Distribution of Property in Ontario: The Details
The Ontario Family Law Act sets out a formula for the calculation of marital property division upon separation or divorce. This formula is called “Equalization of Net Family Property”.
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 not form part of the family assets. The following are detailed as Excluded Property under s.4(2):
(a) gifts from third parties;
(b) inherited property from third parties;
(c) income on such gifts or inheritance if the third party so declared;
(d) damages for personal injury;
(e) life insurance proceeds;
(f) converted property from any of the above;
(g) property that the parties agree to be excluded by agreement;
(h) unadjusted pensionable earnings
The burden of proving any of these exclusions is on the spouse who is claiming it (s.4(3)).
Matrimonial Home
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. A matrimonial home is defined in the Family Law Act, s.18, as “every property in which a person has an interest and that is, or if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as the family residence”. Thus, more than one home can be deemed to be the matrimonial home, and this often includes cottages or vacation properties.
Pensions
Your pension, or that of your spouse, is treated the same way as any other property accumulated in the marriage. Pensions are sometimes the most valuable asset to be divided. The problem with pensions is that they are sometimes difficult to value. The same pension can have vastly different values depending on the method which is used. A good lawyer will be able to determine the best valuation of your pension. Please read the article on this site which deals particularly with pensions for more details.
Valuation Date
The date the parties separate is considered to be the valuation date for the purpose of property division. Sometimes, the date of separation is easy to ascertain. One spouse may move out or make it very clear the relationship is over as of that date. However, this is not always the case. You may wonder why the exact date matters. Sometimes the value of property depends very heavily on the exact date of separation. The valuation date is the date that one or both parties decides to dissolve the partnership. Specifically, section 4(1) of the Family Law Act defines “valuation date” as (1) The date the spouses separate and there is no reasonable prospect they will resume cohabitation or (2) The date a divorce is granted. “Reasonable prospect of resuming cohabitation” goes beyond merely hoping to resume cohabiting, or going for dinner with your spouse. Oswell v. Oswell is the leading case that is used when determining valuation date. The court in that case laid out several factors to be examined when the date of separation is at issue. These factors are as follows: the physical separation of the spouses; absence of sexual relations; discussion of family problems; absence of joint social activities; meal patterns; performance of household tasks; making plans for his or her assets as a separate person; the relationship and conduct of each of them toward members of their respective families and how such families behave toward the parties; the financial arrangements between the parties regarding the provision of or contribution toward the necessities of life (food, clothing, shelter, recreation, etc.). There have been other factors that courts have looked at including: the way in which spouses appear to the outside world; whether wills and life insurance beneficiaries have been changed; or purchasing property without the other spouse.
Calculating Net Family Property
Once the valuation date is determined, the actual calculation of property division can be done.
Section 4(1) of the Family Law Act defines Net Family Property as:
…the value of all the property, except property described in subsection(2) [excluded property detailed above] that a spouse owns on the valuation date, after deducting,
(a) the spouse’s debts and other liabilities, and
(b) the value of property, other than a matrimonial home, that the spouse owned on the date of marriage, after deducting the spouse’s debts and other liabilities, calculated as of the date of marriage
As this excerpt suggests, two specific dates must be ascertained. The “date of marriage” and the “valuation date”. The “date of marriage” is generally an easy date to identify.
Equalization of Net Family Property
Equalization
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. The Family Law Act describes this calculation as follows:
5(1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.
However, a person’s Net Family Property can never be less than zero. This simply means that, when calculating Equalization, any additional debts, rendering one side of the ledger to a negative number would simply be ignored and that person’s Net Family Property would be zero.
Calculating Equalization
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.