There is often the expectation that in family law, “everything is going to be divided equally”. While it is true that the Family Law Act provides for the equalization of family property for married spouses, equalization does not necessarily mean that you will divide everything that exists on the date of separation equally.
What are my property rights?
Whether you are married or in a common law relationship can impact the discussions that you have with your partner about the division of your property. In Ontario, if you are married there is an automatic right to division of property in accordance with the Family Law Act, unless you “opted out” by way of a marriage contract. If you are in a common law relationship, there is no automatic right to division of property, unless you “opted in” by way of a cohabitation agreement, or an exception in the law applies to you.
What is “equalization” in family law?
Equalization is the amount one spouse would pay to the other to ensure they each leave the relationship with an equal division of the increase in the value of the assets accumulated during the marriage. It does not mean that you divide each individual asset equally. Equalization is generally calculated by determining the difference in each spouse’s net worth accumulated during the marriage and having the spouse with the higher increase in net worth pay one half of this difference to the spouse with the lower increase in net worth.
What if I had assets or debts on the date of marriage?
When determining the equalization your net family property, you will calculate the value of each spouses’ assets and debts on the date of separation. You will also calculate the value of each spouses’ assets and debts on the date of marriage. The date of marriage values will then be deducted from the date of separation values. This is how you capture the growth of each spouse’s net worth accumulated during the marriage. For example, if a spouse has an RRSP worth $20,000.00 on the date of separation and $10,000.00 on the date of marriage, it is the growth of $10,000.00 between the date of marriage and the date of separation that will be equalized.
There are some exceptions. For example, a spouse may lose their date of marriage deduction on a home, if the spouse owned the home on the date of marriage, and the same home was a matrimonial home on the date of separation.
What if I received a gift or inheritance during the marriage?
If you received a gift or inheritance from a third party (who is not your spouse) during the marriage it may be excluded from the calculation of your net family property, even if it has increased in value on the date of separation.
For a gift or inheritance to be excluded property, it must:
- Still exist in some form on the date of separation;
- Be kept separate from joint family property. For example, if you received a cash gift or inheritance and you use the funds to install a swimming pool at the matrimonial home, you will lose the exclusion for those funds.
- Be explicitly given by the donor as a gift or inheritance to the spouse alone and not to both spouses together or the family as a whole.
What if I received a gift of inheritance before the marriage?
Gifts or inheritances received from a third party before the marriage will be treated like any other date of marriage asset. Its value on the date of marriage will be deducted from its value on the date of separation.
In order to have meaningful settlement negotiations and to strengthen the overall validity and enforceability of a separation agreement, it is absolutely critical that each party provide complete financial disclosure of all of their assets and debts as of the date of separation, the date of marriage, and in support of any excluded property being claimed.
This blog is intended as general information and not legal advice. Specific questions regarding your own circumstances should be addressed a family lawyer.
Our mediators are experienced family lawyers and we are here to help. If you need assistance with the division of property, or are in the process of separating from your spouse or considering separation, click here to schedule a free Zoom call with one of our mediators to learn more about our services and to answer any questions you may have about the process of mediation.