Does Increase in Home Value After Marriage Count in Ontario?

Many people own a house before they marry and then live in it with their spouse. When the marriage ends, they ask whether only the growth in value is shared, or the whole house.

In Ontario, the answer for a family home is different from the answer for other property. This article walks through the calculation and the exceptions.

How equalization works

The spouse with the lower net family property is entitled to one-half the difference between the two net family properties. It is a payment of money, not a split of each asset. The idea behind it is that child care, household management and financial provision are joint responsibilities, and each spouse contributes equally to them, whether financially or otherwise.

Net family property is the value of all property a spouse owns on the valuation date, minus excluded property, minus debts and liabilities, and minus the net value of property (other than a matrimonial home) owned on the date of marriage. Values are set as of close of business on the valuation date or the date of marriage.

The Ontario government describes the steps this way: add up your property at separation, subtract your debts and excluded property, subtract your net property value on the date of marriage, divide the difference between the two spouses' totals by two, and the spouse with the larger total pays the equalization payment. If a spouse's net family property is less than zero, it is treated as zero, and the other spouse does not take on that shortfall.

The general rule: only growth is shared

For ordinary property, such as a cottage you owned before marriage that was not a family residence, you deduct its net value on the date of marriage, so only the growth during the marriage is shared. You have to prove the deduction.

Property is defined broadly as any interest, present or future, vested or contingent, in real or personal property. Some property is excluded from net family property altogether. Examples include property other than a matrimonial home that a spouse received by gift or inheritance from a third person after the date of marriage, and life insurance proceeds payable on death. Income from gifted or inherited property is excluded only if the donor or testator expressly said so.

The matrimonial home exception

The deduction is not allowed for property that is a matrimonial home on the valuation date. The home's full value is included even if one spouse owned it before the marriage. A matrimonial home is property ordinarily occupied by the spouses as their family residence, or that was at separation.

A couple can have more than one matrimonial home, such as a house and a cottage both used as family residences, but a rental property the couple did not live in as a family residence does not qualify. A condo or co-op unit can qualify, because owning shares that entitle you to occupy a unit is treated as an interest in that unit. If the property is normally used for a non-residential purpose, such as a dairy farm, only the part reasonably needed for the use and enjoyment of the residence is the matrimonial home.

You may still deduct debts on the home, such as the mortgage, because debts on the valuation date reduce net family property. A family home that was inherited or received as a gift is not excluded property and is counted in full.

Ways the result can change

• A marriage contract can exclude the home's value from net family property.
• A court may divide unequally only if equalizing would be unconscionable, using listed factors, and the government describes this as available only in very special situations.
• The valuation date is the earliest of separation with no reasonable prospect of resuming cohabitation, divorce, nullity, the date a spouse starts an improvident-depletion application that is later granted, or the day before a death.
• Common-law partners do not have equalization, and property generally belongs to whoever bought it.

A domestic contract that deals with a matter also dealt with in the Family Law Act prevails, unless the Act provides otherwise. It is unenforceable unless it is in writing, signed by the parties and witnessed.

Living in and selling the home

Both spouses have an equal right to possession of a matrimonial home, whoever holds title, and moving out does not end that right. Where only one spouse has an interest in the home, the other spouse's right of possession ends when they stop being spouses, such as on divorce, unless a separation agreement or court order provides otherwise.

A spouse generally cannot sell or mortgage a matrimonial home unless the other spouse joins in or consents, has released their rights by separation agreement, a court authorizes it, or another property has been properly designated as the matrimonial home. A transaction made without consent can be set aside, but not where the person holding the interest acquired it for value, in good faith and without notice that it was a matrimonial home.

What to do next

• Decide the likely valuation date and note it.
• Get appraisals or market evidence for the home at the valuation date.
• Collect proof of the home's value and mortgage on the date of marriage.
• Gather any marriage contract and records of gifts or inheritances.
• Talk to a family lawyer about how the home will be treated on your facts.

Courts expect financial disclosure, including a financial statement in Form 13.1 when a property claim is made.

Watch the time limits. An equalization application cannot be brought after the earliest of two years after a divorce, 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 in limited circumstances, but this is not guaranteed.

Frequently asked questions