Equalization After a Long Marriage Near Retirement in Ontario

Separating after many years together, close to retirement, raises its own practical questions. There is less time to rebuild, the home may carry most of your wealth, and savings and pensions may be the income you plan to live on. People often ask whether the rules change at this stage of life.

What differs at this stage is often how much is at stake and how much flexibility you may want. This article explains the main rules in plain language and points out where you should get tailored advice.

How equalization works for married spouses

Ontario's official guidance says married couples generally split property acquired during the marriage equally when the marriage ends. The money owed to the spouse with the smaller share is called an equalization payment. It is a balancing payment, not a rule that every asset is cut in half.

There is also a deadline. For married spouses, a property claim must generally be brought within six years of the day of separation or two years from the day the divorce is final, whichever comes first. Separate rules also apply after a spouse dies, so do not assume you have years to wait.

How a particular pension, RRSP or other retirement asset is counted, and how it is valued, depends on its type and on the facts. That is a question to put to a family lawyer, often with an accountant or other valuator, before you agree to anything.

The home after a long marriage

The family home must be divided equally unless the spouses agree to a different split. A family home that was gifted or inherited does not count as excluded property. So if you inherited the house you have lived in for thirty years, you should not assume it sits outside the calculation.

A home one spouse owned on the wedding date is treated differently from other pre-marriage property. The deduction for property owned on the date of marriage covers property other than a matrimonial home. If that home is still the matrimonial home at separation, its value on the marriage date cannot be deducted. If it was sold before separation, that value is deductible. A marriage contract can vary this.

If you co-own the home and sell it, the Court of Appeal has confirmed that a half-owner is entitled to one-half of the net sale proceeds, less any unpaid share of upkeep costs.

Title matters too. One spouse alone may designate a property as a matrimonial home on title, and the designation stays on the register until the registering spouse removes it. A transfer or mortgage of a matrimonial home generally needs a spousal statement or a court order. That affects whether you can refinance or sell without the other spouse's involvement.

Gifts, inheritances and savings

Property you received by gift or inheritance from a third person after the date of marriage is excluded from net family property, other than a matrimonial home. Property you can trace into is excluded as well. By the time you are in your 60s, an inheritance from a parent may be a significant part of your savings.

Money did not lose its excluded character merely because it was first deposited in a joint account. In one case, an investment account was traced to gifts and an inheritance received by one spouse alone, along with the income earned on them. Presumed joint ownership can be rebutted by evidence. Good records matter: statements, estate paperwork and transfer histories.

The same property cannot be counted twice. The Court of Appeal held that one item cannot be both an excluded item and a marriage-date deduction.

Where you have flexibility

Spouses can vary the default rules by a domestic contract, such as a separation agreement. Many couples near retirement use this to keep the home, trade the home for other assets, or arrange payments over time. Agreements can also exclude particular property from the calculation.

A court may set aside a domestic contract, or part of it, if a party failed to disclose significant assets or debts existing when it was made, if a party did not understand the nature or consequences of the contract, or otherwise under the law of contract. Full disclosure on both sides protects the deal.

A court can order an unequal division only where equalization would be unconscionable, which is a high bar. Do not count on it.

• Free family mediation is available in all Ontario family courts, offered at the courthouse on the day you are scheduled to be in court.
• Off-site mediation is charged on a sliding scale based on income and number of dependents.
• Court-connected mediation can help with spousal support and property division, and private mediators also offer it.
• Family Law Information Centres in family courts give information on separation, divorce and local resources.

Tax points to raise before you divide anything

You generally have no capital gain or loss when you give capital property to your spouse or common-law partner, because it is treated as transferred at adjusted cost base rather than fair market value. If spouses live apart because of a relationship breakdown, the transferor may avoid reporting the gain when the spouse later sells, but must file an election with their return.

For the principal residence exemption, only one property per family unit can be designated for tax years after 1981. A spouse living apart under a judicial separation or written separation agreement is excluded from the family unit for the year. This matters if you each end up with a home.

Be careful with transfers when taxes may be owing. Where a person transfers property to a spouse, the two can be jointly and severally liable under the Income Tax Act, up to the excess of the property's fair market value over what was given. There is relief for transfers made under a court order or written separation agreement while living separate and apart because of a breakdown, subject to listed conditions.

What to do next

• Write down your date of separation, since the time limits run from it.
• List what each of you owned on the wedding date and what you own now, with statements.
• Gather records of any gifts or inheritances and where the money went.
• Collect pension statements, RRSP and investment records, and the home's title and mortgage details.
• Ask an accountant about tax on any transfer or sale before you sign.
• Speak with a family lawyer before signing any agreement, and consider mediation.

Because pensions, valuation and tax can change the real result, a lawyer can confirm how the rules apply to your situation.

Frequently asked questions