Negative Net Family Property in Ontario: When Debts Exceed Assets

Many people heading into a separation owe more than they own. Credit cards, a line of credit, a car loan or a mortgage can push the numbers below zero. You may wonder whether your spouse has to help carry that debt, or whether you will be asked to pay for it.

In Ontario, the equalization rules deal with debt in a particular way. This article explains how debts fit into the calculation, what happens when the total is negative, and the limited situations where debt can change the result. Your own facts matter, so a lawyer can confirm how this applies to you.

How debts reduce net family property

Net family property is the value of all property a spouse owns on the valuation date, minus excluded property, minus the spouse's debts and other liabilities, and minus the net value of property the spouse owned on the date of marriage (other than a matrimonial home). Debts on the valuation date, such as lines of credit, loans and mortgages, are deducted.

The valuation date is the earliest of several dates. These are the date of separation with no reasonable prospect of resuming cohabitation, the date a divorce is granted, the date a marriage is declared a nullity, the date a spouse starts an improvident-depletion application that is later granted, and the day before a spouse dies. Values are worked out as of close of business on that date.

The zero floor: what negative net family property means

If a spouse's net family property comes out below zero, it is deemed to be zero. A spouse whose debts exceed their assets therefore counts as zero in the comparison, and the other spouse does not take on any of that shortfall.

This rule works in both directions. It protects the spouse who is not in debt from sharing the other's losses. It also means the indebted spouse counts as zero, so if the other spouse's figure is higher, the indebted spouse is entitled to one-half the difference. Their claim is measured from zero.

A simple worked example

The 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, then divide the difference between the two spouses' totals by two. The spouse with the larger total pays the equalization payment.

The table below uses no real figures. It only shows how the method works when one spouse's debts are greater than their property.

Spouse A's negative figure is treated as zero. The difference between zero and Spouse B's figure is divided by two, and Spouse B would pay that half to Spouse A. Equalization is a payment of money, not a split of each asset, so the debts are not divided one by one.

Date-of-marriage property and who has to prove it

A spouse deducts the net value of property owned on the date of marriage, so only the growth in value during the marriage is shared. Exception: this deduction is not allowed for property that is a matrimonial home on the valuation date, so the home's full value is included even if one spouse owned it before the marriage.

The person claiming a deduction or an exclusion has to prove it. In practice, that means keeping records such as statements and valuations from around the wedding date.

• Bank and investment statements from near the date of marriage.
• Loan or credit statements showing debts you brought into the marriage.
• Documents showing any gift or inheritance you received and kept separate.
• Statements from near the valuation date for every account.

When debt can make an equal split unconscionable

A court may award more or less than half the difference only if equalizing would be unconscionable, having regard to the listed factors. The government describes this as available only in very special situations, where an equal split would be extremely unfair to one spouse.

Several of the listed factors involve debt:

• Failure to disclose debts that existed at the date of marriage.
• Debts incurred recklessly or in bad faith.
• One spouse having incurred a disproportionately larger share of debts for the support of the family.

The list also covers intentional or reckless depletion of net family property and any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property. Whether debts from overspending or a business that failed fit within these factors depends on the facts, so it is worth confirming with a lawyer.

Disclosure and what to do next

A party making a property claim in court must serve and file a financial statement in Form 13.1. For a Part I Family Law Act property claim, listed documents must be served no later than 30 days after the financial statement is due, including the statement issued closest to the valuation date for each account at a financial institution.

Before a settlement conference or trial, each party to the property claim must also serve and file a net family property statement, Form 13B. The deadlines are six days before the settlement conference for the requesting party, four days before for the other party, and 30 days before trial. A party must correct or update served documents once they find them to be incorrect.

• Pick out your valuation date and gather statements for that date.
• List every debt on that date, including lines of credit, loans and mortgages.
• Collect proof of any property you owned at marriage.
• Note any debts you suspect your spouse hid or ran up recklessly.
• Speak with a family lawyer before signing any agreement.

Frequently asked questions