Distribution of Property in Ontario: The Basics

The Ontario Family Law Act sets out a formula that calculates the division of marital property upon separation or divorce. This formula is called “Equalization of Net Family Property”.

Net Family Property

Apart from certain exceptions, all property acquired during the marriage by either party is considered to be Family Property, the property of both parties, upon marriage breakdown. Legal title of that property is not important. The Act views some property as separate and considers that such property should be excluded from family property.

The matrimonial home is subject to special rules. If, for example, a matrimonial home forms part of an inheritance, it will not be excluded from the definition of family property. Similarly, if any of the excluded property outlined above is converted into a matrimonial home, it loses its status as excluded property. In addition, if a matrimonial home is acquired before marriage, it will not be included in the spouse’s marriage date assets. More than one home can be deemed to be the matrimonial home, and this often included cottages or vacation properties.

Equalization of Net Family Property

When a marriage is dissolved, each partner is entitled to share one half the increase in value of their Family Property as well as to share in the losses accrued while they were married.

Step 1. Calculate the net value of a spouse’s property as of the date of marriage: Add up the value of the spouse’s assets at the date of marriage and subtract that spouse’s debts as of the date of marriage.

Step 2. Calculate the net value of the spouse’s property as of the “valuation date”: Add up the value of the spouse’s assets as of the date of separation and subtract that spouse’s debts as of that date.

Step 3. Subtract the marriage date net worth (Step 1) from the valuation date net worth (Step 2). The result will be the spouse’s Net Family Property, net worth increase during the marriage.

Step 4. Conduct the same calculation for the other spouse.

Step 5. The spouse with the higher Net Family Property owes the other spouse the amount that equalizes the two.

Variations of the Equalization

Domestic Contracts

The Family Law Act, in s.4(2), acknowledges that people may want to opt out of the regime detailed above. As such, a couple can organize the division of their assets as they wish in a Domestic Contract. There, they can specify that certain property, for example, be excluded from that spouse’s Net Family Property.

Unequal Division of Assets

S.4(6) of the Family Law Act describes situations in which a court may award an amount other than the calculated Equalization Payment to a spouse. Such an award will be given if the court is of the opinion that equalization would be unconscionable, having regard to the following factors:
(a) failure to disclose debts or other liabilities at the date of marriage;
(b) the fact that debts were incurred recklessly or in bad faith;
(c) gifts made by the other spouse;
(d) a spouse’s intentional or reckless depletion of his or her Net Family Property;
(e) the fact that the amount a spouse would otherwise receive is disproportionately large in relation to a period of cohabitation of less that five years;
(f) the fact that one spouse has incurred a disproportionately larger amount of debts than the other spouse for the support of the family;
(g) a written agreement between the spouses that is not a domestic contract; or
(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.