When facing the emotional and legal complexities of separation or divorce, understanding the implications for your matrimonial home is crucial. In this blog post, we’ll explore five key aspects you need to know about the matrimonial home during separation to help you navigate this challenging time with confidence.
- Legal Ownership and Matrimonial Home
When a couple is married and acquires a home during their marriage, it’s often considered joint property. This means both spouses typically have an equal legal interest in the home, regardless of who contributed financially. In some cases, joint ownership can extend to common-law couples as well based on Ontario jurisprudence and the law of equity (trust claims).
In situations where one spouse owned the home before the marriage or purchased it solely in their name during the marriage, they do not have to sell it by law; they only need to “equalize” the value with their ex-spouse as part of their overall equalizing of net family property.
Spousal Rights and Access
Occupancy and Possession:
The Family Law Act provides protections for non-owner spouses in terms of continued possession and occupancy despite being separated from the owner spouse.
In cases where one spouse wishes to remain in the matrimonial home, they may seek exclusive possession orders from the court. This grants them the right to live in the home exclusively, often at the expense of the other spouse.
In situations involving domestic violence or safety concerns, restraining orders may be issued to restrict one spouse from entering the home.
Value Assessment:Equalization of Net Family Property:
The value of the matrimonial home is typically assessed through a professional appraisal. This value is crucial when deciding how to divide assets during separation.
In some jurisdictions, the law requires the equalization of net family property, which involves dividing the increase in the spouses’ wealth during the marriage, including the value of the home.
- Tax Implications
Capital Gains Tax:
A “Principle Residence” in Ontario is presumptively capital gains exempt. This means if the married spouses have only owned this one home during marriage as their principle residence, and sell it post-separation, they do not have to pay any capital gains tax to the CRA. However, depending on the nature of property, there may still be capital gains so it is important to check with qualified accountant or tax professional. For example, farms are typically divided between the principle residence and the agricultural land associated, with the land value being subject to capital gains while the home plus 1 surrounding acre being exempt from gains tax.In most cases though, the Principal Residence Exemption can be used to reduce or eliminate this tax. There are also other exemptions such as a farming exemption which may create solutions. Every family is different and every piece of property and the associated tax exposure is different so it is extremely important to speak with a family lawyer and tax professionals before making any major decisions on separating family property.
- Options for the Matrimonial Home
Selling the Home:
Selling the home and dividing the proceeds is a common option. Both spouses can choose to start fresh with their share of the net sale proceeds.
Buying Out Your Spouse:
One spouse may decide to buy out the other’s share of the home. This often involves arranging financing to compensate the departing spouse for their share. This option enables a transfer of ownership without triggering tax or needing to pay disposition costs. It also has intangible benefits, such as keeping the home for the children’s sake.
Creating a Cohabitation Agreement:
If both spouses want to continue living in the home post-separation, they can create a cohabitation agreement that outlines the terms and responsibilities for sharing the property post-separation, but this option can cause unforeseen issues for continued co-occupation so it is rarely recommended by professionals.
If you have any questions or require legal assistance regarding your matrimonial home before, during, or after separation, our team is here to help. Contact Jarret at Gemmill, Johnston, Jeffries PC for expert advice and support during this challenging time.