Not all separations end in arguments and heartbreak. Sometimes, spouses agree amicably to divide the assets they own.
A reader wrote to us regarding the issue of real estate during a separation.
“I’m breaking up. We want to remove my ex’s name from the mortgage on the house we own 50/50 and the title deeds. The house is worth $400,000 and there is still a $100,000 mortgage to pay. How to proceed ? Will the bank simply agree to remove its name? We have equity in the house, can he give me the equity and keep nothing for himself? It suits him. »
On the tax front
Even if your house has increased in value over the years, neither you nor your ex-spouse will have any tax to pay following their departure, because it was your principal residence. In his tax return, he will only have to indicate that he sold his share. And it’s tax-free.
For your part, you will mention in your declaration that you are now the sole owner and, I repeat, you will not have any tax to pay, because it is your main residence.
Concerning the increase in the value of the house accumulated over the years, which is commonly called equity, this value will be considered a gift and is not taxable, just like any other type of gift .
On the legal level
The gift from your spouse will be considered a sale at market value and will result in a visit to the notary. He will modify the property titles and record these modifications in the Quebec land register, designating you as the sole owner. If necessary, he will request an assessment of the market value of the property.
In addition, he will write a release for your ex-spouse to release him from all responsibilities towards the house.
These services will incur fees. Generally speaking, for a real estate transaction, these amount to $1000 to $1500. For the receipt, from $300 to $600. In addition, it costs approximately $150 for publication in the Quebec land register.
On the banking level
From now on, you will have to pay the balance of the mortgage of $100,000. The financial institution will want to make sure you can afford it. On the one hand, you will have to terminate the existing agreement concluded with two borrowers, you and your ex, and on the other hand, you will take out a new loan in your name. The procedure to follow will be the same as when you initially applied for a mortgage loan.
To this end, you will need to provide proof of your income, employment, assets, debts and financial obligations. The financial institution will want to see the sales contract that you signed with the notary to ensure that you are the sole owner.
In addition, the institution will check your credit score and analyze your information to determine whether you have the capacity to pay the mortgage alone. Based on what we know about your situation, your down payment will be greater than 20% of the house, so you will not need to pay the CMHC premium.
If necessary, the financial institution will request an appraisal of the house to establish the market value.
Normally, all of these steps incur costs. However, you have negotiating power, because the financial institution will want to keep you as a customer. It’s up to you to play your cards right!
On municipal plan
The transfer of property between spouses is not subject to property tax, which is commonly called the welcome tax. “However,” says Ludovick Nadeau of Gestion fiscal de l’Estrie, “they [les municipalités] may charge a $200 service fee at their discretion. Given the appetite of municipalities at the moment, it is likely that most will do so. »
Giving away your share of a house has many facets that you might not suspect at first glance. This is not simply a change of name at the bank, but rather a sale of real estate with all that entails. If you want to keep the property, you will need to prove that you have the financial capacity.
- Retain the services of a lawyer or notary to guide you through the steps to follow.
- Do not hesitate to negotiate notary fees, bank fees and appraisal fees if an update of this document is requested.
- Keep a written record of all transactions and agreements.