What if my spouse has more debt than assets when we separate? How does that affect the equalization payment?
If one spouse ends the marriage with more debts than assets — a negative net family property — the Family Law Act requires that their NFP be treated as zero for equalization purposes. A spouse cannot pass a negative number to the other; the indebted spouse's NFP is simply set at zero.
This means the equalization payment is calculated as half of the other spouse's net family property (compared against zero). For example, if your NFP is $200,000 and your spouse's is negative $50,000 (treated as zero), the payment would be $100,000 — half of $200,000.
The spouse who is deep in debt still owes their own debts to creditors after separation; those obligations do not transfer to the other spouse through equalization. The system prevents the wealthier spouse from being disadvantaged by a partner's reckless borrowing while also protecting them from inheriting the partner's debt.
Key takeaways
- A negative net family property is treated as zero under the Family Law Act
- The equalization payment is then half the other spouse's NFP compared against zero
- A spouse's debts remain their own and do not transfer through equalization
- The rule protects the higher-NFP spouse from absorbing a partner's losses