What is “property”?
Under the Family Law Act, property is defined as:
- Property which a spouse owns either alone or with another person;
- Property disposed of by a spouse, but that spouse, alone or with another person, has the power to revoke the disposition or a power to use or dispose of the property; and
- A spouse’s rights under a pension plan.
It is important to note that property division is only applicable to the breakdown of a marriage and does not apply to common-law relationships.
The simplest definition of Equalization is “the process of achieving an equal division of the wealth owned and acquired by spouses during the duration of their marriage”. Therefore, an “Equalization payment” is a sum of money paid by one spouse in order to ensure that the property and/or assets are divided equally.
Equalization and Equalization payments are governed by Ontario’s Family Law Act, which describes what is involved and how an Equalization payment is calculated.
In general terms, here is how an Equalization payment is determined:
- Each spouse calculates the net value of his or her property on the date of separation;
- Each spouse calculates the net value of his or her property on the date of marriage;
- Each spouse then subtracts the net value of his or her property on the date of the marriage, other than the matrimonial home from the net value of his or her property on the date of separation. The resulting numeric value for each partner becomes his or her “Net Family Property.”
- Generally, the spouse with the higher Net Family Property value would then be responsible to make a payment of the one-half difference to the other spouse. This payment is referred to as “the Equalization payment”.
The calculation of property and assets are dependent on the valuation date.
The Family Law Act defines the “valuation date” as the earliest of the following dates:
- The date the spouses separate and there is no reasonable prospect that they will resume cohabitation;
- The date a divorce is granted;
- The date the marriage is declared a nullity;
- The date one of the spouses commences an application based on subsection 5(3) that is subsequently granted; and
- The date before the date on which one of the spouses dies leaving the other spouse surviving.
Exclusions to Valuation Date
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
- Income from that property only if the donor or testator expressly stated that it is to be excluded from the spouse’s net family property.
- Damages from a lawsuit arising from pain and suffering
- Proceeds or a right to proceeds of a life insurance policy
- Inheritance property/wealth that was used to buy stock. For example, if you sold a car that was given to you by inheritance, and you used its money to buy something else, then that is excluded.
- Property that was agreed on not being included in spouse’s net family property
- Unadjusted pensionable earnings under the Canada Pension Plan.
It is important to pursue an Equalization claim as soon as practicable seeing as there are limitation periods imposed under the Family Law Act which may prevent a spouse’s claim at a later date.
Equalization claims must be submitted within:
- Six (6) years from the date of separation;
- Two (2) years from the date the divorce was granted; or
- Six (6) months from the date of one of the spouse’s death.
Important Items to Note:
- “Property” can include a broad array of items, such as RRSPs, pensions and/or corporate shares owned by a spouse.
- Each spouse is entitled to deduct certain amounts (such as debts, taxes owed and other liabilities) from the value of his or her property at separation.
- Other items such as gifts and inheritances may also be excluded when calculating property value as of the date of marriage.
- Certain items received during the marriage may also be excluded, including gifts from third parties, inheritances or proceeds from a personal injury claim (provided the money or gift was kept separate and was still intact at the date of separation).
- The “matrimonial home” is specifically excluded when Net Family Property is calculated and is dealt with under separate provisions of the Family Law Act.
Dividing property and assets as well as calculating Net Family Property values can be complex, let us help you.