Division of Property and Calculating Division of
Property sharing when a marriage breaks down is based on the presumption that the spouses contributed equally throughout the course of the marriage, even if they did not. Therefore, marriage provides an entitlement to an equal share of the value of property accumulated during the marriage once the spouses decide to separate.
In Ontario, division of property is calculated through an equalization process set out in sections 4 and 5 of the Family Law Act (“FLA”), which requires the spouse with the higher net family property (“NFP”) to make a payment to the spouse with the lower NFP. In its simplest form, net family property is calculated by adding together a spouse’s assets and subtracting their debts and liabilities.
Although calculating the division of property once spouses decide to separate or divorce can become quite complex, we have laid out a brief outline of the equalization process below:
Step 1: Determine the valuation date
According to section 4(1) of the FLA, the valuation date is the earliest of the following dates:
1. The date the spouses separate and there is no reasonable prospect that they will resume the relationship (this is the most commonly used);
2. The date a divorce is granted;
3. The date the marriage is declared a nullity;
4. The date one of the spouses makes an application based on section 5(3) that is granted; or
5. The date one of the spouses dies.
Step 2: Determine what property was owned by each spouse on the valuation date
Property in this context also includes pets, sick leave benefits, and severance packages if they are intended to supplement wages. There have also been cases where human reproductive materials (i.e. embryos) are found to constitute property that must be valued and included in a spouse’s NFP.
Step 3: Determine whether any property constitutes excluded property
Under section 4(2) of the FLA, the value of the following property that a spouse owns on the valuation date does not form part of the spouse’s family property that is divided:
1. Property other than the matrimonial home that was acquired by gift or inheritance after the date of marriage;
2. Income from property that was acquired by gift or inheritance if the person giving the gift expressly stated that it was to be excluded from their family property;
3. Damages or right to damages from nervous shock, mental distress, etc.;
4. Proceeds or right to proceeds of a policy of life insurance;
5. Any property listed in items 1-4 that can be traced.
6. Property that the spouses have agreed by contract is not to be included in the spouse’s NFP; and
7. Unadjusted pensionable earnings under the Canada Pension Plan.
Step 4: Assign values to the property
When assigning values to the property that each spouse owned on the valuation date, fair market value is the appropriate measure to use. Courts do their best to decide the fair market value of the property based on experts.
Step 5: Determine the value of deductions
There are two types of deductions that are used to reduce a spouse’s NFP, which include:
1. Value of property that is owned on the date of marriage. For example, if a spouse owned a house on the date of marriage, the value of that house can be deducted from the spouse’s NFP as long as it is not the matrimonial home at the valuation date.
2. Debts and liabilities relating to property owned at the valuation date. An example of this would be a mortgage.
A spouse claiming a deduction must prove it by providing the appropriate documentation.
It is important to note that deductions and excluded property are not the same. Excluded property is not included in a spouse’s NFP, whereas deductions are subtracted from a spouse’s NFP.
Step 6: Calculate each spouse’s net family property and determine the amount that is one-half of the difference
After adding the value of each spouse’s property and subtracting any property owned at the date of marriage and any debts and liabilities at the valuation date, the spouse with the greater NFP needs to pay the other spouse the one-half difference between them.
For example, if Spouse 1 has an NFP of $124 231 and Spouse 2 has an NFP of $56 781, the equation would be:
(Spouse 1) $124 231-$56 781 (Spouse 2) = $67 450/2 = $33 725
Since the spouse with the higher NFP is required to pay one-half of the difference between their NFP and the spouse with the lower NFP, we subtract the higher NFP from the lower NFP and then divide that number by 2. Therefore, spouse 1 would owe spouse 2 an equalization payment of $33 725.
Step 7: Assess any claim for entitlement to more than one-half of the difference
Under section 5(6) of the FLA, the court may award a spouse an amount that is more or less than half of the difference between the NFPs if the court believes that equalizing the NFPs would be unfair because of factors such as:
· The spouse’s failure to disclose to the other spouse debts or liabilities existing at the date of marriage;
· The spouse intentionally lowering their NFP;
· The spouse incurring debts and other liabilities in bad faith; or
· The fact that one spouse has a larger amount of debts and liabilities than the other spouse for the support of the family.
It is important to note that only married couples in Ontario have access to the property division scheme set out in the FLA. Common-law spouses who wish to claim an interest in the property must do so through a mechanism called a “constructive trust”. If you are looking for more information on constructive trusts, please reach out to one of our specialist Family Lawyers here and we will be happy to assist you.
Understanding how to calculate the division of property can easily become difficult and confusing, especially while going through a separation or divorce. If you are looking for more information on the division of property or how calculating the division of property works, do not hesitate to contact us and one of our experienced Family Lawyers can discuss your matter in more detail over a free consultation. You can reach our office at 905-366-0202 or contact us through our website here.