It’s never been more expensive to get divorced and a large part of that stems from housing. With rising house prices and escalating rents across the country, newly-single parents face tough choices.
Whether a couple owns a home or rents, housing is most likely their single biggest household expense. When home owning spouses face a divorce, one spouse might want to buy out the other. But increasingly, that’s financially out of reach.
In the Toronto area, for example, the average house price was $1,177,700 in the first quarter of 2024. To buy the other person out, one spouse has to pay them half of the equity in the home. If we assume there’s a $600,000 mortgage on the house, that works out to $577,700 in equity, and so a payout of $288,850.
The spouse keeping the home would also now be on the hook for $600,000 of mortgage debt.
If the spouse doesn’t have the cash available for a buyout, it will need to be tacked on to the mortgage. According to this online mortgage calculator, for one person to carry a $888,850 mortgage, they need to earn about $235,000 a year and make $5,296 in monthly mortgage payments. Then there are the continuing costs of owning a home, such as property taxes, insurance, utilities, and internet, that can easily top $10,000 a year. That’s over $74,000 of housing-related costs a year.
Renting can be less expensive but still hard, especially because the size of the living space you need to house a family can be difficult to find. Realistically, a parent probably needs a place with a minimum of two bedrooms, and maybe more. If they are renting, their options for homes with multiple bedrooms – especially three or more – are limited and expensive. In Toronto, for example, a three-bedroom apartment rents for $3,900 on average – that’s $46,800 a year.
Complicating the housing decision is thinking about what would be best for the kids. Most parents want to stay close to their current neighbourhood so that their kids’ lives are less disrupted by the separation. Staying close to school, friends, and the other parent can make the separation easier on the kids.
Ideally, both parents would have a somewhat equal living arrangement. If one parent has a three-bedroom house with a TV room in the basement while the other has a two-bedroom apartment where the kids share a room, the kids might want to spend more time at the “better” house. These factors add layers of complexity to the housing decision.
So how are couples balancing the difficult of decision of separating and making the most financially sound – or least damaging – choices?
Some are choosing to take on big mortgages to keep the matrimonial home. This can be very stressful as the parent is now solely responsible for each massive monthly payment. Some people might be lucky enough to have a parent who can help out with a financial gift or an early inheritance that can be used to keep the mortgage lower.
Others are buying homes further away from their current neighbourhood in order to find something less expensive. This is a hard choice because of the disruption for the kids, not to mention the parents.
What’s known as “nesting” is another approach, one that may look good on paper, but not doesn’t always go so smoothly in reality. Nesting means a couple rents an apartment that they take turns living in while the kids stay in the matrimonial home. This allows them to rent a small place instead of one that’s big enough for the kids. Other people move in with their parents, or have a friend or family member share a place with them to help with the costs.
Some couples continue living together after separation. They share a house, but they keep their lives as separate as possible and set up routines, including having a child-care schedule. If it’s possible to create a separate unit in the home, even better. Creating enough separation between people can make the arrangement more palatable. Adding a basement apartment or even a laneway house is expensive, but more affordable than a second home.
These solutions aren’t options for everyone, and a newly single parent might have a heavy financial burden. Likely there will be sacrifices, such as cutting the vacation budget, limiting kids’ participation in activities, and living a frugal lifestyle. It can also affect the parent’s ability to save for their retirement, a long-term impact that can sometimes be forgotten in the chaos.
When going through the process of separation, it’s crucial for parents to put together a plan that can get them through the tough early years while looking ahead to how their financial situation could ease down the road, allowing them to feel more confident about the choices they are making during a difficult time.
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.