Equalization Payments in Ontario: When and How They Are Paid

After a separation or divorce, the calculation of net family property may show that one spouse owes the other an equalization payment. The next question is practical: when is the money due, and does it all have to be paid at once?

The answer depends on what the paying spouse can afford, what assets are available, and whether you settle the terms or ask a court to decide. This article explains the main options in Ontario and the points worth raising early.

What the equalization payment is

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. If a spouse dies and the deceased's net family property is larger, the surviving spouse is entitled to one-half the difference.

The entitlement is personal between the spouses. It applies to married spouses, and does not cover unmarried cohabitants.

Lump sum, instalments or delayed payment

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

• Lump sum: the full amount is paid at once, often from savings, a sale of property or a refinance.
• Instalments: the amount is paid in portions over time, as the court allows.
• Delayed payment: the amount is paid later, within the ten-year limit.

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 postpone payment beyond the ten-year period.

Security, property transfers and businesses

When payment is spread over time, the receiving spouse may worry about being paid. The court may order security for the payment. It may also order property to be transferred, partitioned or sold.

If the paying spouse owns 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.

While an equalization or title application is underway, the court may make interim or final orders restraining the depletion of a spouse's property.

If property such as a house or shares is transferred to a spouse or former spouse in settlement of rights arising from the relationship, it generally rolls over at the transferor's adjusted cost base and no capital gain is triggered at transfer unless the transferor elects out in their return for that year. That rollover applies only if both people are resident in Canada at the time of the transfer. Because tax results depend on the facts, confirm them with an accountant before you agree to a transfer.

Interest on the amount owed

A person entitled to an order for payment of money can claim prejudgment interest, calculated from the date the cause of action arose to the date of the order. Postjudgment interest runs from the date of the order.

Where it is just, the court may disallow interest, allow a higher or lower rate, or allow interest for a different period. The applicable rate can change over time, so confirm the current rate when you work out what is owed.

What to do next

• Note the time limit: an equalization application must be brought by the earliest of 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.
• If you are close to or past a deadline, ask a lawyer promptly. 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.
• Collect statements for property, debts and accounts. In an equalization application each party must serve and file a sworn statement of property, debts and other liabilities.
• Decide what payment structure you need: lump sum, instalments, security or a property transfer.
• If you settle, put the terms in writing. A domestic contract is unenforceable unless it is in writing, signed by the parties and witnessed.

Frequently asked questions