How to Calculate an Equalization Payment in Ontario: Worked Example

If you are separating, you have probably heard that property is "split evenly". In Ontario, for married spouses, it works differently: the law compares what each of you built up during the marriage and the spouse with more makes a payment to the other.

This article walks through that arithmetic one step at a time, with an invented example. Your own result depends on your facts, and a lawyer or accountant can confirm how the rules apply to your assets.

What equalization actually is

When spouses separate with no reasonable prospect of resuming cohabitation, or a divorce is granted, the spouse with the lower net family property is entitled to one-half the difference between the two net family properties. The result is a payment of money. It is not a division of each asset.

The idea behind it is that child care, household management and financial provision are joint responsibilities, and each spouse is treated as contributing equally to them, whether financially or otherwise.

This applies to married spouses. Common-law partners are not entitled to equalization under this scheme, and property generally belongs to whoever bought it, although a partner who contributed to the other's property may have a claim.

The steps, in order

The Ontario government describes the calculation this way: add up your property at separation, subtract your debts and excluded property, subtract your net property value on the date of marriage, then divide the difference between the two spouses' totals by two. The spouse with the larger total pays.

• First, fix the valuation date. It is the earliest of the separation date (with no reasonable prospect of resuming cohabitation), the date a divorce is granted, the date of a nullity judgment, the start of a later-granted improvident-depletion application, or the day before a spouse dies.
• Second, value everything you own on that date, as of close of business. "Property" is defined broadly and includes present or future, vested or contingent interests. Pensions count at their imputed value for the period from marriage to the valuation date.
• Third, subtract debts and liabilities on the valuation date, such as lines of credit, loans and mortgages.
• Fourth, subtract excluded property, such as gifts and inheritances received from a third person after marriage (other than a matrimonial home).
• Fifth, subtract the net value of property you owned on the date of marriage, other than a matrimonial home.
• Sixth, compare the two results, take the difference, and divide by two.

A worked example

Assume Alex and Sam are married and separate. To keep it simple, we leave the matrimonial home out for now and use descriptions rather than dollar figures, since real amounts depend entirely on your facts.

Alex's net family property is higher than Sam's. You take the difference between the two and divide it by two, and Alex, as the spouse with the larger total, owes Sam that amount as an equalization payment. The payment is made in money, so Alex does not hand over half of each asset.

If a spouse's debts were greater than their assets, the result would be less than zero. A negative net family property is deemed to be zero, and the other spouse does not take on the shortfall.

Where the numbers get complicated

• Matrimonial home: the deduction for date-of-marriage property is not allowed for a home that is a matrimonial home on the valuation date, so its full value is included even if one spouse owned it before the marriage.
• Inherited or gifted home: a family home that was inherited or received as a gift is not excluded property and counts in full.
• Income from gifts or inheritances: it is excluded only if the donor or testator expressly said so.
• Other exclusions: personal injury damages, life insurance proceeds payable on death, property traced from those assets, property excluded by a domestic contract, and unadjusted pensionable earnings under the Canada Pension Plan.
• Proof: whoever claims a deduction or exclusion has to prove it, so keep records.
• Unusual assets: unvested stock options, investments and crypto-assets can fall within the definition of property. How they are valued varies and often needs professional help.

If you and your spouse signed a marriage contract or other domestic contract, it prevails over the Family Law Act on matters it deals with, unless the Act says otherwise. A contract can also exclude certain property from net family property.

Can the payment be more or less than half?

A court may award more or less than half the difference only if equalizing would be unconscionable, having regard to the factors in the Family Law Act. Those factors include debts incurred recklessly or in bad faith, intentional or reckless depletion of property, and an amount that is disproportionately large for a period of cohabitation of less than five years. The Ontario government describes this as available only in very special situations.

What to do next

• Write down your likely valuation date and the date of marriage.
• Gather statements for every account, as of the valuation date and the marriage date where you can. In a court case, the statement closest to the valuation date for each financial institution account must be provided.
• List all debts as of the valuation date.
• Collect proof for anything you say is excluded or owned at marriage.
• Note the deadline: an equalization application cannot be brought after the earliest of two years after a divorce, six years after separation, or six months after the first spouse's death.
• If you start a court property claim, expect to file a financial statement in Form 13.1 and later a net family property statement in Form 13B.

A lawyer can check your figures, and an accountant or valuator can help with pensions, businesses and unusual assets. Courts can also order payment in instalments, or delay it for up to ten years if needed to avoid hardship, so how the payment is made may be as important as the amount.

Frequently asked questions