“Half of everything” is the phrase most people use when they talk about divorce in Ontario, and it is not quite how the law works. Ontario does not split your car, your RRSP and your couch down the middle. Each spouse generally keeps what is in their own name. What gets shared is the growth in wealth over the course of the marriage, through a single payment that evens things out.
That payment is called an equalization payment, and the rules for calculating it can produce results that surprise people. A spouse who brought a large house into the marriage might get no credit for it. Another who inherited money may keep it entirely, or may lose that protection through one well-meaning decision.
This article offers general information for Ontario readers, not legal advice. Property cases often turn on valuations, documents and timing, so please get advice before you make significant decisions about your own assets.
Who the system applies to
The equalization scheme in Part I of Ontario’s Family Law Act applies to married spouses. Common-law partners, however long they have lived together, do not have these equalization rights. As Ontario’s own guidance explains, each common-law partner generally keeps what they bought. A partner who contributed to property in the other person’s name may have a separate claim, based on principles like unjust enrichment or a resulting trust, but it is a different and often harder path, usually needing evidence of the contribution. Cohabitation and separation agreements can change the outcome by contract. If you are unmarried, please read the rest of this article with that difference in mind.
The basic calculation
Each spouse works out their own net family property, or NFP. In simple terms:
- List what you owned on the valuation date, and what it was worth.
- Subtract what you owed on that date.
- Subtract the net value of what you owned on the date of marriage, except for a matrimonial home.
- Take out any excluded property.
The spouse with the lower NFP is entitled to half of the difference between the two figures.
Here is a hypothetical example. Suppose that on the valuation date, Spouse A has an NFP of $400,000 and Spouse B has an NFP of $100,000. The difference is $300,000, and half of that is $150,000, so Spouse A owes Spouse B an equalization payment of $150,000. After payment, each has an NFP of $250,000. Note that Spouse A does not have to hand over specific assets. The obligation is to pay money, though in practice people often transfer an asset or a share in the home to satisfy it.
The valuation date is usually the date the spouses separated with no reasonable prospect of getting back together. It can be some other date in less common situations, such as a divorce granted before separation or the day before a spouse’s death. Since valuing everything turns on this date, a disputed separation date can have major financial consequences, particularly if the value of an investment or a home changed sharply around that time.
What property counts
“Property” is defined broadly. It generally includes:
- real estate, including a home in Brampton, a rental property in Mississauga, or a plot of land abroad
- bank accounts, GICs, TFSAs, RRSPs and investments
- pensions, valued under pension law and through the plan administrator
- a business or shares in a corporation, even if it never pays you a dividend
- vehicles, equipment, jewellery and collectibles
- some contingent or future interests, such as vested stock options
Assets located outside Canada count too. In Peel Region, where many families own property in India, Pakistan, the Caribbean or elsewhere, these interests can be a major part of the calculation, and they require reliable foreign valuations and legal records. Foreign debts also have to be documented. Leaving an overseas property out of your financial statement is a serious problem, not a technicality.
Where an asset is held jointly, each spouse usually lists half of its value. Debts on the valuation date, such as a mortgage, line of credit or credit card balance, reduce your NFP. Some people also ask whether notional costs such as tax on an RRSP or the costs of disposing of an asset can be deducted. They often can where the disposition is likely, but that depends on the evidence and calls for individual advice.
Why the matrimonial home is different
The matrimonial home gets special treatment in three ways, and they catch many people out.
No date-of-marriage deduction. If you own a house on the date of marriage and it is still the matrimonial home on the valuation date, you generally cannot deduct what it was worth when you got married. Its full value is included on your side. If you had owned a condo and sold it before separation, by contrast, you could deduct its date-of-marriage value. The wording of the statute draws this line sharply.
Exclusions can be lost. An inheritance or gift received during the marriage is usually excluded. But if it is used to buy or pay off the matrimonial home, that protection is typically lost, because the exclusion does not apply to the matrimonial home. Spouses who use inherited money to pay down the mortgage are often surprised by this. Agreements can change this result, so talk to a lawyer before you do it, if you have the chance.
Equal right to possession. Both spouses have an equal right to possess the home, regardless of who holds title. Neither may change the locks and exclude the other simply because their name is on the deed. A court can give one spouse exclusive possession, considering factors such as the best interests of children, the financial position of the spouses, the availability of other housing and any violence. Selling or mortgaging the home generally requires the other spouse’s consent or a court order, even where only one name is on title.
A couple can have more than one matrimonial home, for example, a cottage regularly used by the family. A property occupied as a family residence at the date of separation is the main test. A second property’s status may be disputed.
Note also that equalization does not settle ownership of the home on its own. Co-owners may need to agree on a sale or a buyout, and a partition application may be required if they cannot.
Exclusions and deductions
The Family Law Act lists certain items that may be excluded if you still own them on the valuation date, and if they can be traced:
- gifts or inheritances from a third party received after the marriage, other than a matrimonial home
- income from those gifts or inheritances, if the donor or testator expressly said so
- personal injury damages, or a settlement portion that represents them
- life insurance proceeds payable on a death
- property that you have agreed to exclude in a domestic contract, such as a marriage contract
- unadjusted pensionable earnings under the Canada Pension Plan
Separately, the date-of-marriage deduction lets you subtract the net value of what you brought in, other than the home. A key rule is that you must be able to prove it. If you claim to have owned $60,000 in savings on your wedding day but cannot produce a record of it, it may be difficult to obtain a deduction. Start looking for old statements now, as banks and pension plans often retain records for a limited time only.
Tracing can be equally demanding. If an inheritance went into an account that was then used for family expenses, or was mixed with other funds, showing what remains can be hard. Keep inherited money apart from joint finances if you can, and keep the paperwork.
Can the result be unequal?
Equal division of the difference is the general rule. Under section 5(6), a court may award a different amount only where equalizing would be unconscionable, having regard to specific factors such as a spouse’s failure to disclose debts, debts incurred recklessly or in bad faith, or intentionally or recklessly depleting NFP. This is a very high bar. Ontario’s guidance speaks of very special situations in which an equal split would be extremely unfair. An ordinary sense of unfairness, or the fact that a spouse had an affair, is not enough.
Similarly, a spouse cannot usually avoid the system by transferring assets before separation. A court may look at property disposed of and the circumstances of the transfer, and if a spouse is depleting assets, a court can make an order to preserve them.
Deadlines you cannot ignore
Under section 7(3), an application for an equalization payment must be brought before the earliest of:
- two years after the date of a divorce or a declaration that the marriage is invalid
- six years after the date of separation, where there is no reasonable prospect of resuming cohabitation
- six months after the first spouse’s death
A court may, in some limited circumstances, extend the time, but you should not count on that. These deadlines can catch people who obtain a quick divorce and assume property can wait until later, since the two-year clock begins once the divorce takes effect. Your own timeline is one of the first things a lawyer will want to check.
Pensions, businesses and other tricky assets
Pensions. Pensions are property, and they may be among the largest assets in a family. Ontario has a process for obtaining a family law value from the plan administrator, and the Pension Benefits Act allows for a lump-sum transfer in some cases. Federal plans and those regulated elsewhere have their own rules. Do not rely on your annual statement as a value.
Businesses. A small business or incorporated professional practice may require a chartered business valuator. Since many Brampton families run trucking, trades, retail or service businesses, a dispute about value and income can come up both here and in the support claim. The same stream of business income can end up counted twice when it is used both to value the company and to calculate support, so raise this with your lawyer or valuator.
Debts. A joint line of credit used for a business may not be the same as personal debt. Make sure you identify who is liable, and what was outstanding on the valuation date.
Crypto and online assets. These count as property too. Keep records and be prepared to document holdings as of the valuation date.
From the numbers to a resolution
In a court case, a property claim requires a financial statement (Form 13.1), disclosure such as statements closest to the valuation date, and a Net Family Property Statement (Form 13B). Many cases do not go to trial, because once the numbers are on paper, the debate often narrows. A spouse can often pay equalization by transferring a share of the home or rolling over part of an RRSP on a tax-deferred basis, using the right documents.
A good approach to starting is to make a two-column table with what you and your spouse owned at marriage and at separation. Mark next to each item what document you have, and what you still need. If this is your situation, our family law team can help you make sense of the numbers, and you can read more about our services in Brampton. Getting a clear picture before you sign anything or move money is usually time well spent.