Equalization of Net Family Property

Nobody gets married intending on getting divorced yet family law courts are some of the busiest courts in Canada. Despite the reality of divorce, Canadians know far too little about family law. In Ontario, the Family Law Act applies to all married couples. This act lays out, among other things, equalization payments due upon a divorce. This payment represents the largest single payment most divorce applicants will pay or receive in a family law case.

What is equalization?

Equalization is a payment made to satisfy section 5 of the Family Law Act which states:

5 (1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. R.S.O. 1990, c. F.3, s. 5 (1).

To calculate equalization, we need to understand “net family property” which is the increase in the family’s assets from the date of marriage. To calculate each spouse's net family property, start with their assets minus their liability at the valuation date. Then subtract their assets minus their liabilities at the start of the marriage, subtract their debts, and subtract excluded assets (inheritance and payments from lawsuits are two examples of excluded assets). The result is net family property. To calculate the value of the equalization payment, subtract one spouse’s share of the net family property from the other and divide it by two. Here’s an example:

If a couple is getting divorced and the husband has $100,000, a $50,000 stock portfolio which was inherited when his parents died and a $10,000 car loan, and his wife has $40,000 in the bank, $20,000 which came from a slip and fall lawsuit and no debts. If each spouse came into the marriage with no assets and no debts and they did not own their home, the calculation would be:

Husband’s share of the net family property:

Total assets: 100,000+50,000=150,000

Minus debts: 150,000-10,000=140,000

Minus excluded assets: 140,000-50,000=90,000

The husband currently has $90,000 of the net family property

Wife’s share of the net family property:

Total assets: 40,000

Minus excluded assets: 40,000-20,000=20,000

The wife currently holds $20,000 of the net family property.

To calculate the equalization payment:

90,000-20,000=70,000

70,000/2=$35,000

The husband would have to make a $35,000 equalization payment.

When do I have to pay equalization?

The Family Law Act entitles spouses to equalization in the event of divorce or a death in the marriage. Your right to equalization on death means you need to understand how much you will owe even if you think you will never get divorced!

As you can see, even a simple net family property calculation can be complicated. As family assets get more complicated, for example, if one spouse runs their own business, the possibility of miscalculations or disputes increases. Therefore, it is important to talk to a lawyer to ensure you receive what you are entitled to in a divorce and prevent future conflicts.

If you have questions about family law in Ontario, call us at (647)-494-9599 or email us at info@law365.ca.