When it comes to separation and divorce, one of the most misunderstood documents is the Separation Agreement. Some couples don’t bother with one, others fight over what to include in it, and some simply don’t know where to start.

But first, what is a Separation Agreement?

A Separation Agreement is a legal contract between a separating couple with no intention of reconciling. It outlines the rights and responsibilities of each party regarding the division of assets, financial support, childcare, and anything else that is affected by the separation.

Another area of confusion is the difference between the divorce and the Separation Agreement, which are two completely different things. A divorce is simply a stamped document by the courts saying you are no longer married. That’s it. It means you are free to marry again (or stay single!). The Separation Agreement though is the business side of a marriage breakdown as it outlines how everything you had together is divided.

While it is not mandatory to have a Separation Agreement to legally separate or even divorce in Canada, it is highly recommended, especially when a matrimonial home is involved. Not only does it provide some peace of mind by documenting your rights (and obligations) regarding your former spouse, it is the only way to move forward with your life if you need to sell the home.

You should always have a formal Separation Agreement in place that outlines all financial terms before attempting to change anything pertaining to homeownership.

First, and most importantly, when a matrimonial home is sold the proceeds are divided between the spouses as per the Family Law Act. Often, these proceeds are relied upon by one or both parties to purchase a new home or fund other accommodations. In other words, they are essential for moving on. Without a Separation Agreement in place, however, it is likely that those proceeds will be held in trust by a lawyer.

A Separation Agreement outlines how these funds are to be distributed and therefore, they cannot legally be disbursed until this directive is in place.

Secondly, if one spouse wants to buy out the other spouse to keep the home, they will need to qualify for a new mortgage to finance the purchase. In order for your mortgage to be approved, lenders will require a Separation Agreement as this outlines any support payments you are entitled to receive or to pay, impacting your overall financial picture. This would also be the case if you wanted to purchase a new home.

As an example, I once had a client who worked at a bank and wanted to buy out their ex-spouse in order to keep the children in the home. This individual came to me with a copy of a pre-approval letter from the lender; however, it had a number of conditions attached to it, including the need for a signed copy of a Separation Agreement between the divorcing spouses. This couple wasn’t even close to coming to terms with an agreement. In the end, the home was sold to another buyer.

In many cases, selling the home is the best, and often necessary, option. So, unless you don’t need the proceeds from the sale right away and have another property you can move into, it is paramount that you get a Separation Agreement in place as soon as possible. Even if you can’t agree on everything right away, sometimes even a “draft” agreement is enough to move forward.

Don’t dread the Separation Agreement. It is indeed your path to liberty!