While there are many issues that arise upon separation and divorce, one common question is; how will the family / matrimonial property be divided? The legal term for the division or equalization of family property in Ontario is known as “equalization of net family property”.
Equalization of Net Family Property:
Equalization of net family property is governed by Part I of the Ontario Family Law Act, specifically section five (5). One common misconception among separating spouses is that all of the family assets themselves must be equally divided between the spouses. There will usually be some dividing up or apportioning of the assets between the parties after separation as part of the process, however, equalization of net family property refers to a balancing or “equalizing” of the net family property between the spouses.
What is the “net family property”? Generally speaking each party’s “net family property” is the growth in that party’s net worth which has accumulated over the course of the marriage. In determining each spouse’s “net family property” all of each party’s worldwide assets and debts are considered both as of the day of marriage, and as of the date of the separation (valuation date).
Once each party’s “net family property” has been determined after full financial disclosure, the equalization payment, is the payment which is calculated to be owed from the spouse who has enjoyed the larger growth in their net worth over the course of the marriage than the other spouse. The equalization payment is one-half (50%) of the difference between the spouses respective net family property figures.
It is mandatory that each spouse identify and report all of their worldwide assets and debts on their respective sworn Financial Statements. For example pension plans, RRSP accounts, real property such as the matrimonial home or a camp, vehicles, etc.
Claiming and providing some evidence of a spouse’s assets and debts as of the date of marriage is important because generally it is only the growth in a party’s net worth from date of marriage to date of separation that is considered. For example only the growth in a party’s particular RRSP account since the date of marriage would be the sharable portion.
I say “generally” because there is a substantial exception to the general rule that the value of all assets owned as of the date of marriage are not sharable or equalized, and this exception relates to the matrimonial home. A matrimonial home is defined by section eighteen (18) of the Family Law Act as follows:
“Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home“.
The home ordinarily occupied by the spouses at the time of the separation is a matrimonial home. It is also possible for spouses to have more than one residence that meets the definition of a matrimonial home.
With respect to the matrimonial home, the equalization calculation does not allow spouse or spouses to claim or deduct the date of marriage value. Put another way the entire equity of the matrimonial home is to be equalized or shareable regardless of the fact that one spouse may be the legal owner of the home and owned that home prior to the marriage.
However, it is important to note that the Court does have jurisdiction pursuant to section 5(6) of the Family Law Act to award an amount that is more or less than half the difference of the between the net family properties and there are a number of criteria listed within that section of the Act the Court may consider. For example section 5(6) (e) lists the following factor”
“the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years”
Having regard to section 5(6)(e) the Court does have some jurisdiction to vary the equalization payment amount a spouse may technically be entitled to where the period of cohabitation is less than five years. There are also a number of other factors a Court may consider if the Court is being asked to exercise its discretion pursuant to section 5(6) of the Act.
There is also certain property that is excluded altogether from the equalization calculation. “Excluded Property” is defined at section 4(2) of the Family Law Act as follows:
(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:
1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
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.
4. Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured.
5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
7. Unadjusted pensionable earnings under the Canada Pension Plan. R.S.O. 1990, c. F.3, s. 4 (2); 2004, c. 31, Sched. 38, s. 2 (1); 2009, c. 11, s. 22 (5).”
However, the onus of proving a particular asset is excluded property pursuant to section 4(2) of the Family Law Act is on the spouse who is claiming it.
In summary the determination of equalization of net family property upon separation is a complex issue and one should obtain proper legal advice from a family law lawyer.
Serge Ettinger is a lawyer in Thunder Bay Ontario practicing primarily in the area of family law. If you are dealing with a family law issue in the Thunder Bay, Ontario area call Serge Ettinger Law Office Professional Corporation for a consultation today.
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