How Equalization Payments Work in an Ontario Separation

When a marriage ends, many people assume each spouse simply keeps what is in their own name. Ontario does not work that way for married couples. The Family Law Act uses a calculation called equalization, and the result is often a payment from one spouse to the other.

This article walks through who pays whom, how the numbers are built, what is left out, and what to expect when a payment is ordered. It is general information, and the details of your finances can change the answer.

Who pays whom

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. So the spouse with the larger net family property is the one who pays.

If a spouse dies and the deceased's net family property is larger, the surviving spouse is entitled to one-half of the difference. If a spouse's net family property comes to less than zero, it is deemed to be zero.

Equalization applies to a spouse as defined in the Family Law Act, which covers people married to each other. It does not include unmarried cohabitants. Common-law couples are generally not required to split property acquired while living together, and property belongs to whoever bought it.

How net family property is calculated

Net family property is the value of all property a spouse owns on the valuation date, except excluded property. From that you deduct the spouse's debts and other liabilities, and the net value of property, other than a matrimonial home, that the spouse owned on the date of marriage.

Property is defined broadly and includes shares in a business or company, which are counted at their value. The valuation date is the earliest of five dates, including separation with no reasonable prospect of resuming cohabitation, the date a divorce is granted, and the day before a spouse dies. A spouse claiming a deduction or exclusion must prove it.

• Add up everything each spouse owned on the valuation date.
• Subtract excluded property.
• Subtract debts and liabilities.
• Subtract the net value of non-home property owned at marriage.
• Compare the two totals; half of the difference is the equalization amount.

What is excluded, and the family home

Some property is left out of the calculation. This includes gifts or inheritances from a third person received after the marriage, damages for personal injuries, life insurance proceeds, and property the spouses agreed by domestic contract to exclude. Income from a gift or inheritance is excluded only if the donor or testator expressly said so. Gifts between spouses are not excluded.

The matrimonial home is the big exception. No date-of-marriage deduction is allowed for a property that is a matrimonial home, so its full value is shared even if one spouse owned it before the marriage. The gift and inheritance exclusion does not apply to a matrimonial home, and excluded money used to buy or pay down the family home loses its protection.

Unequal splits, payment terms and interest

A court may award more or less than half the difference only if equalizing would be unconscionable. Factors include undisclosed debts, recklessly incurred debts, intentional or reckless depletion, cohabitation of under five years, and one spouse taking on a disproportionate share of family debts. Ontario.ca describes this as for very special situations.

The court may order payment and require security. To avoid hardship, it may allow instalments or delayed payment for up to ten years. If the payer's circumstances change materially, the court may vary those terms, but it cannot change the amount owed or go past the ten-year period. A property order must not force the sale of an operating business or farm unless there is no reasonable alternative.

Prejudgment interest can run from the date the cause of action arose to the date of the order, and postjudgment interest runs from the order. The court may disallow interest or change the rate or period where it is just. Rates change, so check the current ones.

Deadlines, disclosure and next steps

An equalization application must be brought by the earliest of two years after a 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 in limited circumstances.

Each party must serve and file a sworn statement of property and debts. For property claims the financial statement is Form 13.1. Supporting documents, such as account statements closest to the valuation date, are due within 30 days after the financial statement is due. If a document is incorrect, you must promptly serve corrected information.

• Note your date of marriage and likely valuation date.
• Gather bank, investment and pension statements near that date.
• List all debts and liabilities.
• Collect proof of any gift, inheritance or date-of-marriage property.
• Confirm your deadline with a lawyer early.

Frequently asked questions