Divorce Settlement in Ontario: What a Settlement Covers

When spouses negotiate a settlement, the goal is to resolve what a court would otherwise decide for you. A thorough settlement saves a lot of uncertainty later, but gaps and poor drafting can cause disputes years down the road.

This article explains the main topics a settlement should address in Ontario and how it becomes something you can rely on. Every family is different, so treat it as a starting point and get legal advice before you sign.

What a settlement can cover

A separation agreement is a domestic contract, and it may cover property, support and parenting. Parties to a Divorce Act proceeding must also try to resolve matters through a family dispute resolution process where appropriate, which includes negotiation, mediation and collaborative law.

• Parenting arrangements for your children.
• Support for children and for a spouse, where it applies.
• Division of property, debts, pensions and savings.
• The matrimonial home and other major assets.
• Changes to wills and estate plans after separation.

If you are asking for a divorce, the court must also be satisfied that reasonable arrangements have been made for the support of any children of the marriage.

Property: equalization is the starting point

On separation or divorce, the spouse whose net family property is smaller is entitled to one-half of the difference between the two spouses' net family properties. Net family property is the value of property a spouse owns on the valuation date, minus debts and permitted deductions, and it is never less than zero. RRSPs and pensions are counted as property.

The valuation date is the earliest of several dates, including the date the spouses separate with no reasonable prospect of resuming cohabitation. That is why your settlement should state the separation date clearly.

Some property is excluded, such as gifts or inheritances from a third party received after the marriage (other than a matrimonial home), personal injury damages, life insurance proceeds, and property excluded by a domestic contract. The person claiming an exclusion must prove it. A court may award more or less than half the difference if equalizing would be unconscionable.

Pensions, CPP and RRSPs

Pensions need extra care. For a Pension Benefits Act plan, the imputed value of a spouse's interest is set under that Act, and an order may provide for an immediate lump-sum transfer out of the plan. A spouse may apply for that transfer only if it is provided for by a court order, a family arbitration award or a domestic contract, with the amount stated as a fixed sum or a proportion of the imputed value. Anything giving more than 50 per cent of the imputed value has no effect to that extent.

CPP contributions made while spouses lived together can be split equally after a divorce or separation. For divorces on or after January 1, 1987, the spouses must have lived together for at least 12 consecutive months, and there is no time limit to apply. Common-law partners face different rules, including a 48-month application limit unless the former partner agrees in writing to waive it.

RRSP funds can be transferred without immediate tax to a spouse's or former spouse's RRSP or RRIF if the spouses are living separate and apart and the transfer is made under a court order or a written separation agreement dividing property. A tax adviser can confirm how this applies to you.

Making it enforceable and keeping it solid

A separation agreement is unenforceable unless it is made in writing, signed by the parties and witnessed. A court may set aside a domestic contract, or a provision in it, if a party failed to disclose significant assets, debts or other liabilities, did not understand its nature or consequences, or on contract-law grounds.

If you choose arbitration instead, a family arbitration award is enforceable only if, among other conditions, each party received independent legal advice before making the arbitration agreement. Because non-disclosure of significant assets or debts is one reason a court may set a contract aside, it is worth gathering complete financial records before anyone signs, and a lawyer can explain how this applies to your situation.

Timing matters too. An equalization claim must be brought by the earliest of two years after a divorce or nullity judgment, six years after separation with no reasonable prospect of resuming cohabitation, or six months after the first spouse's death. A court may extend the time in limited circumstances.

What to do next

• Write down your separation date and what each of you owned on it.
• Gather statements for pensions, RRSPs, bank accounts, debts and property.
• List the parenting and support issues you need to settle.
• Decide whether negotiation, mediation or collaborative law suits you.
• Have a lawyer review the draft before anyone signs.
• Review your will afterward, since a divorce can change gifts to a former spouse.

Frequently asked questions