By law, the process of dividing the properties in a marriage is called the “equalization process.” Both spouses tabulate their net worth, and whoever ends up with less is entitled to half of the difference.
In most cases the matter of which properties are owned by each spouse is not in dispute. However, the issue of whether each specific property should be included in the net family property is often fraught with contention.
It turns out that the law allows, in limited circumstances, for a spouse to exclude or to deduct specific types of properties. While the words “deduction” and “exclusion” are often used interchangeably in everyday use, they have very different meanings under the law for the purposes of dividing properties in a divorce or separation.
“Deductions“ under the Family Law Act* refers to the subtraction of the value of certain properties at a specific date, usually the date of marriage. “Exclusions,” however, refers to omitting the properties from the net family property entirely.
For example, if a painting was worth $10,000 at the date of marriage and $50,000 at the valuation date, to deduct the painting as of the date of marriage would be to include the painting in the owner’s net family property at $40,000 (the current worth of $50,000 less $10,000 at the date of marriage). However, if the owner gets to exclude the painting entirely, then the painting would not be included in the owner’s net family property at all.
Generally speaking, exclusions are rare. Examples include gifts or inheritances acquired during the marriage (but not necessarily income generated from the gifts or inheritances), damages awarded, life insurance policy proceeds, and items agreed to in a separation agreement.
*R.S.O. 1990, c. F3
This blog is provided for educational purposes. It is not legal advice and should not be regarded as such. The law may have changed since the publication of this article.
