Property Division & Equalization Lawyer in Mississauga

How equalization actually works

Part I of the Family Law Act creates a deferred sharing regime. Each spouse calculates their net family property, and the spouse with the higher figure pays the other half the difference. That payment is the equalization payment.

Net family property is calculated as: the value of all assets owned on the valuation date, less debts and liabilities on that date, less the value of assets brought into the marriage (net of debts then), less excluded property.

Two consequences follow immediately. First, title does not decide the outcome, an asset in one spouse’s name still goes into that spouse’s calculation and is shared through the payment. Second, this scheme applies only to married spouses. Common-law partners in Ontario have no equalization right at all.

The valuation date

Almost everything turns on the valuation date, which is normally the date of separation, the day the spouses separated with no reasonable prospect of resuming cohabitation.

Assets are valued as at that date. Movements afterwards, up or down, belong to the owner. A stock portfolio that doubles after separation does not increase the other spouse’s share; a business that collapses afterwards does not reduce it. This is why disputes about the separation date are worth taking seriously even when they look like arguments about nothing.

Excluded property, and how easily it is lost

Section 4(2) excludes certain property from net family property, provided it can still be traced on the valuation date.

• Gifts and inheritances received from a third party during the marriage
• Income from such a gift or inheritance, if the donor expressly stated it was to be excluded
• Damages for personal injury, and the right to those damages
• Proceeds of a life insurance policy
• Property traceable to any of the above
• Property the spouses agreed to exclude in a domestic contract

The tracing requirement is where these claims are usually lost. An inheritance deposited into a joint account and spent on household expenses is gone. An inheritance used to pay down the mortgage on the matrimonial home is gone, and worse, it is converted into the one asset the Act treats most harshly. Keeping inherited money in a separate account in one name, with the paper trail intact, preserves the exclusion.

The matrimonial home gets special treatment

The matrimonial home, the home ordinarily occupied as the family residence at separation, is subject to rules that catch people out.

• No date-of-marriage deduction. If you owned the home on the date of marriage and it is still the matrimonial home at separation, you cannot deduct its date-of-marriage value. Its full value goes into your net family property.
• Exclusions are destroyed. Property that would otherwise be excluded loses that status if it becomes the matrimonial home.
• Equal right of possession. Under section 19, both spouses have an equal right to possession regardless of who is on title. Neither can change the locks on the other.
• No dealing without consent. Under section 21, a spouse cannot sell or mortgage the matrimonial home without the other’s consent, even if the other is not on title.

There can also be more than one matrimonial home, a cottage ordinarily used by the family qualifies, and the same rules attach to it.

Pensions, businesses, and the valuations that decide files

Ontario pensions are valued for family law purposes using the Family Law Value calculated by the plan administrator on Form FSCO 1. For a defined benefit plan this is often the largest single number in the case, and it is routinely underestimated by the member spouse. Up to 50 per cent of the Family Law Value accrued during the marriage can be transferred directly out of the plan.

Business interests require a proper valuation, usually by a Chartered Business Valuator, and the figure must be adjusted for the tax and disposition costs that would be incurred on a notional sale. A company’s book value is almost never its family law value.

These valuations are where files are won and lost. They are also where the cost of the exercise has to be weighed honestly against what is actually in dispute; we will tell you when a formal valuation is not worth what it costs.

Do not miss the limitation period

Under section 7(3) of the Family Law Act, an application for equalization must be brought by the earliest of six years after the date of separation, two years after the marriage is terminated by divorce or nullity, or six months after the first spouse’s death.

The second of those is the trap. A spouse who obtains a divorce and then leaves property unresolved has two years, not six. Extensions are possible under section 2(8) but are discretionary and far from guaranteed.