Equalization Payment Terms in an Ontario Separation Agreement

If you were married, one big money question when you separate is who owes whom for the property built up during the marriage. In Ontario that process is called equalization, and spouses can record how they divide property in a separation agreement.

This article explains the calculation in plain terms, the dates and valuation points that matter, and the kinds of terms people write down about the payment. It is general information, not advice on your own numbers.

How net family property is worked out

Each spouse adds up the value of the property they owned on the separation date, minus their debts and minus excluded property. Then they subtract the value of property, minus debts, that they owned on the date of marriage. A negative result counts as zero.

The spouse with the larger net family property pays the other an equalization payment. Because the payment depends on both totals, a careful list of assets and debts for both people matters.

Excluded property and the matrimonial home

Some property is left out of the calculation. Ontario guidance lists 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 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, and it is divided equally unless the spouses agree to a different split.

This means spouses can agree to a different split of the home, and in a separation agreement they can divide other property any way they agree. Each person should understand what they are agreeing to, because an agreement can be challenged in court if a person did not understand its terms or was pressured to sign.

Pensions and valuation dates

A spouse's interest in an Ontario pension plan is valued using the imputed value set under the Pension Benefits Act, and Ontario guidance says to ask the pension administrator for information about the value. An agreement cannot entitle the eligible spouse to more than 50% of the imputed value of the member's pension.

If a share is to be transferred out of the plan, the application must include a certified copy of the agreement, and that document must state the family law valuation date, the applicant's entitlement and the amount to be transferred. For a retired member, an immediate lump-sum transfer is available only if the spouses are separated with no reasonable prospect of resuming cohabitation and no pension instalment was due on or before the valuation date.

Because the separation date and the marriage date drive the whole calculation, the agreement should state them clearly rather than leave them to be inferred.

What to put in the equalization terms

• The date of marriage and the separation date used for valuation
• A schedule of each spouse's assets and debts, with how each was valued
• Which items are treated as excluded property
• How the matrimonial home is dealt with, including any unequal split
• Pension values and any transfer, with the valuation date and amounts stated
• The amount of the equalization payment and when and how it is to be paid
• A statement that each person has given financial disclosure

The Court of Appeal for Ontario has said financial disclosure is a paramount consideration, and that the spouse who holds the assets is responsible for disclosing and valuing them. A court may set aside a domestic contract where a party failed to disclose significant assets or debts that existed when it was made, but that alone is not enough: the court then decides whether it is appropriate to use its discretion to set the agreement aside, and fairness is a relevant consideration.

How the payment is scheduled, for example a lump sum on a set date or over time, is a matter you negotiate. Whether instalments, interest or security are appropriate depends on your facts, and a lawyer can confirm the options.

Time limits and common-law couples

The time limit for an equalization claim is 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.

Equalization does not apply to unmarried couples. Common-law partners 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 claim, and the separation agreement is where those claims are settled.

What to do next

• Gather statements for bank accounts, investments, pensions, property and debts for both the marriage date and the separation date.
• Prepare a written list of your income, expenses, assets and debts to share with the other person, since financial disclosure is a paramount consideration.
• Ask each pension administrator for value information.
• Have the agreement reviewed by your own lawyer before you sign, since an agreement cannot easily be changed later.
• Sign in front of a witness, because an agreement that is not signed and witnessed is unenforceable.

Frequently asked questions