In Ontario, the Family Law Act (FLA) sets up a family property regime that is premised on a basic principle: Two married people are generally entitled to an equal share of the total financial by-product of their marriage.
If that couple separates and divorces, that same principle guides the mathematical process of dividing their assets. It begins with calculating each spouse’s Net Family Property (NFP), which represents the total contribution he or she has made to the family wealth during the marriage.
Equalization of NFPs is the Norm
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If both spouses have the same NFP, then the calculation is relatively simple: Each of them can essentially walk away with what they have, without the need for an equalization adjustment (by court order or otherwise). But if their respective NFPs are not equal, then the lower-NFP spouse is usually entitled to what is known as an equalization payment, which is an amount equal to one-half the difference between the two NFPs. The relevant date for evaluating the NFP (and any differential) is the valuation date, which is almost always the date that the spouses separated and understand that there is no reasonable prospect that they will get back together.
It doesn’t happen often, but unequal sharing of the NFPs refers to those unusual situations where a court determines that there should be no adjustment made to bring the spouses’ respective NFPs in line.
The court’s power to do this comes from section 5(6) of the FLA, which sets out a list of factors and circumstances that must be considered in these rarer cases. An order for unequal sharing can only be made if the spouse requesting it satisfies the court that it would be unconscionable for the NFPs to be equalized in the usual manner.
What are the Factors?
Although all the factors listed in section 5(6) of the FLA have equal weight, courts often focus on a few as being particularly significant. They include cases where one spouse:
- Incurred debts recklessly or in bad faith. These can include any kind of debt, including credit card purchases and excessive gambling. The court will assess the size of the debt in light of factors such as the spouses’ income and prior spending habits.
- Intentionally or recklessly depleted his or her NFP. Perhaps a spouse suddenly gave significant gifts to third parties (such as relatives or friends), made imprudent investments, got involved in unsuccessful business ventures, or embarked on wasteful or extravagant spending.
- Failed to disclose debts or liabilities at the time of the marriage.
- Incurred a disproportionately larger amount of the family’s debt during the marriage, to support the family.
The court will also consider whether:
- A part of one spouse’s NFP consists of gifts made by the other spouse.
- The couple has made any written agreement between themselves (other than or in addition to a domestic contract) that might affect the equalization.
Courts also hone in on short marriages (i.e. less than five years, including any pre-marriage cohabitation), especially where one spouse brought a matrimonial home into that brief union.
Finally, section 5(6) of the FLA directs the court to consider “any other circumstance” relating to the spouses’ property that might be relevant to assessing whether the equalization of NFPs might be unconscionable.
It’s Not Easy
Under the FLA, an order for equal sharing of NFPs remains the established norm, and unequal sharing is the exception. The standard is a difficult one to meet, and success is generally confined to rare or exceptional circumstances where the unconscionable conduct is shocking to the court’s conscience.