How Spousal Buyout Work in Alberta
The average duration of a marriage in Alberta is approximately 14.6 years. In that time, spouses may have children and may make financial investments together. By far, one of the most significant investments a couple makes in their lives is the family home.
“In a separation or divorce, in most cases, the family home must be split equally by law,” says Harshdeep Jakhar, Associate Lawyer at Juriscorp Law. “However, a mechanism exists for one of the spouses to retain the family home if desired.”
This is called a spousal buyout.
In a Nutshell: What is Spousal Buyout?
The family home is typically part of the family property that must be divided under Alberta’s laws, specifically the Family Property Act. It is often one of the largest assets, and both parties have equal rights to it unless they agree otherwise or a court orders a specific arrangement.
Instead of selling the home on the open market, a spousal buyout lets one person assume full ownership of the home while compensating the other for their share of the equity.
How Do You ‘Buyout’ a Spouse or Partner?
Buying out a spouse’s interest in the home is a multi-step process that involves legal, financial, and logistical considerations. At a high level, here’s how a spousal buyout typically works in Alberta.
(Note, for the purposes of this article, we are assuming that the family home is the only property to be divided upon separation. Typically, division is based on the overall value of all assets and liabilities of the couple acquired during marriage, barring some exemptions. You should seek legal advice on your particular situation.)
- Determine the Home’s Value and Equity: First, the current market value of the home must be determined, typically through a professional appraisal. From this value, subtract any outstanding mortgage or debts secured against the home. Note it’s essential for both parties to agree to the valuation.
- Calculate the Buyout Amount: Essentially, the buyout amount is the selling spouse’s portion of the equity. For instance, with $200,000 equity remaining and an equal split, one partner would need to pay the other $100,000 for a full buyout. This can be adjusted if any exempt property claims apply (such as if one spouse originally owned the home or received it as an inheritance).
- Arrange Financing and Mortgage Approval: The buying spouse must figure out how to come up with the funds to pay the other. In most cases, this involves refinancing or obtaining a new mortgage in their name only. Requalifying for a mortgage individually is essential, because the lender will require proof that the remaining owner can carry the mortgage on their own.
| 💵 The traditional refinancing limit in Canada is 80% of the home’s value, but spousal buyout mortgage programs allow refinancing up to 95% of the home’s appraised value to facilitate the buyout. |
- Draft a Separation Agreement or Court Order: It’s critical to have a legally binding separation agreement (or a court order) that outlines the terms of the buyout. A separation or property agreement must meet certain formal requirements under the Family Property Act to be enforceable. Specifically, it must be in writing, there should be financial disclosure, and each party should acknowledge they understand the agreement, and each should obtain independent legal advice (lawyer sign-offs) for the agreement to hold up.
- Complete the Buyout Transaction: The departing spouse signs the necessary documents to remove their name from the property title (and the mortgage, which happens through the refinance process). The buying spouse then pays the agreed buyout sum to the other (often the funds come directly from the new mortgage loan).
Throughout this process, both parties should cooperate in good faith. If there’s disagreement on the value of the home or the terms, you may need mediation or, ultimately, a court to decide. If spouses can’t agree on what to do with the home, one can ask the court for a partition and sale order under the Law of Property Act.
However, court proceedings are costly and time-consuming, so a negotiated buyout (with the help of lawyers) is often preferable for a clean resolution.
4 Possible Scenarios in a Spousal Buyout
- No Buyout Needed: Both Parties Agree to Sell
Both spouses agree to sell the property and split the proceeds. This is often the simplest outcome when neither party can afford to take over the home on their own, or when both would prefer a fresh start with money in hand.
Since both parties are walking away, no buyout occurs. If you can’t initially agree on selling but neither can buy the other out, Alberta’s courts can ultimately force a sale and divide the proceeds.
- Person Stays, the Other Transfers the Mortgage
Sometimes, one spouse will remain in the home and the other simply moves out and releases their interest without requiring an immediate cash payout. This might happen if there’s very little equity in the house, or as part of a larger trade-off in the division of assets.
If handled properly, one person ends up as the sole owner (continuing to pay the mortgage), and the other is free to move on with no claim to the house or responsibility for it.
The departing spouse may sign a transfer of land and release of covenant with the lender, which is a document releasing them from liability on the mortgage. The key is that the remaining spouse has to qualify on their own for the mortgage.
- One Person Stays, the Other Sells Their Part of the Property
This is the classic spousal buyout scenario. One spouse wants to keep the home, and the other is willing to relinquish their share in exchange for a fair payment. The spouse who remains will purchase the other’s half of the property’s equity.
The Spousal Buyout Program insured by CMHC facilitates this by allowing that higher loan-to-value refinance.
Alberta has one of the highest monthly mortgage payments in Canada; Forbes
- Insufficient/Negative Equity in the Property
What if the home has little to no equity or, worse, the mortgage debt exceeds the home’s value (negative equity)? In such cases, a traditional buyout is challenging because there’s no equity to cash out, and selling the home might not even cover the mortgage in full.
This can be handled in one of a number of ways:
- If equity is basically zero, the spouses might agree that one will take the house and there’s simply no payout.
- In a negative equity situation, the spouses might agree to split the negative equity or otherwise compensate in the overall settlement.
- Often, couples in this bind will choose to wait it out rather than sell at a loss. One option is to rent out the property for a while until the market improves.
Getting Financing to Fund Your Spousal Buyout
Arranging financing is often the hardest part of a spousal buyout. By definition, one spouse is taking on a large financial burden and has to come up with cash to pay the other spouse their share.
Here are some common financing options and considerations for funding a spousal buyout in Alberta:
Second Shot at the Home Buyer’s Program: Since 2020, separated or divorced Canadians may get a “second chance” to use the RRSP Home Buyers’ Plan (HBP). They can withdraw up to $35,000 tax-free from their RRSP to buy out an ex-spouse’s share of the home, even if they no longer qualify as first-time buyers.
To be eligible, you must have lived apart from your spouse for at least 90 days and meet certain timing criteria and the usual HBP rules.You cannot simply abandon the house without consequence, because the lender will hold both borrowers accountable for the loan.
CMHC Spousal Buyout Program: The CMHC Spousal Buyout Program lets one divorcing spouse refinance the matrimonial home up to 95% of its appraised value to buy out the other spouse’s share. This special insured mortgage is treated like a purchase rather than a standard refinance.
Mortgage Lenders: To finance a buyout, the remaining spouse typically either assumes the existing mortgage (taking it over with no cash-out) or refinances into a new mortgage, often increasing the loan amount to cover the buyout sum.
Home Equity Loans: A home equity loan or line of credit (a second mortgage on the home) can provide extra funds for a spousal buyout while leaving the original mortgage intact. This means you only pay current interest rates on the smaller borrowed amount.
Reverse Mortgage: For homeowners 55 and older, a reverse mortgage can provide up to about 55% of the home’s value as a tax-free lump sum with no monthly payments, allowing one spouse to pay out the other and remain in the home. The funds received are a loan, not taxable income, so they won’t affect income-tested government benefits like Old Age Security.
Who Can Initiate a Spousal Buyout?
Source: Freepik
Either spouse or partner can propose a spousal buyout. In practice, it’s usually initiated by the person who has a stronger desire (and ability) to keep the home.
It’s important to note that a spousal buyout isn’t something one person can impose on the other unilaterally. You both have to agree on the terms (price, timing, etc.), usually as part of your broader separation agreement.
From a procedural standpoint, during separation negotiations, you or your lawyer would raise the proposal. If you’re already in litigation, you’d signal to the court your intent to keep the home. The other spouse then decides if they agree.
One critical piece: timing. If you do intend to buy out your spouse, start the discussion early.
Importance of Working with Experienced Family Lawyers
A spousal buyout is complex, both legally and financially.
A lawyer will ensure that your separation agreement (or court order) properly documents the buyout. This includes clarifying the amount, the timeline for payment, and the conditions. They’ll also oversee that the Land Titles paperwork (Transfer of Land, Dower rights if applicable, etc.) is done correctly so that the title transfer is smooth and final.
Importantly, lawyers will help you navigate Alberta’s family law. For instance, Dower rights (if one spouse’s name was not on the title, they still have a protected interest in the matrimonial home under the Dower Act, meaning they must consent to any sale or transfer).
Perhaps the most significant role a lawyer plays is helping you make objective decisions at a vulnerable time. The family home has many emotions attached to it, and it can be difficult for people to make objective decisions. Your lawyer can help you make forward-looking decisions while protecting your interests at every step.
If you are considering what to do with your marital property, speak to our spousal buyout lawyers today. Schedule a free consultation today with an experienced lawyer.