In Ontario, the Family Law Act governs the division of property that is brought into a marriage or acquired by spouses. The Act sets out a formula that dictates how the division is to be calculated, a process called the “equalization of Net Family Property”.
The basic formula
At its simplest, the formula requires each spouse to calculate a Net Family Property amount by:
- calculating his or her net worth on the date of separation (i.e. assets minus liabilities); and
- subtracting any permitted exclusions (such as inheritances, certain gifts, and items that the parties have agreed will be excluded).
Each spouse’s net worth on the date of marriage is then subtracted from his or her individual total, to arrive at that spouse’s Net Family Property. The parties then share half the difference between their respective Net Family Property amounts, which process is known as the “equalization” step.
When unequal division is possible
Over and above this basic formula, the process of equalizing Net Family Property also takes into account certain legislated exclusions and other factors. It also accommodates those situations in which it would be unfair for the parties to equally share the difference between their Net Family Properties. In particular, the Family Law Act provides in s. 5 that in certain circumstances a court is authorized to award a spouse an “amount that is more or less than half the difference between the Net Family Properties, if the court is of the opinion that equalizing the Net Family Property would be unconscionable.”
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Precisely what can constitute an unconscionable outcome will vary according to the facts, but the concept is defined by s. 5 of the Family Law Act to include consideration of circumstances where:
- a spouse has failed to disclose to the other spouse any debts or other liabilities that existed on the date of marriage;
- one spouse incurs debts recklessly or in bad faith;
- a spouse’s net family property consists of gifts from the other spouse;
- a spouse intentionally or recklessly depletes his/her Net Family Property;
- there is some sort of a written agreement between the parties (but one that falls short of being a “domestic agreement”, in law); or
- there is any other circumstance relating to the “acquisition, disposition, preservation, maintenance or improvement of property” that would result in an unconscionable outcome if equal division is allowed.
Also, provision is made for situations where the spouses lived together for less than five years: in these instances the court can also order unequal division where the amount of money that one spouse is to receive is disproportionately large compared to the years that they lived together.
With all of this in mind, a spouse who wants to argue for an unequal division in connection with their respective Net Family Properties must show that the circumstances clearly fall within one of the listed categories; the threshold for meeting the test is relatively high.
It is therefore important to consult an experienced family lawyer to discuss the equalization process and to determine whether unequal division of assets might be warranted. 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.