Property Division for Married Couples

Property division for married couples in Ontario is governed by Part I of the Family Law Act (RSO 1990, c F3). The former spouse with the lesser net family property (NFP) on the valuation date is entitled to an equalization payment. This article will walk you through how NFP and equalization payments are calculated and provide some scenarios where the court will find exceptions to the general rules.

What is Property?

Property includes everything a person owns or co-owns with another person. Examples of property include:

  • Real property, such as houses or land.
  • Personal property, such as furniture, jewellery or any other physical item.
  • Ownership in a business.
  • Intangible property, such as patents, rights to music and art, and other forms of intellectual property.
  • Money held in a pension plan or RRSP.
  • Property or money you have the right to access at a later date, such as funds held in a trust account.
  • Property that you have given to someone but you still own, and could get back at a later date.
  • Property that you gave to someone but still use as if it was your own.

What is the Valuation Date?

The valuation date is the earliest of the following dates:

  1. The date the spouses separate and there is no reasonable prospect they will resume cohabitation.
  2. The date a divorce is granted.
  3. The date the marriage is declared a nullity.

How is Net Family Property Calculated?

A spouse’s net family property (NFP) is essentially a precise definition of the net worth they gained during the marriage. NFP is calculated by taking the value of all the property he or she owns on the valuation date, after deducting:

  1. The spouse’s debts and liabilities.
  2. The value of their property, excluding debts and liabilities that he or she owned on the date of marriage.
    NOTE: This property does not include the matrimonial home or any debts or liabilities related to the matrimonial home.
  3. Excluded property as defined in the Family Law Act.

NOTE: If the NFP calculation results in negative number (more debts than assets), then it is deemed to be zero.

What is Excluded Property?

Under the Family Law Act, the following property can be excluded under the calculation of a spouse’s net family property:

  1. Property, other than the matrimonial home, that was acquired by a gift or inheritance after the date of marriage.
    Examples: You inherit money from your grandmother’s will. Your father gives you a grand piano.
  2. Income you earn from gifted or inherited property, so long as the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
    Example: Your grandmother’s will states any income you earn from your inheritance is to be excluded. You earn interest on the money she gives you.
  3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
    Example: You are injured in a car accident, you commence a lawsuit for your injuries and the court awards you money.
  4. Proceeds or a right to proceeds of a life insurance policy that is paid out on the death of the life insured.
    Example: You are a beneficiary under your father’s life insurance policy.
  5. Unadjusted pensionable earnings under the Canada Pension Plan.

Important notes about exclusions:

  1. Often a spouse will use excluded property, and it will no longer be in the same form as when it was originally given to them. The property can still be excluded, so long as what is owned now can be properly traced back to the original excluded property.
    Example: You use your inheritance from your grandmother to purchase a painting. Prior to purchasing the painting, you kept the inheritance in its own bank account that never mixed with other funds. You kept all your transaction records. You can now exclude the painting from your NFP.
  2. If a spouse wants the claim an exclusion, the onus is on them to prove that what they are claiming is linked to the original excluded property.

What is an Equalization Payment?

An equalization payment is a payment made from the spouse with the greater NFP to the spouse with the lesser NFP. It is calculated by taking one-half of the difference between each spouse’s NFP.

A simple way of looking at equalization is: If both partners sold everything they acquired during the marriage and put all that money in large pot, then they would each be entitled to half of the money (after taking into account each spouse’s debts).

Example: NFP and Equalization Payment for John and Jane Doe.

John Doe
Jane Doe
Notes

Date of Marriage Property

House/Land

$400,000

Car $20,000
Household Items $5,000
Bank Account $7,500
Other $0
Total $32,500

Date of Marriage Property

House/Land $0
Car $15,000
Household Items $10,000
Bank Account $3,000
Other $0
Total $28,000

John’s house in this case is the matrimonial home at the date of separation, so it does not count in his property on the date of marriage. Had they sold his house and relocated, it could be included.

Date of Marriage Deductions

Mortgage

$350,000

Car Payments $10,000
Credit Card $600
Total $10,600

Date of Marriage Deductions

Mortgage $0
Car Payments $0
Credit Card $1,500
Total $1,500

Because John’s mortgage is for the matrimonial home, this is also not counted.

Date of Marriage Net Value

Property $32,500

-Deductions

-$10,600

Total $21,900

Date of Marriage Net Value

Property $28,000

-Deductions

-$1,500

Total $26,500

Valuation Date Property

House/Land

$212,500

Car $60,000
Household Items $25,000
Bank Account $15,000
Other $20,000
Total $332,500

Valuation Date Property

House/Land

$212,500

Car $30,000
Household Items $30,000
Bank Account $8,000
Other $25,000
Total $305,500

The value of the original house has increased to $425,000. Both John and Jane have an equal interest in it now, so it is split between them.

Valuation Date Deductions

Mortgage

$150,000

Car Payments $55,000
Credit Card $3,400
Total $208,400.00

Valuation Date Deductions

Mortgage

$150,000

Car Payments $5,000
Credit Card $800
Total $155,800.00

John and Jane also share the mortgage now.

Valuation Date Exclusions

None $0
Total $0

Valuation Date Exclusions

Painting

$5,000

Total $5,000

Jane’s grandmother left her a painting worth $5,000.

Net Family Property

VD Property $332,500

-VD Deductions

-$208,400

-VD Exclusions

-$0

-DOM Total

-$21,900

Total $102,300

Net Family Property

VD Property $305,500

-VD Deductions

-$155,800

-VD Exclusions

-$5,000

-DOM Total

-$26,500

Total $118,200

Difference Between NFPs

Jane’s NFP $118,200

-John’s NFP

-$102,300

Difference $15,900

Equalization Payment

Difference $118,200
÷2 ÷2
Equalization $7,950
Jane would owe John $7,950.00

NOTE: In this example, John and Jane have shared property that needs to be split. If this dispute goes to court, the judge will almost always order for all the shared property to be sold and the proceeds divided between them. However, when alternative dispute resolution is used, there is an option for one spouse to purchase the other spouse’s share of that property.

Can Equalization Payments be Varied?

In extremely rare circumstances, a judge will vary an equalization payment if they consider the payment between spouses to be “unconscionable”. The Family Law Act allows a court to change an equalization payment when:

  1. A spouse failed to disclose debts or liabilities they had at the date of marriage;
  2. A spouse’s debts or liabilities claimed to reduce their NFP were incurred recklessly or in bad faith;
    Example: One spouse has a gambling problem that he or she keeps hidden from his or her spouse, causing him or her to incur large debt.
  3. Part of a spouse’s NFP consists of gifts made from the other spouse;
  4. A spouse intentionally or recklessly depletes his or her NFP;
    Example: One spouse knows a divorce will be happening soon. Before the valuation date he or she gives away a considerable amount of his or her property to his or her best friend.
  5. The fact that the equalization payment a spouse receives would be disproportionately large in relation to a period of cohabitation of less than 5 years;
  6. The fact that one spouse has incurred a disproportionately larger amount of debts and liabilities compared to the other spouse for the support of the family;
  7. A written agreement between the spouses that is not a domestic contract;
  8. Any other circumstances the court considers relevant for the acquisition, disposition, preservation, maintenance, or improvement of property.

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