Under the Ontario Family Law Act, separating spouses who are married to each other are entitled to divide their properties accumulated during the marriage through a process called equalization.
Equalization is only applicable to spouses who are married to each other. Co-habiting (i.e. common law) couples are not entitled to the equalization process.
Contrary to popular belief, equalization doesn’t transfer title of the property between the spouses. Rather, at the end of the marriage, each spouse calculates his or her own networth increase during the marriage, called net family property or NFP. At the end, the equalization process calls for a lump-sum payment half of the difference in the two NFPs to be made by the the spouse with the higher NFP to the other.
For example, if A had $10,000 immediately before marriage and has $400,000 at the time of separation, A’s NFP is assessed at $400,000 – $10,000 = $390,000. If the NFP of B (A’s spouse) is $100,000, then A would owe B ($390,000 – $100,000)/2= $145,000. In other words, A has to make an equalization payment of $145,000 at separation to fulfill his statutory obligations.
If a person’s networth actually decreases during the marriage, the NFP is calculated as $0. In other words, you can’t have a negative NFP for equalization payment purposes.
Although in theory the NFP is only concerned with a person’s net increase in properties, there are exceptions to this rule. Perhaps the most important one is the matrimonial home, which may not be deducted from the NFP even if it was acquired before the marriage.
If you require assistance on equalization and related matters, please call me at 416-433-5531.
