Valuing Home Equity in the Event of Marriage Breakdown

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iluvnascar
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Valuing Home Equity in the Event of Marriage Breakdown

Post by iluvnascar »

I'm not sure if this is the right category.....but the "Peace of Mind" seemed to be the right place to bin this.

A married (4 years) couple I know are separating. They bought a home (Ontario) together 2 years ago....in both names. It was appraised (an official "Matrimonial Appraisal") on Date of Separation: $485,000


The question is: If one party wants to remain in the home, how does one determine the amount he/she must pay to the other party to buy him/her out?

My thoughts are as follows:

Appraised value = $485,000

Implied Real Estate Fees (Home will be sold SOMEDAY) = 5% + tax = $27,403

Implied Legal Fees = $500 (Based) + $450 (Discharge 3 Mortgages) + Tax = $1,074

Net Available after Implied Sale = $456,523

Mortgage Owing = $381,226


Total Equity Available = $456,523 - $381,226 = $75,297 (or $37,648 each)
Therefore, the cost for one party to buy out the other party would be $37,648


Comments on the methodology? Is there a specified calculation for legal purposes available? Any legal precedent?

Comments greatly appreciated!
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ghariton
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by ghariton »

It's been many years since I took the Bar course, so don't rely on my memory. But my recollection is that

(1) If one partner remains in the house after settlement, the amount owed to the other is fair market value less mortgage, divided by half. No implied fees.

(2) If the house is sold, the amount each gets is half of the proceeds less mortgage. The fees become explicit and so are counted.

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AltaRed
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by AltaRed »

I recollect George having the right concept. Our co-hab is set up the same way. 1) If one of us wants to buy out the other's share of the house, it is half the appraised value less half of any outstanding mortgage/lien on the property. No implied fees. 2) If sold, it is 50% of 'net' proceeds to each, i.e. net of fees.
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ockham
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by ockham »

Two thoughts, or three, consistent with other posts:
1. You (they) would be better served with two appraisals, not one;
2. Your treatment of realtor commissions and legal fees is, to say the least, contentious. Your method forces one partner to pay now for 1/2 of a contingent future expense. A discount is appropriate. How deep is the issue.
3. Look at it this way. The judicial solution to the problem is a forced sale. How much or what is the partner who wants to stay prepared to pay or give up to avoid a forced sale?? Waiving the notional expenses of a sale is a good place to start.
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by flywaysuzy »

You are assuming each of them contributed an equal amount for the down payment?
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by SQRT »

flywaysuzy wrote:You are assuming each of them contributed an equal amount for the down payment?
I don't think that is relevant.
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by AltaRed »

flywaysuzy wrote:You are assuming each of them contributed an equal amount for the down payment?
I don't believe it matters in family law, especially in an undivided 'joint' interest. Most (I believe) provinces see the matrimonial home as a 50/50 proposition.
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by ig17 »

iluvnascar wrote:Implied Real Estate Fees (Home will be sold SOMEDAY) = 5% + tax = $27,403
If I were the other party, I'd argue that I can sell the house on my own without paying sales commissions. It's a feasible option.
iluvnascar wrote:Implied Legal Fees = $500 (Based) + $450 (Discharge 3 Mortgages) + Tax = $1,074
If I were the other party, I'd argue that my moving expenses should be included in the calculation. They would easily exceed the implied legal fees.
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by AltaRed »

Yeppers, that is a very slippery slope. All this will do is heat up the debate and increase legal fees.... even if the judge would give this any consideration.

Don't let the trees get in the way of the forest. KISS principle.
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iluvnascar
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by iluvnascar »

Thanks for all the insight guys.......
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by Jo Anne »

When my sister and her husband broke up 5 years ago, they went to an arbitrator. No lawyers needed, and the settlement was done fairly. I think it cost $5K each for this. Here's a link explaining it:

http://divorce-canada.ca/more-faq/what-is-arbitration

IMO, it's a much cheaper and more equitable method of settlement than the usual lawyer-brokered mess.
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AltaRed
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by AltaRed »

Yeah, there are amenable choices in process IF the parties are willing to take them. Collaborative divorce is another where lawyers agree on fairness principles, seeking common ground rather then adversial, or negotiating, positions. And it is also best to pay a financial type (accepted by the lawyers) as the person working asset division, at say $200/hr rather than lawyers at $500/hr.

Not that any of this was part of the OP's question, but the tone of the question appeared to be drilling into the trees rather than taking the high ground.
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iluvnascar
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by iluvnascar »

"Not that any of this was part of the OP's question, but the tone of the question appeared to be drilling into the trees rather than taking the high ground."

Yes, you're right.

This isn't my 1st rodeo....but it's been a while.

My own divorce? I wrote the agreement myself (copied elements of it from a friend's Separation Agreement); we both signed it; and a Public Notary witnessed it. Cost? $10 The good ol' days!
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by iluvnascar »

I'm assuming the answer is "NO".....but one never knows:

Are there any Land Transfer Tax (or any other Govt charge) implications when the registration on a home is changed from joint ownership to a single owner as the result of a marriage breakdown? I know that the mortgage will have to be re-registered and there will be discharge/registration/legal fees; but how about Land Transfer Tax?
Last edited by iluvnascar on 12 Jan 2017 12:32, edited 1 time in total.
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Re: Valuing Home Equity in the Event of Marriage Breakdown

Post by twa2w »

iluvnascar wrote:I'm assuming the answer is "NO".....but one never knows:

Are there any Land Transfer Tax (or any other Govt charge) when the registration on a home is changed from joint ownership to a single owner as the result of a marriage breakdown? I know that the mortgage will have to be re-registered and there will be discharge/registration/legal fees; but how about Land Transfer Tax?
Unless the rules have changed, there is no land transfer tax in the situation you describe. Depending on who the mortgage is with and the circumstances of the remaining owner, there can be an assumption of mortgage and no requirement for discharge, reregistration etc.
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