Vaughan Family Lawyers Advising on Equalization & Net Family Property
The process of equalization ensures separated spouses share the wealth obtained throughout their marriage. Equalization only applies to married couples and is governed by the Family Law Act.
As with other aspects of property division, equalization is a detailed and technically complicated legal process. Documenting, valuating, and splitting all family property acquired during the marriage can be labour-intensive and overwhelming and may require professional legal and financial assistance.
At GDH Family Law, we have extensive knowledge of the equalization process and help clients navigate their legal obligations efficiently and effectively. We also protect our client’s entitlements under equalization when the opposing party attempts to hide or deplete the family assets.
Calculating the Equalization Payment
Ontario family law entitles separated spouses to leave a relationship with half of the value of the assets accumulated throughout their marriage – not half of the property itself. The following steps are used to calculate the equalization between the spouses:
- Each spouse compiles a list of all their assets and property values as of the valuation date. In some situations, this may require the assistance of an outside financial expert or valuator.
- Once the spouse has the total value of all of their assets together, they subtract their debts and liabilities. The resulting amount is their total value as of the valuation date. If they have more debt than assets, their total value is 0.
- The spouses then determine the value of all assets they brought into the marriage (i.e. that they owned at the date of marriage). They do not include the value of the matrimonial (family) home if they owned it when they got married. If the spouse’s net worth on the date of marriage was negative (i.e. they had more debts than assets), the negative number is maintained.
- The spouses subtract their respective totals at the “date of marriage” assets (step 3) from their total at the “date of valuation” assets (step 2). The resulting sum is their Net Family Property.
- Finally, the spouses compare their Net Family Property amounts. One will be higher than the other. The lower Net Value Property is subtracted from the higher one, and the difference is divided in half. This number is the equalization payment that the spouse with the higher Net Family Property pays to the spouse with the lower Net Family Property.
The payment can be made in a lump sum or installments for up to 10 years. To ensure the equalization payment is made in full, a court may order the payor spouse to partition or sell their property, transfer assets to the payee spouse, or hold assets in trust.
Intentional Depletion of Family Property
Spouses should take steps to prepare for equalization as soon as possible after their separation. One spouse may need to act quickly, particularly if there is a concern that the other spouse is intentionally depleting the family assets or is hiding property. Under the Family Law Act, the court can grant an order to preserve the family property and restrain a spouse from recklessly wasting family assets. A party should retain qualified family counsel to ensure action is taken quickly and effectively to stop a spouse from causing irreparable damage to family property.
In certain rare circumstances, a court may order a different equalization amount than the one generated using the above formula (i.e. half of the difference in the spouses’ Net Family Property values). Courts will only do so if the standard equalization formula yields an “unconscionable” result. This may occur in cases where a spouse has intentionally hidden, depleted, or devalued family property to avoid their equalization obligations.
Assets Included in Equalization
The values of all assets acquired during the marriage are included in the equalization process. Where one or both spouses owned an asset at the date of marriage, they are entitled to share the increase in that asset’s value accumulated throughout the marriage.
Examples of asset values included in equalization include:
- Bank and savings accounts;
- Pensions (where applicable);
- Business interests, investments and stocks in a publicly-traded corporation;
- Real property (real estate).
Assets Excluded from Equalization
Before or during their marriage, spouses may decide to exclude certain assets from equalization in the event of their separation. These exclusions are often agreed upon and documented in a domestic contract, such as a marriage contract or cohabitation agreement.
Some assets’ values are excluded from equalization under the law. These include:
- Property acquired by one spouse as a gift from a third party during their marriage (except for the matrimonial home);
- Life insurance policy proceeds, where the spouse is not a named beneficiary;
- Income generated by, or an increase in the value of, a gift received by one spouse during the marriage if it is in their name on the date of separation;
- Inheritances received by a spouse during the marriage;
- General damages for pain and suffering received by a spouse as a result of a personal injury lawsuit or settlement.
The Matrimonial Home
Unlike other family assets, the matrimonial home is not included in a spouse’s assets as of the date of marriage, even if they owned the home at that time. The home’s value is always included in the owning spouse’s list of assets owned as of the valuation date. If the spouses jointly owned the home, its value (as of the valuation date) is divided between them. This rule applies even if the home was inherited by one spouse or purchased using inherited money during the marriage.
Disputes Over Ownership
In some cases, the parties may be unable to agree on which spouse owns a particular property or asset. In those cases, the court can make a declaration of ownership. The court can also order one spouse to compensate the other for the property in question or order the property to be sold, and the proceeds are divided equally.
Common-Law Spouses & Equalization
Equalization under the Family Law Act only applies to married spouses. Common law spouses do not have the same property rights; instead, common law couples must rely on trust/beneficial interest claims in order to assert property claims.
There is also no concept of the “matrimonial home” for common law spouses. If one spouse holds the title to the family home, they generally do not need to share its value with the other spouse. In certain circumstances, the non-owning spouse may argue that they made contributions to the home and therefore should receive a portion of its increase in value.
Contact GDH Family Law in Vaughan for Assistance with Equalization
The family and divorce lawyers at GDH Family Law have dedicated their careers to the practice of family law. We understand the technicalities of the equalization process and ensure you receive your full family property entitlement under the law. Our firm understands each client has different needs and offers as much or little support as you require, either with equalization or your entire family law matter.
We represent clients in Vaughan and the surrounding areas, including Maple, Concord, Woodbridge, Markham, Kleinburg, Richmond Hill, Nobleton, Toronto, Newmarket, Aurora, Brampton, Caledon, Mississauga, Etobicoke, North York, Thornhill, and King City. For a free initial consultation on your family matter, contact us at 416-535-6944 or reach out online.