How Property Is Divided Upon Separation
The increase in value of a couple’s assets during their marriage is divided equally between them when they separate. Important: It is not the actual assets that are divided, but the “value” of the assets, which are divided.
Calculating Your Net Family Property
The starting point for dividing property is for each spouse to calculate his or her net family property. To do this, you first calculate the value of all of your assets on your date of separation. From that amount, you then deduct the value of all of your liabilities on your date of separation. Next, you deduct the value of all the assets you had on the date you married. You also need to deduct the value of certain items that are not considered family property, such as life insurance proceeds, gifts from third parties, inheritances and personal injury awards or settlements. Finally, you add the value of all your liabilities on the date of your marriage. This figure is known as your net family property.
After You Have Calculated Your Net Family Property
After you have calculated your net family property, the spouse with the higher net family property is required by law to pay his or her spouse an equalization payment. The equalization payment is half of the difference between the two spouses net family properties. The equalization payment ensures that both spouses have equal net properties at the end of the marriage.
The Matrimonial Home
The matrimonial home is treated differently from other property in two ways.
First, unlike other property, if you owned the matrimonial home on the date of marriage, you do not receive a credit for it when you separate. (Note that if you have been married for less than 5 years, you can ask for an unequal division of net family properties if this creates an unfair result).
Second, it does not matter who has their name on the papers for the house, both spouses have a right to live in the matrimonial home.
The Items That Are Not Included In Net Family Property Calculations
As mentioned above, there are certain items such as life insurance proceeds, gifts, inheritances, and personal injury awards that may not have to be included in your net family property. To exclude these from your net family property, you must have kept these items separate from your other property, and be able to trace these funds from the day you received them. The only exception to this is again, the matrimonial home. You must include the value of a matrimonial home in your net family property even if you used proceeds from one of the above listed items to help pay for your home.
Reducing Your Equalization Payment
In almost all cases, you must pay the full amount of money to equalize your net family property and your spouses net family property. A Court will typically only reduce the amount of your payment if it finds the calculated payment would be unconscionable. It is rare that a Court will find this. A Court might reduce the equalization payment if you can prove that your spouse was reckless with family assets.
If you own a business, the value of the business will need to be calculated, and this value will need to be included in your net family property. Normally, a business valuer will need to be hired to do a valuation of your business. This can be an expensive and complicated process, depending on the complexity of your business.
Pensions are included in the Net Family Property calculations. The value of the pension for the years of the marriage will need to be calculated. A request of the pension administration must be made pursuant to The Pension Benefits Act.
Degree Or Licence
Courts have decided that your degree or professional licences are not to be valued and included in your net family property. However, if your spouse may be supported you while you were going to school for your licence or degree, your spouse may be granted spousal support by the Court.
Tax Consequences On An Equalization Payment
Equalization payments are not taxed. However, often as part of an equalization payment, various property transfers are made. There are special tax rules that allow RRSPs to be transferred between spouses as part of a divorce settlement so that there are no tax consequences. As well, often one spouse will be purchasing the other spouse’s share of property say, for instance, a cottage. There are tax rules that allow for the postponement of any capital gains tax, which the parties may elect to use, if they can agree on this.
Property Acquired After Separation
Your spouse is not entitled to a share of any property you may have acquired after your separation.
Equalization Payments Are Only For Those Who Were Married
Under legislation in Ontario, Canada you are not entitled to an equalization payment unless you were married to your partner. However, if you did not marry, you may still be entitled to a portion of your partner’s assets. You can file a claim for something called “unjust enrichment or “constructive trust”. A Court may find that you have a valid interest in your partners assets and rule that you are entitled to compensation because you helped acquire them during your time of cohabitation. This is a very complicated area of the law.