that are implemented now, it's become a lot harder for that option.”
He said getting rid of that choice could force a couple to unwillingly sell the property on the open market at a time when home prices are sliding.
The latest Canadian Real Estate Association (CREA) data showed national home prices fell for a second straight month in May as the cost of borrowing jumped and buyers continued to sit on the sidelines.
The benchmark price of a home fell 0.8 per cent to $822,900 in the month, with several major cities in Ontario reporting the biggest drops, the CREA data showed.
Typically, the easiest option divorcing couples can opt for is to list the home for sale and divide the net proceeds among the two parties, Caspersz said. But some couples may want to keep the home in the family for a variety of reasons including maintaining a certain lifestyle for the children.
“It becomes a very, very different circumstance, where now you have two households, and now you have to use the same amount of income for two separate households,” he said.
“And that can really change the lifestyle [and] the way those finances are used between those two residences as compared to when it was one household and one financial unit. So you're not wrong when you say that the financial impact can be significant, if not the most significant impact when a party separates or divorces.”