Ontario Equalization Payments: Instalments, Timing and Security

An equalization payment is the amount one spouse may owe the other so that the growth in their wealth during the marriage is shared. If you owe one, you may worry about how to find the money. If you are owed one, you may worry about when you will be paid and whether it will be paid at all.

This article explains in general terms how the amount arises, when claims must be brought, how payment can be spread out, and how a court can protect the payment. Your own numbers and timing depend on your facts, so a lawyer can confirm how this applies to you.

Where the payment comes from

When a divorce is granted, a marriage is declared a nullity, or spouses separate with no reasonable prospect of resuming cohabitation, the spouse with the lower net family property is entitled to one-half of the difference between the two.

Net family property is the value of all property a spouse owns on the valuation date, except excluded property, less debts and certain date-of-marriage deductions. If a spouse's net family property comes to less than zero, it is treated as zero.

A court can award more or less than half only if an equal split would be unconscionable. Ontario.ca describes this as limited to very special situations.

When a claim must be brought

An equalization application must be brought by the earliest of three dates: two years after the marriage ends by divorce or nullity, six years after separation with no reasonable prospect of resuming cohabitation, or six months after the first spouse's death.

A court may extend a time limit if there are apparent grounds for relief, the delay was incurred in good faith, and no one will suffer substantial prejudice because of it. That is an exception, not something to count on.

Many couples settle the payment by agreement. A domestic contract such as a separation agreement is unenforceable unless it is in writing, signed by the parties and witnessed.

Paying over time

A court can order one spouse to pay the equalization amount, and to avoid hardship it may allow payment in instalments or delayed payment for up to ten years.

If the paying spouse's circumstances change materially, the court may vary the instalment or delayed-payment terms. It cannot change the amount owed, and it cannot push payment past the ten-year period.

Courts may also order property transferred, partitioned or sold to satisfy the obligation. If the main asset is an operating business or farm, a property order must not require or cause its sale, or seriously impair its operation, unless there is no reasonable alternative. The court may instead order a share of profits or, for an incorporated business, a transfer of shares.

Security, interest and protecting assets

• Security: the court may order security for the payment.
• Preservation orders: in an equalization application the court may make interim or final orders restraining the depletion of a spouse's property.
• Prejudgment interest can be claimed from the date the cause of action arose to the date of the order, and postjudgment interest runs from the date of the order.
• Interest is not automatic in every case: where it is just, the court may disallow interest, change the rate or change the period.

Interest rates change every quarter and are published by the Ministry of the Attorney General, so check the current rate rather than relying on an old figure.

What to do next

• Note your separation date and any divorce date, and count forward to the time limits.
• Gather statements for accounts, investments and debts, because disclosure is required.
• Ask whether you need a preservation order if you worry assets may disappear.
• Think about what payment terms you could realistically meet or accept, including any security.
• Speak with a lawyer before signing an agreement, since a signed domestic contract generally prevails over the Act.

The tax treatment of an equalization payment is not something to assume. A lawyer or accountant can confirm it for your situation.

Frequently asked questions