How do separated spouses equalize net family property in Ontario?
When spouses decide to go their separate ways, one of the logistical issues to address is the division and equalization of property acquired throughout the marriage. It is critical that spouses turn their minds to this issue early on in their separation, as there are limitation periods regarding property division. Since provincial legislation, rather than federal legislation (the Divorce Act) governs property, the property division scheme varies across the country, which can cause confusion.
Our family and divorce lawyers are available to help you understand how equalization works during a divorce in Ontario and the impact it will have on you and your family.
What is included in the definition of “property”?
All property acquired by either spouse (whether together or separately) during the marriage must be disclosed and valued. This includes not only assets but also debts.
With respect to assets that a spouse owned at the date of marriage, only the increase in value of the property during the marriage is equalized, with the exception of the matrimonial home, discussed below.
The definition of property is expansive. Property includes but is not limited to your:
- house, condo, cottage, timeshare, vacation property, and any other real property you own
- vehicles, trailers, quads, ATVS, boats, snowmobiles, ski dos, and any other similar items
- furniture and appliances (if not remaining with the home)
- pension, RRSPs, investments, and stock options
- art or other collection (such as wine, games, coins, etc.)
- recreational equipment
Exceptions and exclusions
Certain property is excluded from equalization. This property may include:
- property other than the matrimonial home that was inherited or acquired by gift by one spouse, provided that it was not registered in joint names
- income from such property
- property that was received as a gift by one spouse
- certain settlement funds due to damages for particular injuries (most commonly settlement funds from a motor vehicle accident)
- proceeds of a policy of life insurance that are payable on the death of the life insured
- any property that the spouses agreed to exclude in a written agreement (usually that must be executed with counsel and with complete exchange of financial disclosure)
Excluded property remains the property of the spouse who owns it. While excluded property is provided on a spouse’s list of property for division for disclosure purposes, it is not included in the value of net family property for the purposes of equalization, meaning the other spouse has entitlement to a sharing of that asset.
Special rules relating to the matrimonial home
The matrimonial home is the property where the spouses usually lived at the time of their separation. A married couple may have or may have had more than one matrimonial home during the course of a marriage.
The value of the matrimonial home must be included in the net family property statement, although there are some exceptions which may merit an unequal division, or even in some rare cases, no division of the property.
If the matrimonial home is on a farm, the value of the house maybe calculated separately from the rest of the property. There are particular rules regarding farm property.
Calculate each spouse’s net family property and the equalization payment
In order to calculate an equalization payment, each spouse makes a list of the value of property that he or she holds at the time of separation; this may include a future interest in property, where a spouse expects to receive property in the future, such as a stock option. Where the spouses own property together, they each include half of the value on their list. Do not forget to include debts, including but not limited to:
- credit card debt
- car loans
- lines of credit
- personal loans, which may include loans from relatives (you will have to establish that you are genuinely expected to repay the debt and usually you will need to provide documentation to confirm terms of repayment)
Any excluded property would still be on the list, in the sense that you are required to disclose it and provide supporting documentation. Each party’s net value of property (assets minus debts) owned at the beginning of the marriage (not including the matrimonial home), for which there is supporting documentation to confirm the value, is subtracted from the total. Then the spouses compare numbers; if one spouse’s share of the net family property is smaller than the other’s, then that spouse is owed an equalization payment so that both parties are walking away with the same amount of net family property The idea is that marriage is an economic partnership and spouses share in the fruits of their labour.
In very rare circumstances, an equal division of the net family property may be unfair, such as where the marriage is short or there are unconscionable circumstances. Consult a lawyer as soon as possible who will be able to advise you if there are such circumstances, which again, are rare. You will be responsible for satisfying a Court that you qualify for one of the exceptions for an unequal division.
What about common law couples?
The Ontario Family Law Act provisions that mandate the equalization of net family property apply only to married couples.
In general, when a common law couple separates, each spouse retains his or her own property. The only property that requires sharing is property acquired together during the relationship that is in joint names. There are, like many aspects of family law, exceptions.
In some circumstances, it may be grossly unfair for there to be no sharing of property held in one party’s name when a couple is unmarried. This occurs if one spouse retains property that the other spouse either provided financial contribution or helped maintain to the detriment of that spouse for no legalreason. In that case, the spouse who provided the contribution may be entitled to make an equitable claim, which may be unjust enrichment, a constructive trust, a resulting trust, quantum meruit, or a joint family venture. These claims can be difficult to prove, so you should consult one of our lawyers as soon as possible for direction.
Some common law couples may have a cohabitation agreement to prevent such division of property in these circumstances or may agree to share in property that is not in joint names, despite not requiring to under provincial legislation.
What effect might a written agreement between married spouses have on the equalization of property?
A prenuptial agreement, cohabitation agreement or marriage contract is a contract that sets out how spouses intend to deal with property division upon the breakdown of their relationship. If common law spouses have a prenuptial agreement or cohabitation agreement, they may specify that it becomes a marriage contract if the spouses get married. They may also specify that it no longer will apply should the parties marry.
Specifically with respect to property division in an agreement, parties may:
- agree upon a mechanism for how property will be divided
- exclude specific property or debt from the calculation of net family property
- include specific property or debt in the calculation of net family property
- specify a division of family property other than 50/50
As an alternative to litigation or arbitration, parties who have separated may decide to enter into a separation agreement outlining their property division.
It is vital that both spouses are completely honest when preparing any agreement. If one spouse hides property or lies about the value of property during the preparation of an agreement, the agreement may be set aside. Both spouses should obtain legal advice before executing any agreement. Please note that spouse cannot use the same counsel in executing an agreement. This prevents the possibility of either spouse later claiming that he or she was unfairly treated, did not know what he or she was signing, or faced undue pressure to sign the agreement.
For more information regarding equalization for separated parties in Ontario, please contact our family and divorce lawyers today for a consultation. We have offices in London, Strathroy, Stratford, Chatham, Kitchener/Waterloo and Sarnia and can schedule consultations in person or virtually by telephone or Zoom.
*Disclaimer: The content in this article is intended to act as a general overview on a legal topic and does not constitute legal advice. For specific legal advice, please consult with one of our family law lawyers today.