Can You Buy a Home in Ontario After Separation But Before Divorce Is Finalized?
Separation marks a major transition, not just emotionally, but also financially and legally. One of the most common questions we receive is whether someone can buy a new home in Ontario after separation but before a divorce is finalized, especially when no separation agreement has been signed.
The short answer is yes. Yes, you can legally buy a home after separation. But the long answer is that you need to proceed with caution. Without proper planning, you could face complications with mortgage approval, property division, or even tax exposure down the road.
Can You Buy a Home Without a Separation Agreement?
Under Ontario law, there’s no legal restriction preventing someone from purchasing a new home after separation, even if the divorce is not yet finalized or a separation agreement hasn’t been signed. However, banks and mortgage lenders often require a signed separation agreement to approve financing. This is because lenders want to understand your ongoing financial obligations, such as spousal or child support, as well as how existing property (like the matrimonial home) is being dealt with.
Why the Separation Date Matters
In Ontario, the division of property is governed by the Family Law Act. The value of each spouse’s net family property is calculated as of the date of separation. Any asset acquired after this date is generally not subject to division. However, if there’s no formal agreement, disputes about the actual separation date can arise, putting your newly purchased property at risk of being included in the division of assets. See: Family Law Act, R.S.O. 1990, c. F.3 – https://www.ontario.ca/laws/statute/90f03
Can You Be Added to a New Partner’s Property While Separated?
It’s not uncommon for someone who is separated to move in with a new partner and consider being added to their property title. While this may seem like a fresh start, it carries potential legal and financial risks.
If you’re added to your partner’s title before your divorce is finalized and without a separation agreement in place, your ownership interest in the new property could be included in the equalization process, especially if your ex-spouse disputes the separation date.
There’s also the risk that your ex-spouse could allege that joint marital funds were used to support expenses or renovations on the new property, potentially triggering a resulting or constructive trust claim.
To protect both parties, we strongly recommend executing a cohabitation agreement before being added to a partner’s title. This agreement should outline your respective ownership interests and financial obligations, which helps clarify intent and prevent future disputes.
Capital Gains Tax Implications When You Own Two Homes
If you purchase a new home while still owning the former matrimonial home, you may unintentionally trigger a future capital gains tax. This is because the Canada Revenue Agency (CRA) allows only one property per family unit to be designated as a principal residence for each tax year. See: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence.html
However, there is a helpful transition rule often referred to as the ‘plus one rule.’ This rule allows a taxpayer to treat both the old and new properties as eligible for the principal residence exemption in the same year, but only if, one home is sold and another is acquired in that same calendar year. For example, if you sell your previous home in 2025 and purchase a new one that same year, the CRA allows you to designate the sold property as your principal residence for all the years it was owned, including 2025, even though you also lived in the newly acquired home during that year. This essentially gives you one tax year where both homes qualify for the exemption, avoiding partial capital gains exposure during the transition.
Important caveats:
- This rule only applies in a year where a principal residence is sold.
- You must still file the appropriate forms, Schedule 3 and Form T2091(IND).
- If you continue to own both properties beyond the year of transition, you must designate one property per year moving forward.
Misunderstanding this rule could result in unexpected tax liability. Always consult with a tax advisor to correctly report the sale and strategically plan your principal residence designations. Source: CRA Principal Residence Exemption – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence.html
Practical Considerations Before Buying a Home Post-Separation
- Document the Separation Date: Emails, affidavits, or other proof may be critical if there’s a dispute.
- Avoid Using Joint Funds: Using shared accounts or matrimonial assets could expose the new property to claims.
- Cohabitation Agreements: If you move in with a new partner, formalize your ownership and obligations with legal documentation.
- Get Professional Advice: Speak with a member of the Rabideau Law team, a mortgage broker, and tax advisor to mitigate risk.
Final Thoughts
Yes, you can legally buy a home in Ontario after separating from your spouse, but without a finalized divorce or a signed separation agreement, you must be extremely careful. Issues related to mortgage qualification, property division, and tax exposure can all complicate what should be a fresh start. As a real estate lawyer, I regularly assist clients navigating the overlap between separation and property acquisition. If you are considering buying a home or being added to someone else’s title while separated, we can help ensure your interests are protected and structured properly.
Contact Rabideau Law today to book a consultation.
