Ontario has what is called a “deferred community of property” scheme to divide property upon marriage breakdown or divorce. In practice, this means that when a couple is married each becomes entitled to an equal share of the “net family property” or the net assets acquired during the marriage. The entitlement to an equalization is triggered when there is a breakdown of the marriage or divorce, as earlier mentioned, or upon the death of one of the spouses. In any of these instances each spouse becomes entitled to one-half of the value of the property accumulated during the marriage. A common but mistakenly held belief is that each spouse becomes entitled to one-half of the property itself.Rather, the entitlement is only to one-half of the increase in the value, not to any particular asset. To effect the equalization, the court will order one spouse to pay the other what is called an“equalization payment” so as to equalize the value of each spouse’s net family property.
The general procedure for equalizing net family property is as follows:
- Determine the value of each spouse’s property on the valuation date, which is a legal term that means the date upon which the marriage irretrievably broke down. Once that date is fixed, each spouse is to include all assets, except for those assets that are specifically excluded by section 4(2) of the Family Law Act. They are then to add together all of these included assets.
- Each spouse is then to subtract from his and her total assets all debts on the valuation date. The resultant amount is the total value of the property owned by the spouses on the valuation date. If one spouse has more debts than assets on that date his or her total net family property on the valuation date will be deemed to be zero.
- The spouses are then to determine all of the assets that each brought into the marriage as existing on the date of marriage. Of significance, a spouse is not to include the value of a home that he or she brought into the marriage that is the matrimonial home on the date of separation. If a spouse’s net worth as of the date of marriage was less than zero, which means that he or she had more debts than assets, that negative net worth is to be maintained for the next step in the calculation.
- For each spouse, then subtract his or her date of marriage assets from the separation or valuation date assets. If a spouse’s marriage date net worth is negative, you then subtract the negative, which results in a positive. At this point, the spouses now have the figure for their respective net family properties, which includes the value of all assets acquired during the marriage, as well as the increase in the value of the assets they brought into the marriage.
- The final step is to subtract the amount belonging to the spouse with the lower net family property from the one with the higher, and then to divide the difference in half. The spouse with the higher net family property must then pay the other this one half amount.