When married spouses separate without a reasonable prospect of reconciliation, the spouse whose net family property is the lesser of the two is entitled to an equalization payment equal to one-half the difference between the spouse’s respective net family properties, with a few exceptions.
There is a common misconception that all property purchased throughout the marriage is jointly owned. Although the equalization of property ensures that the value of most assets are equalized, it does not provide for the division of specific assets or mean that each asset is individually divided. For instance, if one spouse purchases investments from his or her sole account during the marriage, the other spouse is not necessarily entitled to 50% of those investments. Instead, the investments will be a component of the owner’s net family property when determining the equalization payment owing from one spouse to the other.
The definition of property in Ontario’s Family Law Act is expansive, and includes all property in which a spouse holds an interest, either vested or contingent, including, but not limited to, jointly owned property, property the spouse has disposed of but which the spouse has the power to revoke the disposition, or pension assets. The following are examples of a spouse’s assets for the purpose of determining his or her net family property:
- Pensions (whether in pay or not);
- RRSPs, TFSAs, savings and investments;
- Property owned through a trust;
- Stock options;
- Shares in a business;
- A business;
- Non-real property such as vehicles, boats, household contents, electronics, artwork and jewellery;
- Accumulated credits such as air miles or other rewards; etc.
Upon separation, each spouse is entitled to retain property held solely in his or her name. However, in certain instances, it may be necessary to sell or transfer property in order to satisfy the equalization payment owing.
Consider the following example: A Husband and Wife separate. They do not own a home and have no debts or liabilities and the only asset of considerable value is the Wife’s pension, valued at $200,000.00. Although the pension belongs to the Wife, it will likely be necessary for the Wife to transfer approximately 50% of her interest in the pension after accounting for disposition costs to her Husband in order to satisfy the equalization payment.
In some cases, it may be necessary to retain a professional to determine the value of particular assets such as a business, federal pension, or real estate. For example, a certified business valuator may be necessary when determining the value of a business for the purposes of equalization.