Once two spouses decide to separate, certain questions arise immediately: How does the property they owned together get divided? Is it necessary to sell the matrimonial home? How are pensions and inheritances dealt with?
For spouses undergoing a marital separation, the answer to all of these questions lies in the concept of “Equalization”. “Equalization” is the process for achieving an equal division of the wealth that is owned and acquired by spouses during a marriage. The related concept of an “Equalization Payment” represents a sum of money paid by one spouse to the other, in order to make both parties equal in terms of this property division. Both of these concepts are established and governed in Ontario by the Family Law Act, which describes the elements of the calculation, and the precise formula that must be applied.
In the broadest terms, the Equalization Payment owing from one spouse to the other is calculated as follows:
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- Each spouse must calculate the net value of his or her property at the date of separation; and
- Each spouse must subtract the net value of his or her property on the date of marriage.
This numeric value for each spouse becomes his or her “Net Family Property”.
As between the two parties, the spouse with the higher Net Family Property value pays the other spouse one-half of the difference between the two. This becomes the “Equalization Payment”.
A few important points:
- For these purposes, “property” includes a broad array of items, including RRSPs, pensions, and any shares that are owned by a spouse.
- However, each spouse is entitled to deduct from the value of his or her property at separation certain items such as any debts (including contingent liabilities) and tax liabilities.
- There are also certain exclusions available in calculating property value at the date of marriage; these include items such as gifts and inheritances, and certain liabilities.
- Certain items received during the marriage are also excluded; these include gifts from third parties, inheritances or proceeds from a personal injury claim (provided the funds are kept separate and are still intact at the date of separation).
There is also an important exception for the matrimonial home, provided it was owned by both spouses both at the date of marriage, and at the time of separation. The matrimonial home is specifically excluded by legislation from the Net Family Property equation, i.e. it is neither part of the “excluded property” list, nor is it deducted from the Net Family Property if it was owned at the date of marriage. Instead, its treatment and the manner in which its value is divided amongst separating spouses is dealt with under specific provisions of the Family Law Act.
Depending on the circumstances, there can be other inclusions or exclusions pertinent to the Equalization calculation. Therefore, it is always important to consult a lawyer who is experienced in family law, to ensure that your rights are fully protected during the Equalization process, and that the result is a fair and efficient division of property. Feel free to contact our offices and we will be happy to discuss your situation and explain the law as it relates to your specific case.