Canada’s hot housing market has hit divorcing parents hard, making it difficult for either spouse to afford to keep the family home, or find a new place in the same neighbourhood where their kids go to school, play sports and have friends.
In a turnaround from previous times when one parent could afford to keep the marital home, some financial planners are now advising divorcing couples sell it outright, because the financial strain of keeping it on one salary is just too high. Options for parents are then limited: pay for an expensive rental in the same neighbourhood, provided you can find one, or move to a cheaper suburb or town.
Canada’s housing market has been on a tear since the pandemic, with detached family homes averaging more than $811,700 in December, 2021. There are seven cities or regions in the country where average resale house prices recently topped $1-million, in addition to Toronto and Vancouver.
That increase has made divorce, already one of the most financially crippling life events, even more devastating. It means a single parent would have to be able to afford to buy out their spouse at an elevated price and make mortgage payments, in addition to all of life’s other expenses.
Jackie Porter, a Toronto-based certified financial planner who works with divorcees, says it is common for one of the spouses to want to keep the family home. But more and more often, she finds herself advising her divorcing clients to sell, especially if they are in Canada’s big cities: “It’s a lot for one person to carry.”
Some couples are opting to stay together for purely financial reasons, Ms. Porter says, or are delaying the divorce process. Others are separating and trying to live in the same home – sometimes renovating to create a separate space.
The COVID-19 pandemic “has put a lot of strain on relationships,” she adds, with extended periods of lockdown where children did online school and both parents worked from home.
The number of divorced people in Canada has kept edging higher. In 2021 there were 2.74 million individuals who had obtained a legal divorce and not remarried, says Statista, a global provider of market and consumer data. That’s up from 2.71 million in 2020.
The cost of a divorce can also range wildly. An uncontested divorce can cost about $630, but it you have areas of contention that you work through in mediation, the cost can rise to $2,500. Going to court can cost upward of $24,000 or more, Ms. Porter says.
When Toronto-area resident Corinne Krepel got divorced in 2013, she and her ex-husband sold their house. She rented, waiting for the housing market to cool off. She has since remarried and she and her husband, who is also divorced, each have two kids. But the steep rise in housing prices means they can barely afford to rent just north of Toronto. Buying is out of the question.
The housing and rental markets are “completely out of control,” she says. “It’s just getting worse and worse and worse.”
Both she and her new husband must live in their current area as part of their separation agreements, so the kids are near their other parent and their current schools.
Last year, they were forced to leave their rental house and their current rent of $3,200 on a small three-bedroom bungalow is $1,000 a month higher. “We haven’t saved a penny,” Ms. Krepel says.
She says they can’t even contemplate buying because even a small townhouse in the area is selling for $1.3-million and they don’t have the down payment needed, nor do high rents give them the financial flexibility to save.
Kam Siemens, a financial consultant and chartered financial divorce specialist at IG Wealth Management in Terrace, B.C., advises her divorcing clients to sell the matrimonial home and downsize. The other option, she says, is for one spouse to keep the family home but renovate and rent out the basement, so the property is bringing in some income to help pay the mortgage.
“What I’m noticing now is most people are just selling and taking the money and using it as a down payment on a newer property,” she says. “But they’re downsizing, because that’s all that they can afford.”
Darren Gingras, executive director of The Common Sense Divorce, a Toronto-based mediation provider, says changing, stricter mortgage rules are another huge challenge for divorcees.
“The restrictions on mortgages are so tight right now that so many clients just can’t qualify,” he says.
For many divorcees, “the decision is being made for them of whether or not they’re keeping the matrimonial home … based on whether or not they can qualify for a mortgage,” he says. In some situations, he’s seen one spouse get a parent to co-sign the mortgage.
This also means some families are making the decision to split and move away from the larger cities solely because of housing affordability.
“What I am seeing is a lot of people who are jointly – after their separation – making decisions to move elsewhere,” and buy separate houses so that both spouses can afford to own or rent in a smaller town and be close to their kids.
However, housing prices in smaller towns are also seeing a huge increase, leading some families to move farther afield, potentially to a new province where housing is cheaper, Mr. Gingras says.
That complicates the divorce with child residency and co-parenting issues, he adds. “This is just making it that much more stressful.”
With finances such a focus in divorces, he advises couples to get good advice, including how to split assets and the tax implications of those moves, he says.
“Find somebody who can actually help you make a bit of a plan, before you jump,” he says. That will save you from making big financial mistakes down the line. Once your assets are divided, “you can’t do anything about it.”
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