Separation and Joint Mortgage in Quebec | Practical Guide

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Separation and Mortgage: A Complex Reality

The end of a conjugal relationship carries major financial consequences, and the joint mortgage is often the most significant issue to resolve. In Quebec, whether you are married, in a civil union, or common-law partners, the fate of the mortgage depends on both the applicable legal regime and the mortgage loan conditions. A fundamental point to remember: regardless of the agreement between ex-spouses, the lender considers both co-borrowers jointly and severally liable as long as the loan is not refinanced or repaid.

The Three Main Options

Sell the property: This is often the cleanest solution. The sale proceeds are used to pay off the mortgage, and the net balance is split between ex-spouses according to their agreement or court judgment. If the sale occurs before the mortgage term ends, a prepayment penalty may apply.
Buy out the ex-spouse's share: One spouse keeps the property and buys out the other's share. This requires refinancing in the name of the spouse keeping the home. They must qualify alone for the new loan, including the OSFI stress test (the higher of the contract rate + 2% and the 5.25% floor rate). The equalization payment (ex-spouse's share of equity) is typically paid from the refinancing proceeds.
Temporarily maintain co-ownership: The ex-spouses agree to keep the property jointly for a set period, for example until the market improves or until children are older. This option maintains joint liability and limits each person's borrowing capacity.

Family Patrimony in Quebec

For married or civil union couples, the Civil Code of Quebec (articles 414 to 426 C.C.Q.) establishes the family patrimony regime, which is of public order and cannot be waived by marriage contract. The family residence is mandatorily part of the family patrimony, regardless of which spouse is the registered owner. Upon dissolution of the marriage, the net value of the residence (market value minus mortgage balance) is shared equally between the spouses. This sharing may trigger the need to refinance in order to pay the equalization payment to the departing spouse.

Qualifying Alone: The Refinancing Challenge

The main obstacle to a buyout is mortgage qualification. The spouse who wants to keep the property must demonstrate they can carry the loan alone under the lender's criteria. The gross debt service (GDS) ratio must generally not exceed 39% of gross income, and the total debt service (TDS) ratio must not exceed 44%. Additionally, OSFI Guideline B-20 imposes a stress test that qualifies the borrower at the higher of the contract rate plus 2% and the published floor rate (currently 5.25%). For an ex-spouse whose income represents half the couple's combined income, this challenge can be considerable.

The Mortgage Broker's Role

In a separation situation, the Quebec mortgage broker acts as a neutral financial advisor on mortgage matters. They can assess each spouse's individual qualification capacity, compare refinancing offers from multiple lenders, calculate penalties and total costs for each scenario, and coordinate the process with the notary handling the property transfer and the family law attorney. The broker is required to act in their client's best interest under the Act respecting the distribution of financial products and services and the applicable code of ethics.

Frequently Asked Questions

What happens to the mortgage if we separate?

Both co-borrowers remain jointly and severally liable for the mortgage until it is repaid, refinanced in one borrower's name only, or the property is sold. A separation agreement does not automatically release a co-borrower from their obligations to the lender.

How does buying out the ex-spouse's share work?

The spouse who wants to keep the property must refinance the mortgage in their name alone. This refinancing must cover the existing balance plus the equalization payment (the value of the ex-spouse's share in the equity). The buying spouse must qualify alone under the lender's criteria, including the OSFI stress test.

Does family patrimony apply to common-law partners in Quebec?

No. In Quebec, family patrimony (articles 414 to 426 of the Civil Code of Quebec) applies only to married or civil union couples. Common-law partners have no automatic right to share the family residence. Their share is determined by the title of ownership and the rules of undivided co-ownership.

Can we keep the joint mortgage temporarily after separation?

Yes, this is possible if both parties agree, for example to wait for the market to improve or for children to finish the school year. However, both co-borrowers remain jointly liable, which affects each person's borrowing capacity for a new home.

What are the costs associated with a buyout?

Typical costs include: notary fees for the property transfer and new mortgage ($1,500 to $3,000), property appraisal fees ($300 to $500), a possible prepayment penalty if the mortgage is broken before term, and land registry filing fees.

Can a mortgage broker help me in this situation?

Absolutely. The broker assesses your ability to qualify alone, compares refinancing options across different lenders, calculates the total costs of each scenario (sale, buyout, maintain), and coordinates the process with your notary and family law attorney.