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Article written by Ron Shulman
When married couples separate and decide to divorce, this triggers the need to divide their marital property. The process and formula for doing so is set out in the Ontario Family Law Act, under what is known as the “equalization of Net Family Property.”
What is covered? Although there are limited exceptions, all property that has been acquired during the marriage is considered “family property” that is subject to division. However, the matrimonial home is subject to special rules under the Act; there are legislated exclusions for certain assets (such as gifts and inheritances received prior to marriage).
Who gets how much? Upon separation and divorce, each former spouse is entitled to share one half of the increase in value of the family property that they owned during the marriage. Conversely, each spouse is liable for half of any losses. As such, the Act’s formula for equalization involves applying several steps for each spouse:
Step 1: Determine the value of each spouse’s property coming into the marriage.
Step 2: Subtract each spouse’s debts at the date of the marriage.
Step 3: Determine the value of each spouse’s property (minus debts) at the “valuation date” (usually the date of separation).
Step 4: Subtract the results of Step 1 and 2, from the results of Step 3.
After performing these calculations, the resulting figure will – generally speaking – be the individual spouse’s Net Family Property. The same calculation must be applied to the other spouse’s assets and liabilities. Then, under the Act, the spouse with the higher Net Family Property will be obliged to pay the other spouse in order to redress the imbalance, in the form of an “equalization payment.”
Are there exceptions? In some circumstances this equalization payment can vary from the result otherwise dictated by a straight application of the formula, for example where the parties have entered into a pre-nuptial agreement prior to marriage, or a separation agreement when they decided to split. The court may also examine the parties’ circumstances and conclude that an unequal division of Net Family Property should be awarded in the particular case.
Naturally, the equalization of Net Family Property is a complex legal exercise; competent legal advice should always be sought out in order to determine your rights. Shulman Law Firm is a Toronto-area firm of experienced Family Lawyers who can provide practical advice and effective representation relating to the steps and processes involved in separating and getting divorced in Ontario. Contact us to set up a consultation.