How to Buy Out Your Spouse’s Equity During a Divorce

Author: Chris Allard

Category: Mortgages & Rates, Refinancing

When going through a divorce or separation, dividing assets and deciding who gets what can be a stressful process. Many separated couples find that deciding what will happen to their home is one of the hardest decisions to make. Selling the home and splitting the equity is an option, but in most cases, at least one partner wants to keep the home.

Fortunately, there’s a solution that lets one spouse keep the home, while the other can still walk away with their share of the equity. This is called the Spousal Buyout Program.

Read below to learn about how this option can help you, and what steps are required to complete a successful, stress-free spousal buyout.

Table of Contents

1 Quick Summary
2 What Does It Mean to Buy Out Your Former Spouse?
3 The Spousal Buyout Program
4 Financing Options Beyond the Spousal Buyout Program
5 Begin Working with a Mortgage Broker Before Your Divorce is Finalized

Quick Summary

A spousal buyout allows one partner to keep the home by paying the other their share of the equity.
The Spousal Buyout Program offers up to 95% financing through CMHC, Sagen, or Canada Guaranty.
Key steps include a legal Separation Agreement, home appraisal, and mortgage qualification.
Alternatives include HELOCs, second mortgages, and co-signers.

What Does It Mean to Buy Out Your Former Spouse?

When someone “buys out” their spouse, they are participating in a transaction: the buyer gives back their spouse’s half of their home equity for full ownership of the home, or its mortgage.

The Spousal Buyout Program

A shared home is an asset, and it’s often the most difficult asset to determine the eventual owner of during a divorce. That’s because couples often make equal or nearly equal financial contributions towards a home, and share its sentimental value. Plus, it’s not realistic to take turns living in the house, or cut it in half and each take a piece.

The Spousal Buyout Program offers a compromise that allows one spouse to retain the home, while providing the other with what they are financially entitled to.

Both parties must agree to this transaction and do so under a legally approved Separation Agreement. The agreement should be drafted by two lawyers as opposed to a mediator, as some lenders don’t recognize separation agreements drafted by mediators. Some lenders won’t even accept separation agreements drafted by a mediator or templated from the internet, even if signed off on by two different lawyers.

They must also determine the amount owed by subtracting the exiting partner’s half of the equity from the amount owed on mortgage loans. Read more about the specific steps of a spousal buyout below.

How Does the Spousal Buyout Program Work?

1. Determine Who is Staying in the Home

A spousal buyout is a compromise that emphasizes fairness and ensures that each person comes out of it with a relatively similar value. Still, one person will ultimately remain in the previously shared home, while the other will leave. For the spousal buyout process to be effective, you will both need to agree on who will remain in the home.

2. Negotiate a Legally Binding Separation Agreement

A Separation Agreement allows both parties to negotiate the terms of their divorce under the protection of the law. Both spouses must agree to this contract, which sets rules governing aspects of the divorce, including child custody, asset division, and dispute resolution.

Ultimately, having a Separation Agreement will make the entire divorce process quicker and easier, as you will not have to go back and forth with lawyers each time the divorce progresses.

3. Determine the Value of the Home and Your Equity

There are two essential factors to consider during this process: your home’s property value and your equity.

Your home’s property value is, essentially, the price it could hypothetically be sold for. This value is determined by a professional real estate appraiser and is affected by plenty of factors, including, but not limited to:

Lot size
The surrounding neighbourhood
The number of rooms
Interior and exterior features of the home

The current state of the housing market would also play a role in your home’s property value.

You will also need to determine your equity. Under a mortgage payment plan, this value represents how much of your home you technically “own.” In other words, you can determine this value by subtracting how much you owe on mortgage loans from the full appraised value of a home.

If your home is appraised at $400,000, and you still owe $100,000, you have an equity of $300,000, or 75%.

In reality, determining your equity is slightly more complicated. Equity is also affected by changes in the housing market and your home’s property value. It’s recommended that you work with a mortgage broker to find a licensed appraiser who can precisely determine your equity.

4. Calculate the Buyout Amount

When a married couple owns a home, each is entitled to 50% of its equity. Under the spousal buyout program, the person who will stay in the house must “buy out” the other’s equity. They will become the sole owner of the home, while the exiting party will be given the money that was previously represented by their share of the equity.

To determine how much this will cost, take the following steps:

Determine your shared equity.
Divide that number by two to determine each party’s individual equity.
Add the equity of the party exiting the mortgage to the amount still owed on the mortgage.

The price you end up with is the amount of money required to buy out your spouse’s equity.

5. Buyout

The spousal buyout program allows one party to borrow up to 95% of the home’s value, while having access to the best mortgage rates and an insured program, such as CMHC, Sagen, or Canada Guaranty. These funds will be used to buy out the other spouse’s equity in the home.

6. Walk Away with Both Parties Satisfied

In all honesty, it’s rare for both parties in a divorce to leave with 100% satisfaction. However, the Spousal Buyout Program ensures that, at the very least, the right to one indivisible asset is given fairly. While one party keeps the home, the other is paid back their portion of ownership, which is often the most reasonable way to settle the decision on who gets the home, aside from selling.

Separation vs. Divorce

One common question is whether you need to wait until a divorce is finalized to qualify for a spousal buyout. The good news? You don’t have to.

You can pursue a spousal buyout during the separation period—as long as you have a legally binding Separation Agreement in place.

This timing can be especially helpful if:

One spouse wants to leave the home sooner
You need to refinance quickly to settle other financial matters
Delaying the buyout would cause financial strain for one or both parties

Just be sure your Separation Agreement includes clear terms around property division and has been signed off on by both parties’ legal counsel.

Common-Law Relationships and Cohabitation

If you’re in a common-law relationship, the spousal buyout process can look different than it does for married couples—particularly when it comes to legal rights and property ownership.

Title and Eligibility

To qualify for a buyout, the person being bought out must be on title. If only one person is on title and the other contributed financially, legal action may be needed to establish beneficial interest before any equity payout can occur.

Mortgage Qualification

If both partners were on the mortgage, the remaining partner must still qualify for the new loan on their own. In cases where only one partner was on the mortgage and title, refinancing may simply involve a new loan—not a formal buyout.

It’s highly recommended to speak with both a lawyer and a mortgage broker when navigating a common-law separation to ensure your legal and financial interests are protected.

Financing Options Beyond the Spousal Buyout Program

While the Spousal Buyout Program is a great solution for many separating couples, it isn’t the only way to manage a buyout. Depending on your financial situation, you may consider one of several alternative financing options:

Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against your home’s equity, often at a lower interest rate than other types of loans. This can be useful if you have significant equity but want flexibility in repayment. However, a HELOC can’t fund the entire 95% of the home’s value like a traditional spousal buyout mortgage can. That’s because a HELOC can go up to 80% of the home’s value, but if the only loan on the house is a HELOC, then banks can only go up to 65% of the value of the home.

Second Mortgage

A second mortgage is another loan secured against your home, in addition to your existing mortgage. While this can help access extra funds, it comes with higher interest rates and increased monthly payments. In addition, you would need to qualify for your existing mortgage alone, alongside the second mortgage. This can potentially be used as a short-term solution and is best evaluated with help from a mortgage broker.

Co-Signers

Adding a co-signer—such as a parent or family member—may help you qualify for a larger loan by boosting your application’s strength. This can be especially helpful if your income alone doesn’t support the new mortgage. However, co-signers share responsibility for repayment, so it’s important to have clear financial agreements in place.

Begin Working with a Mortgage Broker Before Your Divorce is Finalized

A divorce is bound to be stressful. The added element of real estate surely doesn’t help. If you need to determine what will happen to a shared home following a divorce, a spousal buyout could be the solution to your problems. Talk to our team today to learn more about how this process can help you.

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