Equalization Payments in an Ontario Separation Agreement

If you were married, the end of the relationship usually raises a money question: does one spouse owe the other an equalization payment? The answer comes from a formula set out in Ontario law, and your separation agreement is where the result is recorded.

This article explains the calculation in plain terms, what can be left out, and what to think about when you write it into the agreement. It is general information, and your own numbers and property can change the outcome.

How the equalization calculation works

Each spouse adds up the value of the property they own on the separation date and subtracts their debts and any excluded property. Then each spouse subtracts the value of the property, minus debts, that they owned on the date of marriage.

If the result is negative, it counts as zero. The spouse with the larger net family property pays the other spouse an equalization payment.

Pensions are part of the picture. Family Law Act s. 10.1 values a spouse's interest in a pension plan using the imputed value set under the Pension Benefits Act, and Ontario guidance says to ask the pension administrator for information about a pension's value.

What is excluded, and the matrimonial home

Excluded property includes property inherited or received as a gift from someone other than a spouse, personal injury damages, life insurance proceeds paid because someone died, and property excluded by a domestic contract.

The matrimonial home is an important exception. Spouses must share its full value even if one of them owned it before the marriage or received it as a gift or inheritance. It is divided equally unless the spouses agree to a different split.

Recording the payment in your agreement

Spouses can divide property any way they agree in a separation agreement. Ontario guidance says each spouse should have their own lawyer review it before signing, and that the agreement cannot easily be changed later.

A clear agreement usually sets out the following points:

• The date used as the separation date and the values you each relied on.
• The assets, debts and any excluded property you each claim.
• Who pays whom, and how much.
• Any agreed departure from an equal split of the matrimonial home.
• How any pension share is to be handled, keeping in mind that a domestic contract cannot entitle the eligible spouse to more than 50% of the imputed value of the member's pension.

For the agreement to be enforceable, it must be in writing, signed by the parties and witnessed.

Disclosure, time limits and common-law couples

Financial disclosure means giving the other party information and documents about your income, expenses, assets and debts. A court may set aside a domestic contract, or part of it, if a party failed to disclose significant assets or significant debts that existed when the contract was made. The Court of Appeal for Ontario has said disclosure is a paramount consideration, and that the spouse who holds the assets is responsible for disclosing and valuing them.

There is a time limit for an equalization claim: six years from the day of separation, or two years from the day the divorce is final, whichever comes first. A separate limb sets six months after the first spouse's death. The court keeps some discretion to extend time limits under the Act.

If you were not married, the equalization regime does not apply. Common-law couples are not legally required to split property acquired while living together, and household items belong to the person who bought them. A partner who contributed to property the other owns may have a right to part of it, and the separation agreement is where these claims are settled.

What to do next

• Gather records of what each of you owned on the date of marriage and on the separation date.
• Collect statements for bank accounts, investments, pensions, property and debts.
• Ask the pension administrator about the value of any pension.
• Note any inheritances, gifts or other property you think is excluded.
• Speak with a lawyer, and get your own legal advice before signing.

Because it can be difficult to get a court to set aside a separation agreement, it is worth getting the numbers right before you sign.

Frequently asked questions