Husband moves out of matrimonial home 3 years ago when home was worth $600,000. They do have a separation agreement from that time, but it doesn’t apparently cover this issue. The home is worth $900,000 and he wants her to buy him out. The husband moved back into basement last year for a 10 month period. Both have been paying the mortgage up until now. Also, he has not been paying child support. So, will she need to buy him out and if so, at what price?
This remains a hypothetical question. The reason is that we only know about 20% of the facts that we would need to know in order to come up with the correct answer.
The valuation date is often the date of separation. Sometimes, that can be difficult to determine. Usually, it will be specified as a term in the Separation Agreement. The valuation date could be activated by other matters, so one key issue at the outset is to determine the valuation date.
The next step in the process is to undertake some calculations. What was the value of their assets (less liabilities) at the time of the marriage and what were their assets worth (less liabilities) at the time of the valuation date? Then, who has the most? That person owes the other person one half of the difference in their net family property calculations.
Going into that calculation, you have to know whether property is included or excluded. If it were initially excluded, did it remain excluded? Sometimes, this can be a difficult task.
It appears that the house was an asset owned by both the husband and wife, and this didn’t change over the course of the tenure. Essentially, we might start off with the valuation of the property at $500,000 as calculated on the valuation date. That’s fine, but that’s not the entire answer. Subsequent to that date, we have another increase in equity of $300,000. According to the tenure set in the ownership documents, that rise in value would be split equally.
This would not be the case if there were an initial Marriage Contract (we don’t know whether one exists) or a Separation Agreement which dealt with this issue. Assuming that nothing appeared with respect to the option to buy out the house, by the wife, which there should have been, if she were to have had such a right, then, it will be presumed that the parties simply wished to continue with their existing co-ownership of the property.
The valuation date only becomes important if only one person owns the house. The contribution to the mortgage only becomes important if only one person owns the house. Here, those matters don’t apply, since both parties have co-ownership at all material times.
The next issue is adjustments. The husband owes some money for child support and possibly spousal support for several years. That will be calculated with interest. There may be other obligations too, including all the mortgage payments. He will get credit for the ones he paid and will still be obligated to adjust when it comes to the payments he didn’t make.
So, when all that math is done, is he still getting money out of the house? Who knows!
In specific response to the question that was posed: “it’s complicated”. But, there is no evidence in any of the facts set forth that the husband would be excluded from participation in the rise in equity. Of course, once we know the remaining 80% of the story, then we could be sure.
Brian Madigan LL.B., Broker