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When couples separate in today’s housing market, both are going to take a big financial hit

Masood Azam.

Fred Lum/The Globe and Mail

Masood Azam knows intimately the meaning of downsizing. After his separation in 2016, the learning analyst went from a six-bedroom home to a 900-square-foot condo in Toronto – the “short end of the stick,” as he put it.

The separation had dragged on, Azam said, largely because his wife couldn’t afford to buy him out of the 3,000-square-foot family home, from which she runs her business. Resolved to move on, Azam agreed to sell his half to her for a lump sum, “the minimum amount I would need in order to leave,” he said.

A house was now out of the question for Azam, 44. Unluckily, he began his condo search in the spring of 2017 – the height of Toronto’s real estate market. Four months of bidding wars later, Azam found a two-bedroom for him and his 10-year-old son, for whom he shares custody. He’d gone $50,000 over his limit to land a space less than one-third the size of his matrimonial home.

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“Downsizing, from a logistical perspective? It’s been tough,” says Azam, who stored some of his belongings in his parents’ basement so he could squeeze into his box in the sky. “How do I fit into here? How do I even grow in here?”

Boxes and bags of clothes and other items he doesn't have room to keep anywhere else are placed in Azam’s small condo.

Fred Lum/The Globe and Mail

Azam is one of many divorced or separated Canadians readjusting to life amid yo-yo real estate markets in Canada’s big cities. Splitting up the family home is harrowing, not least of all for couples who buy in one market and are forced to sell and start over in a drastically altered real estate landscape just a few years later.

Relinquishing the two-income life is a rude awakening for divorcées. Those who can afford to buy property again face a sobering downsizing. Many others can’t afford to buy back into their neighbourhoods. Some will rent for the rest of their lives, ship off to more affordable towns, or move back home with mom and dad until the dust settles. That’s actually not the worst-case scenario: Some couples staring down low equity and high debt can’t afford to split up.

David Fleming, a Toronto broker with Bosley Real Estate, described two of his clients currently entangled this way.

“The wife is living in the basement, the husband’s living on the main floor of a bungalow and there’s a child involved. I’ve told them in no uncertain terms that if they sell this house, they will never own real estate again,” Fleming said. “They will be lifetime renters. So they’re chewing on that. Eventually something has to give.”

Fleming and other realtors see deep denial about downsizing in the divorcing set. People don’t understand that they don’t get to have the sprawling backyard for their kids or the two-car garage any more.

“You’re battling your spouse and you’re battling yourself,” Fleming said. “A lot of people won’t let their ego take a hit.”

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Realtors often see some couples clinging against all reason to the family home.

“There’s an emotional trauma,” said Keith Roy, a Vancouver realtor with Re/Max Select, himself divorced eight years ago. “The house becomes your final stand. You will do anything to hold it because it’s the one thing that you can keep after everything else in your life has fallen apart.”

Robin Pope, a Toronto realtor, has seen people take extreme measures in these circumstances not to have their homes sold out from under them. They will hamper viewings, bar access to the property and purposely leave the place looking unkempt.

“I’ve shown properties – not my listing but somebody else’s – and it was War of the Roses,” Pope said.

People who try to sabotage the sale this way are prolonging the inevitable, he said, and ultimately missing the best offers: “They’re trying to punish the spouse and by punishing the spouse, they’re punishing themselves.”

There is a better way. Spouses who opt for mediation and the collaborative separation route often come up with less combative, more productive solutions for divvying up the family home.

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You’re battling your spouse and you’re battling yourself. A lot of people won’t let their ego take a hit.

— David Fleming

Sometimes, splitting parents will agree to delay the sale of the house so that their children can stay in their school catchment area until graduation, said Jacqueline Peeters, a Toronto family law lawyer. With this child-focused priority, one parent lives in the home, the other rents and “we sort out financial responsibilities to make the arrangement equitable,” Peeters said.

That may mean the spouse moving out keeps more of the other assets, including pensions, RRSPS, investments or a cottage. Or, the spouse staying in the family home makes more of the support payments, so that the other can move out. Being imaginative is key, Peeters said.

Still, rapidly spiking and flat-lining real estate markets can leave even the most collaborative exes reeling as one buys the other out of the matrimonial home.

“The volatility of recent house prices has created some unreasonable expectations in negotiations,” said Kathryn Jankowski, a financial divorce specialist and family mediator in Oakville, Ont. “What can they buy with half, when half is a lot less than they thought it was?”

People taking over the family home face hurdles, too. They need to qualify for a new mortgage on a sole income, this after paying an ex out and swallowing legal fees. Increasingly, they turn to family to co-sign their loans so they can stay put.

Another roadblock for divorcées? Canada’s new federal regulations for home buyers, passed last January, mean that lenders must “stress test” peoples’ finances to make sure they can pay off their mortgages should interest rates climb higher.

Steve Robertson, a 44-year-old technology and business consultant in Orangeville, Ont., recently got hit with the stress test. Divorced in 2016 and renting since his separation in 2013, Robertson, who has good income, had prequalified for a mortgage. But when the time came to finalize, his lenders threw up red flags and then backed out, citing the stress test. Robertson said the new rules stigmatize the divorced.

“Lenders are wanting me … to explain why I don’t have more money put aside, but don’t seem to understand that it all went to the divorce process and support payments,” Robertson said. “The lenders don’t seem to consider that to be a very valid excuse but that just happens to be reality.”

Scrambling to come up with financing for his new home ahead of the deadline in mid-July, Robertson said it’s been “anxiety-provoking.”

For the small army of professionals who work on behalf of stressed divorcing spouses – the realtors, lawyers, mediators and coaches – therapy becomes integral to the job.

“I feel like a part-time psychiatrist,” said Patrick Rocca, Toronto real estate broker. “In our business, you have to be a chameleon.” Pope speaks of his “therapy sofa.” With splitting exes, “you have to be a really good listener,” he said.

Azam shares this small condo with his 10-year-old son.

Fred Lum/The Globe and Mail

After taking a serious financial hit, Toronto’s Azam said his new attitude is to “find that bright side.” Azam’s is his 10-year-old son, who has adjusted sweetly to the modest condo.

“This place is small for me, but it’s perfect for him right now,” Azam said. “He’s an affectionate kid who loves being in the presence of his loved ones. He says, ‘I love it here. I can see everywhere you are all the time. I’m never scared.’ ”

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