Division of Property and Equalization: How it’s
Calculated
Under the Family Law Act, the right to equalization (equal share of the profits of the marriage) is automatic when two people enter into a marriage. Some married couples may have created their own separation agreements, but for most spouses, the provisions of equalization apply. Here, we will outline five basic steps for how the division of property and equalization is calculated.
Step One: Determine the Valuation Date
The valuation date is most commonly found to be the date when one spouse separates and there is no reasonable prospect of resuming marital cohabitation. Relationships tend to unravel rather than end abruptly which can make identifying the valuation date challenging.
The valuation date will be based on the earliest of five dates:
1. The date the spouses separate with no reasonable prospect of resuming cohabitation
2. The date of a divorce order
3. Date of an order of nullity
4. Date when one spouse commences an action for improvident depletion of assets
5. The date prior to the date of death of one spouse leaving the other a surviving spouse
Step Two: Determine the Property owned at the Valuation Date and any excluded property
The property includes any interest in real or personal property. It includes property over which a spouse has the power of appointment, the power to consume or the power to dispose of. For example, any interests in business, vehicles, real estate and RRSPs. It does not however include a spouse’s professional license or degree.
The property includes any assets except those exclusions outlined by the Family Law Act.
Some examples of property excluded from the calculation of net family property include:
· Gifts from one spouse to the other
· Income from property expressly excluded by a testator from the spouse’s net family property
· Property that the spouses expressly agreed in a domestic contract would not be included
· Money awarded to a spouse for personal injury
· Pension earnings
Step Three: Assign Value to Property
Spouses are required to provide full financial disclosure to properly value property. Each spouse is responsible for producing the necessary documents to establish their incomes, expenses, assets and liabilities.
Step Four: Determine the Value of Deductions
This includes the value of the property that a spouse owned on the date of marriage after deducting debts and liabilities at the date of marriage.
This also includes debts and liabilities relating to the property owned at the valuation date.
This will result in the calculation of each spouse’s net family property.
Step Five: Calculate the Equalization Claim
After calculating the value of the net family property for each spouse, the spouse with the greater net family property will be required to pay the other spouse one-half of the difference between the two.
Negative net family property is deemed to be 0.
For example
Marriage date
Spouse 1 Assets = $285,000
Savings account $10,000
Home worth 350,000
Vehicle $10,000
·student loans $10,000
·Mortgage $75,000
Spouse 2 Assets: $35,000
Savings account balance $20,000 ·
Vehicle: $15,000
Valuation date
Spouse 1 Assets = 332,000
·Matrimonial home (600,000)
$300,000
Joint bank account with a spouse
$10,000
RRSP $23,000
Credit card debt $1000
Spouse 2 Assets: 308,000
Matrimonial home (600,000) $300,000
Joint bank account with spouse $10,000
Credit card debt $2000
Net Family Property
Spouse 1 – 47,000
Spouse 2 – 273,000
Equalization Payment
273,000 – 47,000 = 226,000
226,000/2 = 113,000
In this example, spouse 2 would owe spouse 1 a one-time payment of $113,000.
Knowing what to include or exclude as assets pre-marriage and at valuation date can be complex. We encourage you to consider these steps for only a basic understanding of how equalization is calculated. A spouse will need to apply for equalization and in some limited circumstances, a court may vary the equalization amount.
For more details or should you require assistance, please contact our family law lawyers to book a Free consultation.
