Separating spouses should prepare for higher levels of conflict with their former partners as economic uncertainty injects an extra dose of tension into already volatile situations.
Canadian inflation and interest rates are running at levels not seen in decades, and as a result, many families are feeling the squeeze when it comes to their household budgets.
Homeowners are even more attuned to broader economic difficulties, thanks to the plunging value of the asset that is typically their most valuable. At the beginning of 2023, the average selling price for a home in the Greater Toronto Area stood at just over $1 million, a drop of more than 20 per cent compared with the February 2022 high-point, when GTA properties fetched an average of $1.33 million.
Negotiating a buy-out
Although this might sound like good news for a separating spouse who hopes to buy their former partner out of the matrimonial home, it may not always turn out that way in practice.
Regardless of how robust the local real estate market happens to be at the time when a couple splits up, it’s natural for the selling spouse to seek as much as they can get from the buyer while the purchasing party tries to keep the price as low as possible — neither wants to feel as if their ex is getting one over on them.
The problem in a declining housing market is that selling parties are more inclined than normal to dig in and wait since even a fair offer feels like a loss when they consider what they could have gotten for the property just a few months earlier.
Spectre of possible recession
The result is that more couples are living together under the same roof for longer after separation — a situation that is not conducive to amicable relations, and one that could even be dangerous if there are concerns about domestic abuse in the relationship.
The most optimistic real estate forecasters are predicting a rebound for Toronto house prices later in the year. But for couples who manage to agree on a sale, the spectre of a possible recession still hangs in the air, threatening to add to the financial stress that comes with running two households on the same combined income level that used to cover the needs of just one.
After separation, former spouses with children often prefer to remain in the same neighbourhood to minimize disruption to their kids’ friendship networks and stay close to schools, which can stretch them financially.
Alternatives to litigation
All the extra interpersonal tension inspired by this economic uncertainty boosts the case for separating couples to try alternative dispute resolution such as mediation, arbitration and collaborative family law to settle their issues.
Apart from the significant cost and time savings that flow from avoiding litigation, one of the biggest attractions for former spouses who opt for these methods is their control over the process.
Rather than sticking strictly to the letter of the law, the parties and their counsel are free to design creative solutions that suit everyone involved.
For example, former spouses may be able to give themselves more breathing room by negotiating an extended period over which one party completes the buy-out of the other’s interest in the matrimonial home.
In other cases, the precise date of separation causes issues if it comes immediately before or after a market crash that leads to a significant change in the value of the couple’s assets and significantly affects calculations regarding the equalization of property.
In ADR processes, the parties can acknowledge the feelings of unfairness that flow from the unfortunate timing of a separation date by choosing a more reflective date for the valuation of assets or by building in an installment plan for equalization payments.
If you are in the process of separating from your spouse and would like to explore your options around the marital home, schedule a consultation with me, and we can review all the critical issues together.