Len Lane, founder of Brokers for Life Inc., discusses the rising divorce rates in Alberta and how the CMHC Spousal Buyout Program can help individuals retain ownership of their homes post-divorce. This program allows a spouse to qualify for a mortgage independently, covering up to 95% of the property's value to settle outstanding mortgages and other financial obligations outlined in a court-ordered separation agreement. 

Lane highlights key criteria, including the property being a principal residence and both spouses being on the title. By facilitating a structured approach to asset division, the program can help individuals stay in their homes, which is especially beneficial for families with children. However, he stresses the importance of factoring in additional costs, such as legal fees and land transfer taxes, which can range from 1.5% to 4% of the purchase price.

Lane also explores the concept of "Gray Divorce," referring to the increasing number of older couples separating later in life and the financial implications that come with it. For individuals facing a Gray Divorce, reverse mortgages can be a viable option, providing access to a portion of their home's equity without requiring monthly payments. This approach can help older divorcees secure financial stability while transitioning into separate living arrangements. Listeners looking for guidance on spousal buyouts, reverse mortgages, or other mortgage solutions are encouraged to reach out to the Brokers for Life team for expert advice.

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Transcript
Len Lane 00:02

Welcome. My name is Len lane, and I am the founder and president of Brokers for Life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.

 

Len Lane  00:19

Welcome back. Seems like more often than not in Alberta or in much of Canada maybe, that the number of divorces seems to be on the increase year over year. It's probably been more prevalent, I guess, since the laws made it easier in the late 60s, early 70s, for someone to get divorced. But there are stats that are kind of staggering, I guess. If you think about it, the average for Canada dating back to 2020 was about 7.7% I'm not sure what it would have been after the pandemic, after everybody had to be together every day, all day long, but I'm sure those numbers are considerably higher in Alberta. The average is 9.7 divorces per 1000 married persons. So it is something that is in the markets, and it's something that I know brokers who actually make their whole living based on, based on working with divorcee, divorce lawyers as well as divorcees, and it is a lucrative market. Sometimes there's two deals, sometimes there's not, but there is a program that comes through CMHC called Spousal Buyout. 

Len Lane 01:33

So, to qualify for spousal buyout, you have to meet certain criteria, of course. The buyout must be court ordered, so it has to be in the separation agreement. It would help you. If you qualify for mortgage on your own without a co-signer or guarantor. Property must be a principal residence, and you, your ex-spouse must be on the title. CMHC allows us to do something well, allows a few things to happen, allows you to stay in your home, of course. And quite frankly, that might be good for children as well, potentially better mortgage terms and then simplifying the division of the assets. So one of the great things about the CMHC Spousal Buyout program is that it actually allows us to go back to 95% of the value of the property. Now, in going back to that amount, the money has to be one, to pay out the mortgage, and anything else that is decreed in the actual divorce agreement. So whether that's okay, you have to pay me $30,000 or you have to pay them $30,000 to equal out the assets, perhaps, or something like that. Whether that's actual mutual funds, something along that line. Pensions sometimes come into play, and all that as well. So it's a program that it was designed to take some of that hardship, I guess, out of out of the process, and allow people to actually stay in their homes. So with divorce rates where they are, especially in Alberta, were reportedly about 50% at some point, I guess, in the past years. But when you look at what the issues are, usually, money issues, you know, are causes of the marital breakdown. Infidelity, obviously that never flies in most cases, family disagreements. There's a lot of different things that come into play there, when, when the dynamics of families come in, into conversation about who does what, and, you know, a lot of other things. Perhaps you take out the garbage wrong that day or something on that line. But I'm sure it's not that simple, not to make fun of it, but it's it is a large amount of people that get divorced. There's no question, lawyers and people that do reconciliations and things like that. It's a huge industry that is basically surrounded by the option to do something with your mortgage. 

Len Lane 04:01

The other part of what is happening in the markets is something called “Gray Divorce.” So what Gray Divorce is is basically what it sounds like. More and more older couples are splitting up, dividing up their assets and moving on to their own properties, perhaps, or something along that lines, while you can do the Spousal Buyout on that, the other item that has come to the forefront for us is that there is a program through the reverse mortgages where you can actually buy a property with a reverse mortgage. So if you started out that, obviously some of the assets would be very large in some of these bigger groups, and some of the articles I was reading, it was, it was pointing out some very well known names like Bill and Melinda Gates, of course, Hugh Jackman and Deborah Lee Jackman, Rhea Perlman and Danny DeVito, never, never knew that they were divorced, but obviously a long time married, a long time in the same industry, both very successful, of course. But again, you're putting up assets at a later point in life. What's in the house and things like that will be substantial in a lot of cases. But that opportunity to go to a reverse mortgage, not have to have a mortgage payment again, is quite possible. 50% of the value of the house possibly into a reverse mortgage or higher, depending on the ages. You know, it is a viable solution for some people, when, when that happens to them, so. It's one of the items that we don't think about. But it is definitely happening more and more in the background. I guess, realization sometimes where you spent all day apart for 50 years, or 40 years, whatever it was, and then you're both retired and and you're both sitting home, and sometimes you kind of realize that you know you're not the same person that, or whether your spouse is not the same person that you married 40 years ago. So Gray Divorce is very high on the list of things to do these days. So, it's a, you know, watching the divorce rate and watching the different programs we have done some in the cases where there is nothing in the separation or divorce agreement that has to be paid out. So it presents a different issue. And the issue being that the Spousal Buyout program will only take care of things that are in the actual settlements agreements themselves. They will look at some debt, I guess, but if, only if it's been included in that so sometimes that Spousal Buyout changes into a refinance and in the person taking over the home, the partner taking over the home these days would be the proper description of that, I guess. But there are a lot of things that have to be taken into consideration. Will the new partner? Will you be the partner that is able to actually afford a mortgage and be able to carry that debt on your own? It's important to see, that you know that before you commit to that. I think that's one of the things we've seen more times than not, is that people start down this road not realizing that perhaps you don't qualify for a home on your own, and you need to actually maybe have a co-signer to go with that. Or the other option is just the house gets sold and the profits get split up as part of the divorce. 

Len Lane 07:29

So when we continue to look at that program, Sagen and CMHC, of course, offer it, as well as the possibility that there will be extra things for them to look at. The Spousal Buyout will allow quite a few things to happen and hopefully help some parties come to a final agreement on on their separation. Here are some of the things that actually go with the CMHC guidelines. Where the home is located in Canada, of course. Purchase is not subject to prohibition, under prohibition. Of permanent purchase of residential properties by non Canadians. So if you're divorcing someone from outside the country, they may not have the option to participate. Obviously, CMHC guidelines changed recently, where the actual maximum value of the property can be $1,499,999 and $1 million for small rental loans, right? So it is still stays within the guidelines of insured mortgages in Canada, typically have a minimum down payment starting at 5% sometimes that's from equity in the property as well. So you will need to have the property appraised. 5% applies up to 500,000 of course, anything above 500,000 you have to have 10% of the remaining portion. Two types of down payments, traditional and non traditional. Traditional down payments can come from a source such as savings, the sale of a property or non repayable gift from a relative, and sometimes that helps in settling out the divorce. Non-traditional down payments must be armed length and not tied to purchase and sale of the property, either directly or indirectly. So non-traditional down payments would be you board the money for the down payment, and of course, you have to debt service that amount in into the actual transaction as well.

 

Len Lane  09:22

Your total monthly cost, principal, interest, taxes and heat, the PITH formula, of course, cannot exceed 44% TDs and 39% GDS. Net loan amount should be, should not, shouldn't be more than 44% as as we said, as the debt you have to consider, in fact. If it's a condo, you have to factor in condominium fees as well. Also kind of thinking about closing costs, although it's all wrapped up in the divorce itself, legal fees, land transfer taxes in some provinces still apply when, when it's spousal buyout, so that is definitely something to consider. It's 1.5% to 4% of the purchase price, depending on where you are in the Canada. That's a big chunk. Does not apply in Alberta. First time buyers are surprised with those costs, right? So if you're not an experienced real estate purchaser as part of the divorce and you have to realize that there are extra cost, and some of that should be factored in by your lawyer into the actual overall settlement as well. So there are lots of things to know and to make sure that you're pre-approved, and those are considered in the actual transaction. And that transaction, of course, is the actual settlement agreement. So, I hope some of this was helpful. It's just a snapshot of what you need. And we have seen this more than once, where the lawyer does only family law and they do not do real estate, so they actually farm that out, or they have to get a second lawyer involved to do the actual land or the property transaction. It is something that has a bit of detail to it that needs to make sure that everything is crossed and dotted as as you go through the divorce process. Anyways, hope this is helpful, and if you need that, definitely reach out to our team. You can find them at brokers life.ca/associates 

 

Len Lane  11:21

Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey, and remember you can always find our associates at www dot brokers for life dot ca/associates. Have a great day.