Back to Basics: All About Equalization
- Shankar Law Office
- 4 days ago
- 4 min read
Most Family Law cases in the Superior Court/unified Family Court deal with property issues. When the couple is married they are required to undertake the process of equalization of the net family property.
This blog focusses on the basics of equalization. What is it, what is a net family property, and what happens as of the valuation / separation date.
What is equalization?:
When married spouses separate, the Family Law Act provides for the equalization of net family property as between them. Specifically, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. Contrary to popular belief shared by many couples, this does not involve the actual “splitting” of all the various assets. The couple is not heading to their financial institution to physically start dividing all of their accounts as between them. Rather, equalization involves a single payment based on the difference between the spouses’ net family properties. From s. 5(1), Family Law Act.
The goal of equalization is to recognize that both spouses contributed to the marriage, whether through financial contributions or through household management and childcare responsibilities, and to provide an equitable method of property division that recognizes these contributions. This is directly referenced in the Preamble of the Family Law Act, and section 5(7) of the Family Law Act which provides:
The purpose of this section is to recognize that child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in subsection (6).
Valuation date
Net family property division occurs as of the “valuation date”, which is the earliest of the following dates:
1. The spouses separate with no reasonable prospect of reconciliation
2. A divorce is granted
3. The marriage is declared a nullity
4. One of the spouses commences an application seeking improvident depletion
5. One of the spouses dies. Family Law Act, R.S.O. 1990, c. F.3, s. 4(1).
The valuation date is also known as the separation date. That is the date when the parties irrevocably separated. sometimes, couples have a dispute on the separation date which itself then needs to be litigated on a final basis as to what date is the correct separation date. The reason for this is that the date of separation can have an impact on the pension valuation, asset separation etc.
How is a spouse’s net family property calculated?
A spouse’s net family property is the value of all their property except excluded property which is defined under subsection 4(2) of the Family Law Act, that a spouse owns on the valuation date, after deducting:
a. The spouse’s debts and other liabilities, and
b. The value of all property (other than a matrimonial home) that the spouse owned on the date of marriage, after deducting the spouse’s debts and other liabilities (other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home). Family Law Act, R.S.O. 1990, c. F.3, s. 4(1).
What is “excluded property”?
Section 4(2) of the Family Law Act defines excluded property and provides:
4(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:
Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of marriage.
2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
4. Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured.
5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
7. Unadjusted pensionable earnings under the Canada Pension Plan.
Conclusion:
Hopefully the reader will have a better idea about the meaning of equalization, separation/ valuation date, and exclusion of assets from net family property consideration. At Shankar Law, we are happy to guide and assist you with these complex terms and navigating through the interpretation of these various terms to ensure that your rights are fully protected.
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