Couples going through a separation or divorce are typically grappling with great sadness and stress. Amid the emotional turmoil, one of the many big questions these couples must deal with is what to do with their shared home. If the couple own a home together, they have three main options:
- Maintain their shared ownership of the home (while this is rare, it can happen)
- Sell the home and split the proceeds
- Conduct a spousal buyout in which one spouse buys out the other’s share
In this article, we explore the third option and explain how Pillar can support clients requiring mortgage refinancing during a separation or divorce.
Financing a spousal buyout
If one spouse wants to retain ownership and continue to live in the shared home, this typically involves a spousal buyout. With Pillar, the process is relatively straightforward:
- We pay out the lender of the couple’s shared mortgage
- We remove one spouse from the title of the home and issue a payment to them for their share
- We refinance the home with a new Pillar mortgage solely in the name of the remaining spouse
Of course, there are factors that can make the refinancing process more challenging than a traditional mortgage. For example, it is common for couples going through a separation or divorce to see their credit ratings suffer. Therefore, during the refinancing process, we often clean up other debts for the spouse initiating the spousal buyout and consolidate them into a single monthly mortgage payment.
Special considerations for refinancing
From an administrative perspective, the main difference between refinancing during separation or divorce and other mortgage deals with Pillar is that we require the couple’s separation agreement (or the divorce agreement, if a divorce has been finalized). We need this document to confirm whether there are any spousal support and/or child support payments included in the terms of the separation or divorce. Such payments are factored into our calculations when assessing a refinancing deal.
For clients, one of the key stumbling blocks can be the transition from paying a mortgage with two incomes to suddenly paying a mortgage with only one income. If the couple was already stretched in terms of their gross debt service (GDS) and total debt service (TDS) ratios with two incomes, the spouse retaining sole ownership of the home may find their ratios above what banks are willing to lend on.
In these situations, Pillar can offer greater flexibility than institutional lenders in putting together a viable mortgage solution. The borrower may need to make significant lifestyle adjustments to make things work financially, but it may be worthwhile if they are able to remain in their home.
Support during a stressful transition
The breakdown of a marriage is always distressing, and deciding what to do with a shared home is just one of the many challenges that couples must overcome. Mortgage refinancing during a separation or divorce via a spousal buyout offers a solution when one spouse wants to retain ownership of the home.