If your marriage is coming to an end, you may have questions about how assets are divided and whether one spouse owes the other an equalization payment.
In Ontario, the Family Law Act (FLA) governs the division of property upon separation or divorce for legally married couples. It is important to note that common law spouses are not covered by the equalization of net family property provisions. For greater detail about the differences between common law and married spouses, please visit our blog: Common Law Relationship? You Do Not Have the Same Rights as Married Spouses in Ontario.
What is Net Family Property?
The Family Law Act defines net family property as:
The value of the property that each spouse owns on the valuation date, after deducting debts and liabilities, net of the value of property at the date of marriage, after deducting debts and liabilities.[1]
- In most cases, the valuation date refers to the day the spouses separated.[2]
How is Net Family Property Calculated (“NFP”)?
To calculate each spouse’s NFP:
- Add together all of your assets (not including the ones that meet the exclusion requirements) at the valuation date.
- Subtract all debts from the total assets. If a spouse has more debts than assets at the valuation date, it will be considered zero.
- Next, determine the value of all assets that each person brought into the marriage. If a person’s net worth at marriage was negative, maintain that negative number.
- For each spouse, subtract the date of marriage assets from the valuation date assets.
- This gives a figure that is each spouse’s net family property.
Exclusions to Net Family Property
In Ontario, certain assets are excluded from net family property calculations.[3] This means that they are not subject to equal division between spouses. These exclusions include:
- Gifts and Inheritances;
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- The value of gifts or inheritances that you or your partner received from a third party during your marriage is excluded. It is important to note that gifts received from one spouse to another are included as part of net family property.
- You can use cash from a gift or inheritance to purchase any property (other than a matrimonial home) and still maintain your right to exclude that portion of the item that can be traced back to the original gift.
- Money received as a result of a personal injury claim;
- Proceeds of a Life Insurance Policy, payable on the death of a spouse; and
- Property that the spouses agreed to be excluded from a marriage contract.
Treatment of the Matrimonial Home
The matrimonial home is the home where married spouses live together as their family home during the marriage.[4] For greater detail on what happens to the matrimonial home after separation, visit our previous blog: Does my spouse get a share of the home I owned before we were married?
For equalization, the matrimonial home is treated differently and is not excluded from the calculation of net family property, even if it was owned by one spouse before the marriage. However, the home’s value is always included in the valuation date assets of the spouse who owns the home (or divided between the two spouses, if title is held jointly). Since it is not excluded at the date of marriage, this has the possibility of making the home owning spouse’s NFP substantially higher.
How do Debts Impact your Net Family Property?
At the time you got married to your spouse, if you had debts, such as a loan, these debts reduce the value of what you brought in.
For Example:
- If you had $5,000 in savings but $10,000 in loans, your “net value” at marriage is -$5,000. ($5000 + -$10,000 = -$5000)
How does a negative number affect your NFP?
- When you subtract your marriage date net value from your valuation date value, the formula accounts for the fact that you started with debt.
- Because subtracting a negative number is the same as adding, this will increase your NFP.
What is an Equalization Payment?
After calculating the NFP of each spouse, the spouse with the higher NFP pays an equalization payment to the spouse with the lower NFP. This payment is usually half the difference between the NFPs. The goal of the equalization payment is to balance the financial outcome between the parties after separation.
Deadlines to Apply for Equalization
A spouse must apply for equalization within:
- Six years of the date of separation;
- Two years from the date of divorce; or
- Six months from the date of a spouse’s death.[5]
Takeaway
Understanding how equalization of net family property is calculated is an important step for married couples going through separation in Ontario. Every situation is unique when it comes to determining equalization payments, and the complexities of family law make it essential to seek professional legal advice. If you are looking to apply for an equalization payment or need other family law advice, Toronto family lawyer Swetha Ajit Kumar can assist. Contact Swetha at swetha.ajitkumar@devrylaw.ca or 416-446-5087.
This blog was co-authored by summer law student Emma Wilson.
“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”
[1] Family Law Act, R.S.O. 1990, c. F.3, s (4)(1)
[2] Ibid, s 4(1)(c)
[3] Ibid, s 4(2)
[4] Ibid, s 18(1)
[5] Ibid, s 7(3)
