Would It Be A Mistake To Buy A Property With My Ex-husband?

Q. I’m currently working on a separation and my ex-husband and I may buy a second property together to avoid extreme degradation of our finances . What are the pros and cons of doing this and what should we do to ensure the new property is split 50-50 at the time of sale? A divorce is likely to go through in a year or so and I wanted to know your thoughts on co-mingling some of our investments even after divorce. —Anonymous

FP Answers: The divorce process typically involves separating finances, so your proposed approach is somewhat uncommon. If you decide to purchase a new property jointly with your soon-to-be ex-husband, it is essential to put a clear co-ownership agreement in place. This agreement should define expectations around the use, maintenance, expenses and eventual sale of the property. It should also address contingencies. For example, what happens in the event of a disagreement, or to each party’s share if one of you dies.

It is also important to consider how joint ownership may affect future relationships. In some situations, retaining shared family assets post-divorce, such as a sentimental family cottage enjoyed by both parties, can be practical. However, overly-complex financial ties may create complications or complicate relationships with future partners.

If the primary motivation for purchasing a new property is speculation that prices will rise , that may not be a sound investment rationale. Real estate values can decline as well as increase, and if prices move in the opposite direction, you could both be left holding an asset worth less than you paid. Have you maxed out your registered retirement savings plan (RRSP) and tax-free savings account (TFSA)? There are tax benefits to these accounts that you could be forgoing to bet the farm on a real-estate investment. Additionally, if the purchase is financed with a mortgage, you would likely both remain legally responsible for the debt. This could limit each of your borrowing capacity for other needs. Or it could get awkward if one of you gets into financial difficulty and the other is on the hook to make the payments.

Lenders evaluate borrowers using several criteria, including “capacity,” which refers to your ability to consistently and reliably service debt payments. Real estate is not a liquid asset and carrying mortgage debt on a jointly owned property could significantly strain cash flow. If one party wishes to sell and the other does not, or if the co-ownership agreement does not adequately address dispute resolution, co-owned real estate with your ex can get tricky. These are important risks to consider.

• Calvin is looking for ways to avoid paying probate in Ontario. What are the risks of doing this?
• I co-signed a loan for my cousin three years ago and now the lender is after me. What can I do?

If you do proceed, you may want to ensure ownership as tenants in common rather than joint tenants with right of survivorship. Many spouses hold property as joint tenants, meaning the deceased’s share automatically passes to the surviving owner. With a tenants-in-common structure, each owner’s share can instead be directed to their estate or another designated beneficiary, which may better align with your intentions post-divorce. Tenants-in-common is more common for non-spouse co-owners.

Before proceeding, it would be prudent to obtain family law advice that aligns with your separation agreement. Ensuring the legal framework supports your broader financial and personal goals will help protect both parties once the purchase is in motion. And while buying an investment property with your ex-spouse is uncommon, if you do it, just make sure you go in with eyes wide open.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.

Do you have a question for FP Answers? Email wealth@postmedia.com.