Our House Is Worth Less Than the Mortgage — Can We Divorce Now, Hold It, and Split It Later When the Market Recovers? Chinese-Speaking Ontario Divorce Lawyer Miao He

An underwater house doesn’t have to be sold in a divorce — you can hold it and divide the proceeds later when the market recovers. But in court, the judge only recognizes the numbers as of the separation date, and the negative value first reduces the owning spouse’s overall net family property.

A client and her husband own two properties — one they live in, one rented out — both bought near the market peak and both now worth less than their mortgages. Selling means locking in a loss; but they’re getting divorced. The husband proposed: divorce legally, don’t sell, keep holding both properties together, and split when the market recovers. She asked me: does that work?

Does the court recognize the numbers as of the separation date?

Yes. In Ontario, property is valued as of the separation date — and to be clear, that’s the rule when you go to court. If it goes before a judge, the judge does the accounting as of that date, whether you like it or not. But if the two of you can reach your own agreement, the court won’t interfere — you can arrange things however you want. On the separation date, a house worth less than its mortgage has no net value to divide; on paper, it’s negative.

If the house is underwater, is there nothing to divide?

Not quite. That “negative” doesn’t work the way most people think. Ontario looks at each spouse’s total net family property — everything combined, not just the house. The loss is charged against the owning spouse’s own books first: if that spouse has savings or other assets, the negative eats into those, bringing their total net down. And since divorce divides the difference between the two spouses’ nets, when the owner’s net drops, the other spouse ends up with less.

No net value doesn’t mean no accounting.

Can we hold off selling? Will a judge wait for the market to recover?

You can hold off selling, but a judge won’t arrange that for you — it has to be your own agreement.

If you litigate, no judge will wait five years for the market to recover. The judge applies the law: accounting as of the separation date, divide and be done. But if you both agree, the court stays out of it — sign a separation agreement if there’s no litigation yet, or minutes of settlement if you’re already in court. Either way, it’s recognized.

Frankly, if you can negotiate this kind of arrangement, it’s good for both sides. Selling at a loss now hurts you both; waiting for the market to come back and dividing then means each of you walks away with more.

But here’s the critical part: you can’t just write “sell later.” Those two words solve nothing when the day actually comes. The operational details have to be spelled out:

Who lives in which property; who pays the mortgage and how much; how property tax, utilities, and maintenance are split; a defined period during which neither side can demand a sale; the price point that triggers a sale — plus who sets the price, who lists it, and how costs are shared; and what happens if the deadline arrives and the property still hasn’t recovered — renegotiate, or sell regardless.

What if the deadline arrives and the property still hasn’t recovered?

Write the exit into the agreement now. You can’t leave this arrangement open-ended; the agreement needs an exit. How detailed these terms are, and how well future risks are guarded against, comes down to the lawyer’s experience. An experienced lawyer’s agreement keeps the client out of future litigation.

Should we apply for the divorce order when we sign the separation agreement?

That’s the advice here. One risk many people overlook: time.

This arrangement runs five or six years. A lot can happen that no one can predict: new relationships, new conflicts, someone simply stops complying. At that point the only path is court — either to enforce the agreement as written, or to ask a judge for a more reasonable approach given changed circumstances.

So my advice: apply for the divorce order when you sign the separation agreement. The limitation period for an equalization claim is whichever comes first: six years from separation, two years from the divorce, or six months from a spouse’s death. If you haven’t been separated long, the divorce usually starts the clock that hits first — once those two years pass, the other side can’t ask a court to re-divide the property; the court will only enforce your agreement. That’s your insurance. But if you’ve already been separated a long time and the six-year mark is nearly here, this move won’t help — the six-year deadline arrives first.

And of course, for the agreement to hold up, the formalities matter: separate lawyers for each side, and financial disclosure before signing. Get the process right, and it stands.

Can we just verbally agree to hold and split later, without a written agreement?

No. Five years from now the market hasn’t recovered, someone changes their mind, someone stops paying the mortgage — what do you point to? It has to be in a separation agreement, with lawyers on both sides and full financial disclosure. A verbal deal counts for nothing in court.

Questions about an underwater house and holding it after divorce? Book an initial consultation (30 minutes, $220+HST). Call 647-930-6688.

This article is general legal information, not legal advice, and does not create a lawyer-client relationship.