Clay Purves on how a separation or divorce affects the home

Adrian:

I'm joined today by Clay Purves with Assiniboia Law Group on Roblin just... I guess, you're sort of between Tuxedo and Charleswood, but you serve the whole city.

Adrian:

Clay, can you tell me a little about yourself and your law firm?

Clay:

Sure. Assiniboia Law Group, like you said, is on Roblin. We're just by the Moray Bridge or the William R. Clement Parkway as some like to call it. And the office has been located here in different incarnations for probably 40 years now. Maybe not quite 40, but over 30. We also have recently started an office in Selkirk, Manitoba to serve clients through the Interlake.

Clay:

And we really focused primarily on helping individuals, sort of real life people. We're not acting for banks and insurance companies. We act for Joe and Jane Winnipeg dealing with things like divorces, separation agreements, purchase and sales of houses, and estate planning.

Adrian:

Now, during the pandemic, a lot of us have obviously been locked in, and some of us have been locked in with our spouses, and some people have determined that that spouse may no longer be the right fit for them. What effect does a separation have on the primary residence or real estate assets as a whole?

Clay:

Sure. I mean the biggest assets that most people have are their homes. There's a few people that are fortunate enough to have good pension plans that need to be addressed in a separation agreement, but for the most part, the house is not only the biggest asset, but the biggest debt that people are carrying with their mortgage. And it's the thing that needs to be taken care of and addressed quickly because it is hard to stay living in the same house when you're separated from somebody. So it works best for everybody on a sort of emotional and psychological level if one of the parties can move out sooner than later.

Clay:

And in order to do that, there usually needs to be some sort of an agreement in place over who's going to keep the house, or are they going to sell the house? ANd sometimes it's just not possible for one person to be able to finance the house all on their own with just their income. But there's usually... one of the parties usually wants to keep the house. There's usually someone that wants to stay in it, and another person who's quite happy to take the money and run, as it were.

Adrian:

And now, can either party keep the home, and if so, how?

Clay:

I mean, that's part of the negotiating and part of the settlement of the separation is determining, first, if one them wants to keep the house. And obviously, it's a different scenario in the case where neither one of them want to stay in the home. Then we come up with timelines for the sale of the house.

Clay:

But either one of them can make a pitch to the other to buy the house and can end up happening is the rare circumstance where both of them [inaudible 00:03:19], where both parties really want to stay in the house, there's ways of dealing with that.

Clay:

For example, they each get their own appraisal done on the house, and you could do sealed envelope bid sort of thing, and whoever offers the higher amount wins the contest, if you will.

Clay:

But more often than not, it's just one of the two that wants to stay in the house or can afford to stay in the house, right, that has the income to carry the mortgage that's that's already there, right? Because one of the things you're doing is you're refinancing the house to pay out the mortgage that's in both of your names so that the person not living in the house is obviously no longer named on a mortgage for a house that they are also not going to be.

Adrian:

And there are actually spousal buyout mortgages which allow one spouse to buy the home from another spouse up to 95% loan to value. So when an opportunity does exist to buy out the spouse, you can actually finance up to 95% of that which is sort of a big unknown in the consumer space.

Adrian:

How is it decided who can keep the home, and I think you described that with that contest, if you will.

Clay:

When they both want to keep the home, then it really does become a question of... sometimes, it's decided even a little bit by the kids. If one parent is going to be the primary caregiver over the other, and part of the goal is that the parents want the kids to stay in the house that they've been growing up in, usually that parent will sort of, I use air quotes, "Win the day" because the parent that isn't going to be the primary caregiver, usually, I can see what's... and it's in the best interest of their kids to maybe keep the kids in a stable environment.

Clay:

But it can... there are circumstances where it can get pretty tricky, and then you have to really look at who's prepared to pay more to the other for the house, right? I mean, if you've got a $300,000 house, and I think it's worth $300,000, I'm prepared to buy out your equity based on that. But you're prepared to come over the top at 320. Well, you get the house because it's all about maximizing the returns.

Clay:

And in circumstances where there just is no resolution, what'll end up happening is the house will get listed for sale, and either party is fully entitled to make an offer on the house. Like I said, there's those separation mortgages out there that are fantastic. You lose the advantages of those. And as soon as you put the house up for sale, you're also paying real estate commissions and prepayment penalties on the existing mortgage and additional legal fees for both parties, and it really eats into a lot of the equity. So it's a situation that you want to avoid if you can.

Clay:

But when it's jointly owned property, there's no sort of magic formula for determining which joint owner gets it.

Adrian:

To take some of the stress away and to plan correctly, is there a way to proactively prevent the housing challenges that arise during a separation?

Clay:

I mean, first off, it's always to have a cohabitation agreement before you even get to the point of separating. A cohabitation or a prenuptial agreement sort of anticipate in advance which party gets to keep the house as it were, stressing that keeping the house also means keeping the mortgage. So it's not like, necessarily, you're getting a free house here. You're getting a house with an obligation to continue paying a bank, but that's one way to sort of preemptively deal with it.

Clay:

But once you're in the throes of it, there's a real growing use of mediation and sort of divorce counseling, if you will, that people are using. So they take these discussions away from expensive lawyers and try to sit down and come up with a more sort of collaborative approach to dealing with the problem and trying to figure out what the motives for both parties are for wanting to keep the house, right?

Clay:

I mean, does someone have a more sentimental attachment? Does one person want to keep it more out of spite because, "I had no interest in keeping the house until you told me that you wanted to keep the house. Now I want nothing more" and also and kind of trying to focus people on what their more important issues are. [inaudible 00:07:34] there's always room for some, a little bit of horse trading as it were as well, right?

Clay:

I mean, if there's other assets that need to be dealt with or divided, one party might decide that, "You know what? I'd rather keep the more expensive, newer vehicle as mine without there being any sort of penalty, and in exchange, I'll be the one that goes house hunting," but-

Adrian:

And does a cohabitation agreement or a prenuptial agreement... are those the only two ways to prevent a housing crisis during a separation, or if one senses that things are not going so well, could someone preventatively plan amidst a relationship?

Clay:

... sure. Most couples own their property jointly. Most people who bought the house, they take title as joint tenants, is the legal term, which means they own it in equal shares and that there's a right of survivorship [inaudible 00:08:31] whoever is left living gets the house. And that's great for sort of traditional relationships and long-term marriages, back when we got married, when we were 20, and marriage is ended with someone's death at 80, and that was a great way to take title in homes.

Clay:

More and more people are taking what's called tenants in common, where you actually own a percentage of the house, and you don't own it as a joint asset. Or in the case of, especially a lot of second marriages, one person will just have title to the house in their own name. In those circumstances, then that person, obviously, has all the leverage for whether or not they get to keep the house. It doesn't mean the other person has no interest in the equity in the home, but as far as the title... so if you sense that there's, I guess, some problems in the relationship, any one of the things you could do is talk to your spouse at that point while they're still your spouse about transferring, dealing with the transfer of title.

Adrian:

Probably doesn't happen often, but it is an option to consider.

Clay:

And I mean... and I certainly see files where people come in where there is still one person who owns the house. The other is just the spouse that resides in the house with that person. In those files, it's a far simpler issue to deal with. The owner of the house will often still have to do a refinancing of the house because that's where they're going to get the cash to pay out the partner they're divorcing. So they more often than not need to borrow that money.

Clay:

Again, like I said, our houses are our biggest assets, but they also tend to come along with our biggest debt, and divorcing is expensive. I mean, there's usually one person writing an equalization check to the other, if you're lucky. I mean, there's a lot of times when one or both parties are heading off to see a bankruptcy trustee because the mountain of debt that they accumulated as a couple, it's a big part of why they are separating in the first place, right, is that just overwhelmed them.

Clay:

But when there's equity, it's usually going to be through the house that you are able to get cash to pay off the other person, so...

Adrian:

We're seeing right now historically low interest rates, and we're seeing historically high real estate values. What do you love about Winnipeg real estate?

Clay:

Well, I used to love the predictability and the affordability of it. The last few months, it certainly seems like a bit of a we're living in the Wild West as far as house prices go. It's very difficult for anyone to know what the winning bid is going to be, and it certainly puts pressure on couples that they're both a lot more interested in keeping the house they're already in because nobody wants to enter this market right now if they don't have to. And especially at the low mortgage rates, it's also a lot more affordable for either or to take over a mortgage, right? I mean, if you're borrowing at these low borrowing rates that are currently out there, even the spouse with the lower income is suddenly able to afford the house on their own. And that changes who's going to stay in the house and who's not.

Clay:

And like I said, unfortunately in those circumstances, when it's jointly owned, if neither party is willing to budge or make a deal, the solution is that house just gets listed for sale, right? There's no... well, I was going to say, there's no coin flip, but I've seen coin flips. I mean, they have been used to resolve these disputes because when both sides see that it's silly to list it and burn out equity paying commissions and prepayment penalties and all that sort of stuff, you will see people actually just flip a coin over who gets to keep the house. Not keeping the house usually comes with a pretty decent sized check, so it's not like you're walking away with nothing.

Adrian:

Clay, listeners can probably tell from the tone of your voice that you're a very approachable and knowledgeable lawyer in this field and this area of expertise. For anyone that is considering or currently going through a separation and wants to speak to someone, how can they reach you?

Clay:

Sure. They can always call my office at (204) 949-3245. That's my direct line in Winnipeg. [inaudible 00:12:52] we do have an office in Selkirk as well. Appointments can be made and scheduled to see us there.

Clay:

If you're calling from Eastman or the Interlake and don't enjoy driving in the city, I'm also always available via email at cpurves@alawgroup.ca. I'd spell that out, but if they just want to go to www.alawgroup.ca, that's our website, and they can find all of my contact information there.

Adrian:

And we'll also have links to all of your contact information along with your bio on our podcast website which is ilovewinnipegrealestate.ca.

Adrian:

Thanks so much, Clay, for being part of today's episode.