Property Clauses in a Separation Agreement in Ontario

When a couple separates and wants to settle things themselves, the property section of the separation agreement is usually the heart of the deal. It sets out who keeps what, who pays what, and whether anyone owes the other an equalization payment.

A vague or incomplete property section is a common source of later disputes. This article walks through what that section generally needs to cover, so you can go into negotiations knowing the questions to ask and when to get a lawyer to review the wording.

Start with the default rule: equalization

Ontario's Family Law Act sets a starting point for married spouses. The spouse with the lesser net family property is entitled to one-half the difference between the two net family properties. Your agreement can follow that rule, change it, or deal with it in some other way, but you should know what the default would be before you negotiate.

Net family property is the value of all the property a spouse owns on the valuation date, except excluded property, less debts and liabilities. So each spouse's figure is built from the same pieces: what they own, what is excluded, and what they owe.

A good property clause usually states the valuation date used, lists the assets and debts counted for each spouse, shows the resulting net family property figures, and states the equalization payment, if any, and when it is to be paid.

Excluded property and the marriage-date deduction

Some property is left out of the calculation. Property acquired by gift or inheritance from a third person after the date of marriage is excluded, but that exclusion does not apply to a matrimonial home. Property the spouses have agreed in a domestic contract is not to be included is also excluded. Be precise about any property you agree to leave out.

A spouse can also deduct the value of property, other than a matrimonial home, that they owned on the date of marriage. One trap is counting the same asset twice. The same property cannot be both an excluded amount and a marriage-date deduction, because counting it in both places double-counts it in that spouse's favour.

If the agreement relies on an exclusion, it should say what the property is, why it is excluded and what value, if any, is being claimed. Whether a particular asset qualifies can turn on the facts, such as where the money came from and where it went, so this is worth confirming with a lawyer.

Dealing with the matrimonial home

A matrimonial home is property in which a person has an interest and which the person and spouse ordinarily occupied as their family residence at separation. It gets special treatment. If property a spouse brought into the marriage is still the matrimonial home at separation, that spouse cannot deduct its marriage-date value. If it was sold before separation, the marriage-date value is deductible.

Money from a gift or inheritance can also be treated differently depending on whether it went into the home. In one Court of Appeal decision, depositing such money into a joint bank account did not by itself make it lose its excluded character, and the court treated that differently from money put into a matrimonial home.

Your agreement should say clearly what happens to the home. Common options are:

• One spouse keeps the home and buys out the other's interest, with a stated price, a deadline and a plan for removing the other spouse from the mortgage and title.
• The home is sold, with terms about who lists it, who lives there until closing, and how the proceeds and costs are split.
• The home stays in joint names for a set period, for example while children finish school, with clear rules about who pays carrying costs.

Be careful with open-ended arrangements. If joint owners cannot agree later, a joint tenant has a prima facie right to force a sale under s. 2 of the Partition Act, and the party resisting a sale must show the other is acting in a malicious, vexatious or oppressive fashion. Writing the plan down avoids relying on that.

Debts, accounts and releases

Debts reduce a spouse's net family property, so the agreement should list them and say who is responsible for each one. Naming the debt is not always enough, so think about how each debt will be paid off, refinanced or transferred. How a lender is affected depends on your situation, so it is worth confirming with a lawyer.

A release is a statement that a spouse gives up certain claims against the other. Releases are powerful, so they should match what you actually agreed. Check the wording closely and ask what is and is not covered.

Fairness, disclosure and what to do next

Courts can vary the equal share under the Act only if equalizing would be unconscionable. That threshold is high, and mere unfairness is not enough. Courts can also set aside a domestic contract in certain circumstances, but that is a two-step process and not automatic. The practical lesson is to get the agreement right at the start rather than count on fixing it later.

• Gather account statements, mortgage statements, pension statements, tax returns and a list of debts for both spouses.
• Agree on the valuation date and the values you will use for each asset.
• Identify any gift, inheritance or pre-marriage property and how each is being treated.
• Decide the plan for the home, including dates, payments and removal from the mortgage.
• List each debt and who pays it.
• Read every release and ask what claims remain.
• Have a family lawyer review the draft before you sign.

Time limits, tax consequences and how to value certain assets depend on your facts, so a lawyer or accountant can confirm them for your situation.

Frequently asked questions