Buying Out an Ex-Spouse's Share When the Appraisal Comes In Low

The situation

Rejean, a line cook, and Genevieve, a hairdresser, separated after nine years together, with one child who was staying primarily with Rejean. Their only significant asset was the house they owned jointly in St. Catharines, and after months of negotiation through their respective family lawyers, they signed a separation agreement that resolved how it would be divided. Rejean would keep the house so their child could stay in the same school, and he would pay Genevieve a fixed amount to buy out her half of the equity. The agreement set that figure at roughly $118,000, based on an informal estimate of the home's value at around $385,000 against a remaining mortgage balance of about $150,000.

Once the separation agreement was signed, the file moved from family law to real estate. Rejean needed to refinance the property in his name alone, pay Genevieve her share, and have her removed from title. He retained Treadstone Law to handle that side of it: preparing and registering the transfer, coordinating with his new lender, and making sure the closing implemented the separation agreement correctly. On paper it looked like a two-step process — get the mortgage approved, then close. In practice, the first step changed the numbers underneath the second.

What went wrong

Rejean's mortgage broker, Sanjay, submitted the refinance application to a new lender, since Rejean's income as a line cook on his own would not support the existing mortgage plus the buyout amount without some adjustment to the loan structure. The lender ordered its own appraisal of the property, as lenders do before advancing any refinance — they lend against their own valuation, not against a figure the parties agreed to informally months earlier. The appraisal came back at roughly $355,000, about $30,000 below the number the separation agreement's buyout calculation had assumed.

That gap mattered immediately. A lower appraised value meant a lower maximum loan the lender would advance, since lenders cap the mortgage as a proportion of the property's assessed worth rather than its sale price or any private agreement between former spouses. With less new mortgage money available, Rejean no longer had enough proceeds from the refinance to pay Genevieve the full $118,000 the separation agreement called for, after also paying off the existing mortgage and the closing costs on the file. The shortfall worked out to roughly $14,000.

There was a second layer to the file that had to be handled correctly regardless of the appraisal problem. Under Ontario's Family Law Act, a spouse's consent is required to sell, mortgage, or otherwise deal with an interest in a matrimonial home — the home either spouse occupied as their family residence during the marriage — and separation does not remove that requirement on its own. Genevieve's ongoing interest in the property, and her consent to the new mortgage Rejean was placing on it, had to be formally released as part of the same transaction that transferred her share of title to him. The separation agreement addressed the division of the asset; the release of her matrimonial home rights was a separate document the closing still needed. One useful fact worked in the couple's favour here: a transfer of a matrimonial home between spouses made pursuant to a written separation agreement is exempt from Ontario's land transfer tax, which is not something available on an ordinary purchase between unrelated parties. That exemption softened the cost of the transaction, but it did nothing to close a $14,000 financing gap that had appeared with the closing date only days away.

What we did

1. Confirmed the shortfall before assuming anyone was at fault. Our team reviewed the appraisal, the new mortgage commitment, and the payout figures from the separation agreement side by side to establish the exact gap, rather than letting Rejean and Genevieve argue past each other over whose number was wrong. Neither side had made an error — the separation agreement had simply been priced against an informal estimate rather than a lender's appraisal, which is common and rarely matches exactly.
2. Explained the mechanics to both former spouses in plain terms. Genevieve, through her own lawyer, needed to understand that the shortfall was a function of how mortgage lending works, not a sign that Rejean was trying to pay her less than agreed. Rejean needed to understand that simply refusing to pay the shortfall was not an option — the separation agreement was a binding contract, and the fixed buyout figure did not adjust itself just because the refinance came up short.
3. Proposed a structured alternative rather than reopening the whole agreement. Rather than renegotiating the entire separation agreement — a slower and more expensive process through family counsel on both sides — we proposed splitting the payment: Rejean would pay Genevieve the roughly $104,000 the refinance could actually fund at closing, with the remaining $14,000 secured by a promissory note bearing interest, registered as a small charge against the property in Genevieve's favour until paid.
4. Coordinated the paperwork so the closing and the release moved together. The transfer of Genevieve's interest, her formal release of matrimonial home rights under the Family Law Act, the new mortgage in Rejean's name, and the registration of the secured promissory note all had to close in the correct order on the same day, so that Genevieve was not left exposed with her interest transferred before her security was registered, and so the new lender's mortgage retained proper priority.
5. Set a realistic repayment term on the note. Rather than leaving the $14,000 balance open-ended, the note specified a fixed repayment date within two years, giving Rejean time to build equity or refinance again, while giving Genevieve certainty about when she would see the rest of her share rather than an indefinite promise.

The outcome

The closing went ahead about three weeks later than originally scheduled, once the promissory note and revised payment structure were agreed and documented. Genevieve received roughly $104,000 in cash at closing, plus a secured note for about $14,000 with interest, registered as a charge on the property behind the new first mortgage. Rejean kept the house, refinanced in his name only, and Genevieve was formally released from the property and its matrimonial home obligations. The land transfer tax exemption for transfers between spouses under a separation agreement applied as expected, saving a cost that would otherwise have fallen on Rejean at an already tight moment.

Neither side got exactly what the original separation agreement described. Genevieve did not receive her full buyout in cash at closing, and she carried the risk of Rejean's future repayment for up to two years, secured only by a modest charge on a property she no longer owned or controlled. Rejean took on a second debt obligation on top of his new mortgage, at a moment when his income as a single-income household was already stretched. Both outcomes were real costs, not cosmetic ones — but they were costs each side understood and accepted, rather than a collapsed closing that would have left the separation agreement unfulfilled and both of them back at the negotiating table through family counsel, likely at greater expense than the shortfall itself.

The alternative was worse for both of them. If the shortfall had surfaced without a structured response, the closing could have fallen through entirely, forcing Rejean to either abandon the refinance or ask the lender for a larger loan he could not qualify for, and leaving Genevieve without her share of the home's equity for months while the separation agreement was reopened. A secured note, properly registered and time-limited, gave both former spouses a workable path forward instead.

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