Separation Agreements in Ontario: What to Include and How to Make Them Binding

If you and your spouse have agreed on terms, putting them in writing is the natural next step.

This article walks through what an agreement commonly covers in Ontario, where the law and tax rules touch it, and the questions you should confirm with a lawyer before you sign.

What a separation agreement does

A separation agreement records how you and your spouse or partner will handle the issues from your separation. Written agreements matter in law. For example, a legal duty under a judgment, order or written separation agreement to support any person can be a basis for claiming undue hardship when child support is set.

Agreements can also unlock tax treatment. Some transfers on a relationship breakdown are tax-free only if made under a court order, judgment or written separation agreement.

Issues an agreement commonly covers

• Parenting: where the children live and who makes decisions.
• Child support and spousal support.
• Division of property and debts.
• The family home.
• Tax and retirement savings transfers.

On property, married spouses use equalization. Each spouse values property owned on the separation date, less debts and excluded property, then subtracts net property owned on the marriage date. The spouse with the larger net family property pays half the difference. Gifts or inheritances (other than the family home), life insurance proceeds received because someone died, personal injury money, and property excluded by agreement are not shared.

The full value of the family home must be shared even if it was owned before marriage, gifted or inherited, and a court can divide it differently only in very special situations where an equal split would be extremely unfair. Common-law couples are not legally required to split property acquired while living together, although they may recover contributions to the other's property, sometimes through court.

Tax points to raise before you sign

Capital property transferred to a spouse or common-law partner, or to a former spouse or partner in settlement of rights arising from the relationship, rolls over at adjusted cost base if both are resident in Canada. The transferor may elect out in their return.

RRSP property can be transferred tax-free to the spouse's or former spouse's RRSP or RRIF if they are living separate and apart and the transfer is made under a court order, judgment or written separation agreement. Income attribution stops while spouses live separate and apart because of breakdown, but capital gains attribution on a later sale is stopped only if both file a joint election.

Because small wording choices can change the tax result, an accountant or lawyer should review this part.

Lawyers, witnesses and setting an agreement aside

Whether your agreement needs lawyers, how it must be signed or witnessed, and when a court can set it aside all depend on the law and on the facts of your situation. These are exactly the points worth confirming with a lawyer before you sign, rather than assuming.

If you are worried about an imbalance of power or abuse, say so early, because mediators screen for this.

If you are still negotiating, family dispute resolution can help you reach terms. This includes negotiation, mediation and collaborative law. In collaborative law, both parties and their lawyers agree not to go to court.

What to do next

Do not let a signed agreement lull you into missing a deadline. A court claim for an equalization payment must be started within six years of separation or two years after the divorce is final, whichever comes first.

• List every issue you have agreed on and any you have not.
• Gather financial statements, property values and debt details.
• Note whether you are married or common-law, since property rules differ.
• Ask an accountant about tax transfers and elections.
• Have a lawyer review the draft, including how it should be signed and witnessed.

Frequently asked questions