Division of Property: Equalization

Married spouses in Ontario are entitled to an equalization of property pursuant to section 5(1) of the Family Law Act upon separation. Under the legislation, the spouse with the higher “net family property” must pay to the spouse with the lower net family property half the difference between their respective net family properties, save and except in certain scenarios (i.e. a short-term marriage). The purpose of an equalization payment is to recognize that child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties.

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Determining Net Family Property

A spouse’s net family property is determined by calculating the total value of the spouse’s property that a spouse owns on the date of separation (referred to as “the valuation date”) less the following:

The spouse’s debts and liabilities;
The value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of the marriage.

Notwithstanding the above, the value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property (referred to as “excluded property”):

Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
Proceeds or a right to proceeds of a policy of life insurance as defined under the Insurance Act, that are payable on the death of the life insured.
Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
Unadjusted pensionable earnings under the Canada Pension Plan.

Unequal Division of Parties’ Net Family Properties

Under section 5(6) of the Family Law Act, a Court has the discretion to order an amount that is more or less than the total equalization payment owing if the Court is of the opinion that equalizing the net family properties would be unconscionable considering:

a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith
the part of a spouse’s net family property that consists of gifts made by the other spouse;
a spouse’s intentional or reckless depletion of his or her net family property;
the fact that the amount a spouse would otherwise receive is disproportionately large in relation to a period of cohabitation that is less than five years;
the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.