Common-law partners: What you need to know about selling a property
Published on July 17, 2023
What happens when common-law partners sell their house? While married couples enjoy clear legal protection about property division, the situation for de facto spouses is very different. However, one thing is certain: the co-owners must agree on several points when selling property.
Whether you're planning to sell a property owned by you and your partner to move to a new home, or are selling a home after separating, find out the different implications of selling as common-law spouses.
Contents:
- The rights and obligations of common-law partners
- Selling a house as common-law partners
- Selling the house in a separation
- Keeping the house in a separation
- Finalizing the sale with a notary
The rights and obligations of common-law partners
Quebec’s ministry of justice defines a de facto union as “two people who live together as a couple without having made a public commitment to do so, for example by getting married. The de facto union is not binding—the spouses have no rights or obligations towards each other. In the eyes of the law, they are considered to be two single people, however long they have been together.” However, some rights and obligations still apply, especially if they have children.
In other words, Quebec law does not recognize common-law partners as having the same rights and obligations as married couples when it comes to sharing housing properties. It is therefore necessary for common-law partners to take action to protect themselves, to give themselves these rights and obligations.
Protecting your rights and regulating the division of property
So, to make sure buying a property as de facto spouses doesn’t turn into a nightmare, there are some precautions to take. Doing a few things now is critical for later, when it comes time to sell the house, for whatever reason.
Put both names on the deed of sale: Both partners will be considered co-owners and be responsible for the maintenance of the home and the mortgage. Neither can rent or sell the property without the other’s consent.
Write up a cohabitation agreement: Also known as a “de facto spouse agreement,” this document includes details on how the partners agree to pay for the property. It also sets out the responsibilities and contributions of each partner during their life in common and in the event of separation.
Issue an undivided co-ownership agreement: This determines each party’s rights and obligations relating to the co-owned property, including each person’s proportional ownership, the amount of the down payment from each spouse, and the conditions if the property is sold or in case of separation.
Draw up your will: Having an up-to-date will determines who will inherit the property if one spouse dies. It’s possible to name your partner as the future owner of your share.
Prepare a protection mandate: This document is in case you ever become incapable of making decisions about the house. You can designate your partner, or another loved one, to be your proxy and to take care of you and your property.
Get insurance: With life insurance or mortgage insurance, you can choose your beneficiary. That way your partner can be designated the sole proprietor if you die.
You should know that these legal documents that protect you both legally and financially can be produced at any time. Don’t hesitate to call a notary to find out more.
Want to learn more about the implications and best practices when buying a property with your common-law partner? Read our article on this topic.
Selling a house as common-law partners
There are several reasons that might lead a common-law couple who has lived together for many years to sell a property. They may own several. They may need something bigger, or smaller. Regardless of the reason for selling, it’s wise to know the implications of the decision.
Financial implications
As previously mentioned, if both partners signed the deed of sale for the house, they are both its legal owners, and in principle, with equal shares (unless a different proportional share is indicated in an undivided co-ownership agreement or in the deed of sale). The decision to sell therefore belongs to both spouses, who are undivided co-owners.
Unless otherwise specified, the gains or losses in the sale of the house are divided fifty-fifty. Generally, each person gets back their down payment and the percentage of the profit corresponding to their proportional share in the property.
Tax implications
When selling a home or housing building, it is necessary to declare the capital gain or loss achieved. If there’s a gain, 50% of the profit is taxable. The capital loss from selling a property however is not tax deductible.
However, the principal residence exemption may prevent the capital gain from being taxable. In fact by designating the property sold as a principal residence, you benefit from a tax credit from the Canada Revenue Agency and Revenu Québec. Each co-owner (the spouses) can do this, as long as the property has been owned for over 365 days and was “ordinarily inhabited” during every year of ownership.
Selling the house in a separation
When a couple separates, the option selected is often to sell the property owned together, share the profit and then start fresh. That helps to make the break final. In such a scenario, the common-law partners must agree on the sale and the sharing of profits, if there are any. The cohabitation agreement and the undivided co-ownership agreement will determine the amount paid to each partner, according to their ownership share.
Note: Like for a common-law couple who is still together, it is possible for each ex-partner to get the principal residence exemption. To do this, both parties must declare the sale and both must claim the exemption on the same property (for instance in a case where they are also selling their cottage).
Legal impacts
A breakup is often an emotional time. However, it’s necessary to take the time needed to share jointly owned property because common-law partners do not have legal protection in case of separation.
In fact property division is different for common-law partners than for married couples. If the couple has a cohabitation agreement, then it serves as the basis for the sharing of property, including the house. If there is no agreement and both own the home, they must decide together what will happen to the property: if it will be sold, who will stay, who will leave, etc.
As former common-law partners, each owner is considered a joint owner. Each is entitled to sell their share, but the other ex-partner generally has precedence over a new buyer. This is known as a pre-emptive right (or the right of first refusal).
If only one spouse signed the deed of sale and there is no cohabitation agreement, then the sole owner gets to decide (without abusing their power!) if the other person can stay on the property or has to move out. The sole owner can also choose to sell the house.
Costs associated to the sale
While selling a property generally involves money coming in, it also comes with certain costs. First there are the costs of putting the property up for sale. If you choose to hire a broker, you then have to pay a commission of 5% on average upon selling. If you choose an assistance service, like DuProprio’s, you have to take into account the cost of a package to get visibility and support.
Also, breaking a mortgage before its term often involves a fee. In fact, it is generally necessary to pay a mortgage prepayment penalty. The amount of the penalty varies according to the lender and the terms of the agreement, but it can rise to several thousand dollars.
Then, you have to calculate the costs of the different documents that must be produced for the sale. Some may cost you money, like getting a recent surveyor’s certificate for the property or an appraisal report from a professional or certified appraiser.
The notary fees for finalizing the transaction must also be budgeted for. While some costs are payable by the seller, the buyer also has fees to pay, for instance:
- The discharge for the cancelled mortgage
- The issuance of certain cheques (e.g., for tax arrears)
- Depositing the cheque at the financial institution
- A certified copy of the previous deed of sale (if no longer in the seller's possession)
- And more
And finally, the moving costs must not be overlooked: assistance from professional movers (if applicable), purchasing boxes, etc.
Managing the sale harmoniously
To maximize both parties’ profits and save costs, selling broker-free is an interesting option. By choosing to sell with the help of DuProprio and keeping the commission, each spouse will keep more money in their pockets. Plus whether you sell with or without a broker, you’ll invest the same number of personal hours on average.1
While DuProprio’s packages include support, selling broker-free does require a little more organization. Separating the tasks can be a good way to prevent conflict. One person can handle the paperwork and the other can be on-site for the home visits. One can be the contact person with the DuProprio team while the other can handle calls from interested buyers.
After a breakup, selling can be more emotional, so it may be tempting to accept the first offer or to sell for less to get rid of the problem quickly. This would be a mistake because you could be leaving a lot of money on the table. However, it’s beneficial to show an open mind when negotiating with a potential buyer. It’s realistic to think that you can agree on a price and conditions that will be as much a win-win as possible under the circumstances.
Whether you sell with or without a broker, good communication between your ex-partner and you will play a decisive role. Set your feelings aside and remember that you have the same goal: for the sale to be successful.
Dealing with disagreements
Despite the best intentions, it can happen that disagreements arise because of the situation’s sensitive nature. There are various options to deal with them.
The first is to find middle ground, through negotiation or mediation. And if possible, choose an amicable agreement to avoid costs. Otherwise, you can hire a lawyer or mediator to help you divide the property and any potential profit from the sale. Their role is to support you in reaching an equitable agreement.
Do you have kids together? You may be entitled to free hours of mediation. Find out!
If your partner refuses to sell the house (or to buy your share), you can ask the court to order the sale and to divide the equity as well as expenses linked to the sale. This is called requesting division on termination of the indivision agreement. It is not necessary to provide any justification for the request. Section 1030 of the Civil Code of Quebec states that “No one is bound to remain in indivision.” Contact a lawyer specialized in real estate law to find out what your options are.
Throughout the process, remember that each co-owner has the right to remain in the home after separation.
Keeping the house in a separation
It may happen that when a couple breaks up, one of the common-law partners wants to keep the house. This decision may have been considered in advance (and written into the cohabitation agreement) or may emerge during the breakup. That person must then buy back the other partner’s share and transfer the mortgage. There is also the option of assuming the mortgage.
Selling a portion of a co-ownership
To sell a portion of a property to your ex-spouse, you must first agree on the home’s market value. This is based on an analysis of comparables, that is, similar properties recently sold in the area. To get a precise and objective value, it may be a good idea to hire a certified or professional appraiser and to each order an independent appraisal.
Then, you should ask your financial institution how much the penalty will be for breaking the mortgage. This amount, the balance of the mortgage and the share to be bought back are used to calculate the amount to pay your ex to become the sole owner of the house.
Here is the calculation to get the amount to buy back your ex-partner’s share:
House’s market value – Debts (penalty and balance) = Net value
Then, calculate what percentage of this net value belongs to the partner leaving the property. You also need to take into account each person’s initial investment, that is, the down payment.
Once the amount has been determined (and accepted by both parties), the person who wants to keep the house must prove their capacity to pay it alone and to assume the balance of the mortgage. This involves:
- Having a good credit rating
- Having enough income
- Being up to date on the mortgage payments
In most cases, it will be necessary to sign a new mortgage agreement because of the mortgage penalty to be paid. So it is possible for the new solo owner to shop around for mortgages. Then, you’ll have to produce a new deed of sale.
If one common-law partner buys back the other’s share and stays in the house, that person will not have to pay the transfer tax (welcome tax) if the transaction takes place within 12 months of the breakup.
Get support from professionals, like a notary or mortgage broker, to navigate the complexities of a buyback.
Assuming the mortgage
When the property’s net value is low or negative, it may be advantageous to consider the option of one partner ceding their share to the other. Then, one partner keeps the property but, in principle, no capital is exchanged. The two parties sign an assumption agreement. Since one partner consents to taking full responsibility for the mortgage, there is no bank penalty to pay, only an assumption fee, which is usually fairly low. In order for the financial institutions to agree to the proposal, the financial situation of the person assuming the property must be very solid.
Caution: The partner selling remains responsible for the mortgage because there is no substitution of obligation. That partner should get a discharge from the mortgage creditor so that the spouse remaining as owner is the only debtor to the creditor. Otherwise, this could keep the partner leaving the property from taking out a new mortgage. It is therefore recommended that you talk to a specialist before taking this route.
Finalizing the sale with a notary
When selling a property, or part of a property, as either current or former common-law partners, the notary is your best ally. The notary’s role is to make sure the transaction proceeds smoothly and to formalizes the deed of sale. The notary also:
- Checks the property deed
- Verifies the surveyor’s certificate
- Drafts the mortgage act (if needed)
- Drafts the deed of sale
- Records the transaction in the land register
- Manages the money from the sale
As a jurist, the notary can also advise the seller and the buyer to prevent any irregularities or errors. Thus, the notary protects both parties. With a notary you can pass on ownership of the property (or a portion of it) with peace of mind.
At DuProprio, a team of notaries is available 6 days a week to answer questions about legal documents or purchase offers. No call limit!
Learn more about our visibility and selling support services by watching our short webinars or scheduling a call with one of our advisors.
