Occupational Rent – Sharing Expenses of the Family Home after Separation

September 2021

When a couple separates, one spouse usually continues to live in the family home while the other person moves out.  Who pays the expenses of the family home after separation? Based on each spouse being entitled to 50% of the home at the time of separation, here are some considerations.

First, this article is presented to help you decide who pays what in a fair way.  It is intended as financial advice, not legal advice. You should speak to a legal professional to determine the applicability in your case of any issues discussed here.

The person resident in the home will want to ensure that all utility bills are paid; it is good to keep the heat and lights on.  In addition, both parties will want to protect the value of the home, especially if they plan to sell it.   That means mortgage payments, property taxes, repair bills and insurance must be paid.  I will refer to mortgage payments below, but in my opinion, property taxes, insurance and major repair bills (or renovations) fall into the same category.

Meanwhile, the person who has moved out (the “non-resident spouse”) is likely paying rent for an apartment, or perhaps sharing costs while living with friends or relatives.  It would not be fair to the non-resident spouse to be required to pay for the operating costs of two homes.  On the other hand, if they still own 50% of the house, it is in their interest to protect the value of the home by ensuring the mortgage and taxes are paid, and that it is insured and kept in good condition.

How should the costs of the household be shared to be fair to both parties?

Creativity and flexibility to deal with these costs are critical, giving consideration to the circumstances of each particular case. Here are some things to consider:

1. The person who has moved out will be paying rent (or mortgage payments), including utilities, for their new accommodations. Therefore, it is only fair that the person living in the family home pays its operating costs.  Such costs would include heat, electricity, water and sewer, lawn mowing/snow clearing and minor repair bills.  These items would be similar to those being paid by the spouse now living elsewhere (some of which may be included in their rent).
2. The mortgage payment relates to ownership of the house.  If the home is going to be sold, and if the parties will split the proceeds, then the payment should be shared equally.  If the person living in the home is keeping it, then that person should be responsible for all costs.  This includes the mortgage payment because they will get their equity back when the property is sold.  Often, until the separation agreement is finalized, one cannot be certain about the final disposition of the home. In such a case, maybe mortgage payments  should be shared equally until final decisions are reached.  If separation negotiations result in the house being sold, then each party would receive 50% of the net sales proceeds. However, what if one spouse receives full ownership as part of the equalization settlement? In that case, mortgage payments made subsequent to the separation date by the new owner would be 100% for their benefit. This is because all of the future growth in equity of the property after the date of separation (or valuation day) will accrue to that person. Hence, if the other spouse paid a share of the mortgage payment after separation, they should be reimbursed by the spouse keeping the home.
3. As discussed above, property taxes relate to ownership of the home. Insurance is primarily related to protection of the home’s value. For this reason, I believe property taxes and insurance should be also shared in the same way as the mortgage payment. Adjustments would be made, if necessary, if one spouse keeps the home permanently. This is the same treatment as for mortgage payments. (Caution – sometimes the mortgage payment includes the property taxes – do not count it twice). Differences of opinion exist with respect to these expenditures. In particular, some advisors recommend that insurance should be paid by the person in the home as part of their operating expenses.
4. Major repairs and home renovations improve or protect the value of the home for both parties, and should also be shared equally (i.e. treated the same as the mortgage payment discussed above). This includes any fix-up costs to prepare the property for sale as part of the separation agreement.
5. What about “occupational rent?” The person living in the family home is occupying one-half of the property owned by the other spouse.  If you lived in an apartment, you would be expected to pay your utilities, such as electricity, your own tenant’s insurance and most repairs for anything your break within your apartment.  This is comparable to paying the operating costs of the home. However, in an apartment, you are expected to pay rent in addition to your utilities. This rent is to cover other costs paid by the landlord, including the down payment for the original purchase of the property, the mortgage, property taxes, building repairs and building insurance.  Rent also provides the landlord with a markup for profit.   For the person remaining in the family home, their ex-spouse is a 50% landlord – because the ex-spouse still owns one-half of the house. The resident spouse is living in a home owned 50% by themselves and 50% by their ex-spouse.  If the non-resident spouse still owns 50% of the property, and is still paying one-half of the mortgage payment and property taxes, they are paying for two homes. Meanwhile, the resident spouse is only paying for part of the home in which they are living.  Is this fair? In addition, if the non-resident spouse is paying rent and utilities to an unrelated person, their rent likely includes a markup for profit, i.e., for a similar property, it would be more expensive than sharing expenses on the family home.  Consequently, the non-resident spouse should receive some rent for the 50% of the family home used by the resident spouse.  You could look at this another way – the spouse living in the family home should be helping the non-resident spouse cover their new apartment rent because of having to find new living accommodations.  Both spouses should be paying for the equivalent of one living accommodation.  This particular amount is called “occupational rent” – rent to be paid by the person “occupying” the home for the 50% that is owned by the non-resident spouse.  Without this occupational rent adjustment, the spouse living “at home” is paying for 50% of their accommodation, and the non-resident spouse is paying for one and one-half homes.
6. The court may order a party to pay occupation rent if it is reasonable and equitable to do so, based on the case of Griffiths v. Zambosco, 2001 CanLII 24097 (ONCA), at paragraph 49.  I understand that courts consider various factors in deciding if and how much occupational rent should be paid.   First, for example, certain other payments made by the person living in the home may offset the occupational rent.  Or, the rent may be offset by support payments that are owed.   There are many issues to consider, some of which are set out in the court cases of Charron v. Charron, 2014 ONSC 496, Casey v. Casey, 2013 SKCA 58, and Reif v. Reif, 2021 ONSC 3976, such as:
   • is spousal support is being paid;
   • is the house is being improved and maintained in preparation for selling by the occupying spouse;
   • has the occupying spouse increased the selling value of the home:
   • is financial hardship being experienced by one party;
   • who is paying the expenses associated with the home;
   • where are the children living and is child support being paid;
   • has there been movement towards selling the home;
   • is a balance still owed on equalization of net family property;
   • when was a request for occupational rent made;
   • will payment of occupational rent be fair and equitable to both parties; and,
   • various other financial and non-financial issues.

   In many cases, occupational rent is ignored in consideration of these factors.  Sometimes occupational rent is generously waived by the non-resident spouse, at least until another contentious issue arises, in which case it is then used as a bargaining tool. If paid, the rent might be 50% of the fair market rent based on the rental value of the home, adjusted for the above factors.  One solution that is used is for the resident spouse to pay 100% (instead of 50%) of the mortgage payment as a reasonable estimate of occupational rent. This latter approach simplifies the calculations significantly, but one needs to compare the mortgage payment to a reasonable rental rate to see if it is fair.

7. Is payment of occupational rent taxable? Typically, occupational rent is a cost sharing arrangement pending finalization of the separation, and there is no profit motive to the rent collection. Hence, there should no income tax considerations to someone receiving such rent.  However, if there is a reasonable expectation of profit (i.e., there is an investment objective), then the Canada Revenue Agency will want the income and expenses to be reported.
8. Sometimes the person occupying the home will take in a tenant, e.g., rent the basement, to help with finances.  This rental income will typically be shareable between spouses in the same way as mortgage payments and property taxes (after deducting any specific expenses incurred related to the rent).  This type of rent may also need to reported on your tax return(s), depending on whether there is a profit intention or if it is just a sharing of out-of-pocket expenses.

As you likely now see, dealing with the family home is yet another complex area for negotiation (and for bookkeeping) in your separation process. However, keeping track of all of your payments and keeping all of your receipts (and mortgage statements) related to the home will be important.

By the time you reach your final property settlement, both parties have likely each made many payments related to family assets, debts and child custody. You will be anxious to sign the documents, and move forward. However, ensure you have only paid a reasonable share of post-separation expenses before you sign the agreement. A lawyer’s recommendation to forget about any imbalance may simplify the final negotiations, but could be costly. Maybe the difference is small or maybe it is big – and maybe you are willing to forget about the differences in any case, especially given the high costs of professional fees. However, as a financial planner, I would suggest you should at least know approximately the amount to which you are agreeing. It is easy for someone else to tell you it is not worth the hassle to figure out the numbers, but only you can decide if $1,000, $5,000 or $20,000, for example, are significant amounts.

There are so many possible combinations of arrangements with the family home. Sometimes the person remaining in the home is going to be a payor of support, and sometimes it will be the recipient; other times, both parties remain in the home living separately, and other times neither are in the home while the home is being held for resale.  And, of course, such arrangements may change over time.

Tracking who pays the expenses can become a bookkeeping nightmare, but knowing how much each person paid towards housing expenses can be an important number when a final settlement is being negotiated for support and equalization of net family property.  A retroactive adjustment may very well be necessary, and calculating it may be difficult.  For this reason, I recommend keeping things simple.  Set up a system so that each person pays the same expenses each month, and that all invoices, bank records, etc. are filed in the same place to be used for bookkeeping purposes when needed.

Closing all joint bank accounts, joint lines of credit and the joint credit cards is normally a wise move, or at least placing restrictions on accounts to prevent either party from increasing credit card, loan or overdraft balances.

To pay shared expenses, whether they relate to the family home or for child and spouse living costs until a settlement is reached, consider one of two options. First, the person who is expected to pay support in the future could pay a flat regular amount to the other spouse sufficient to cover certain expenses, for example, $2000 per month. The recipient spouse can use this money to pay the necessary expenses, and then an adjustment can easily be calculated when support amount is finally determined. If the support obligation is $3,000 per month, and $2,000 was paid, a lump sum catch up payment can be made.  If it is $1,500 per month, a repayment can be made, or future payments can be reduced.  Because such a payment is a regular periodic payment, the amount may also qualify as spousal support for tax purposes depending on when and what final agreement is reached.

A second option where both parties trust each other is to open a joint bank account with each party contributing regular periodic amounts to that joint account. The joint account is then used to pay specific shared expenses as agreed by both parties, such as the mortgage, child care, child education and extracurricular activities, etc. Again, with regular payments being made to that joint account, later adjustments can be made more easily because of the simpler bookkeeping. However, it is still important to keep records identifying all payments made from that account.

Finally, if you plan to keep the family home, make sure it fits into your budget. It is a very costly investment at a time when you very likely need to adjust your lifestyle for lower cash flow. Can you afford the mortgage and the maintenance costs, and still have enough money for other living expenses? The wise choice in many cases is usually to look at other housing options for financial purposes; emotional decisions do not pay the bills.  While it may be difficult emotionally to move, especially with children involved, think about how much more difficult it will be in the future if you are forced to cancel extracurricular activities and also move because of financial difficulties.  Talk to a financial divorce professional to help with the numbers, or perhaps a local credit counselling or family services centre to help you prepare a personal budget.  Such counselling services may be free or much less expensive than hiring a financial professional.  Use your legal counsel to understand your rights and options.

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum