What Happens to the Mortgage on Separation in Ontario?

When a relationship ends, the mortgage often feels like the biggest practical problem. Who pays it, who can stay in the home, and how does one person get off the mortgage?

This article explains how joint mortgages generally work after separation in Ontario, and how family law rules affect selling, staying in the home and paying the other person out.

Separation does not change your deal with the lender

The mortgage is a contract between the borrowers and the lender. The Financial Consumer Agency of Canada explains that each person who signs as a joint borrower is equally responsible for repaying the unpaid balance, and that separation does not change that contract with the lender.

In practice, that means that if the payments stop, the lender can look to either borrower. A separation agreement is a domestic contract, and it is unenforceable unless it is in writing, signed by the parties and witnessed. A domestic contract generally prevails over the Family Law Act unless the Act provides otherwise. The lender is a separate party to the mortgage, so confirm with the lender and a lawyer how any such arrangement is treated. Keep paying on time while things are sorted out, because missed payments can affect both of you.

Who can stay in the home, and who pays

If you are married, both spouses have an equal right to possession of a matrimonial home, whether or not their name is on title. A matrimonial home is property in which a spouse has an interest and that is or was ordinarily occupied by the spouses as their family residence, judged at the time of separation if they have separated.

The court may order that one spouse be given exclusive possession. It may also order a spouse to pay for repairs and maintenance. In deciding, it considers factors that include the best interests of the children, the availability of other suitable and affordable housing, and any violence by a spouse against the other spouse or the children.

If only one spouse is on title, the other spouse's right of possession is personal as against the owning spouse. It ends when they stop being spouses, unless a separation agreement or court order says otherwise.

Selling or mortgaging the home during separation

A spouse may not sell or mortgage an interest in a matrimonial home unless one of these applies:

• The other spouse joins in or consents
• The other spouse released their rights in a separation agreement
• A court order authorizes it
• A different property has been designated as the matrimonial home by both spouses and that designation is registered

On application, the court can authorize a sale or mortgage where the other spouse cannot be found, cannot consent or unreasonably refuses to consent. A deed or mortgage registered under the Family Law Act must include one of the prescribed Family Law Act statements, for example that the property is not designated as a matrimonial home or that the person consenting is the transferor's spouse.

A court can set aside a sale or mortgage made in breach of these rules, but it cannot do so if the buyer or lender acquired the interest for value, in good faith and without notice that the property was a matrimonial home. Do not rely on that exception. Speak to a lawyer before signing anything on the home.

Buying out your spouse and refinancing

A common plan is for one person to keep the home and pay the other out, often by refinancing. In a married couple, when a divorce is granted, a marriage is declared a nullity, or spouses separate with no reasonable prospect of resuming cohabitation, the spouse with the lower net family property is entitled to one-half of the difference between the two. A court may award more or less than half only if equalizing would be unconscionable. The full value of a matrimonial home is generally part of that calculation, even if one spouse owned it before the marriage. The court can order one spouse to pay the other, order security, and order property transferred, partitioned or sold.

Whether the lender will release a name, approve a refinance or let one person carry the mortgage alone is the lender's decision. An agreement or order between you and your former partner does not by itself bind the lender, so ask the lender early what it requires.

Transfers between spouses can also have tax effects. A house transferred to a spouse, or to a former spouse in settlement of rights arising from the relationship, generally rolls over at the transferor's adjusted cost base with no capital gain triggered at transfer, unless the transferor elects out. This applies only if both people are resident in Canada at the time. An accountant can confirm how this applies to you.

Common-law couples and next steps

Unmarried cohabitants are not spouses for the matrimonial home and equalization rules, so the Part II right of possession does not apply to them. Property generally belongs to whoever bought it, though a partner who contributed to the other's property may have a claim. Married spouses can apply to court to decide a question of ownership or possession of particular property; how a common-law partner's claim would proceed depends on the facts, so it is worth confirming with a lawyer.

• Keep making mortgage payments while things are unresolved
• Get a recent mortgage statement and the mortgage terms
• Ask the lender what it needs for a name removal or refinance
• Do not sign a sale or new mortgage without legal advice
• Put any agreement in writing, signed and witnessed
• Speak with a lawyer about possession, payout and timing

Frequently asked questions