Division of property: A common misconception is that divorce requires Ontario couples to equally split all their property, including the matrimonial home. Rather, what Ontario actually requires (re property division) is that separated spouses must equally share in the increased wealth that they accumulated during their marriage. (There is no provision that provides for equal sharing of financial losses.)
Share equally in gains of marriage: Ontario’s Family Law Act mandates the principle of equalization of net family property. The net financial gains accrued during marriage are shared equally between separating spouses. The philosophical underpinning is that contributions (be they financial, child care, household management or otherwise) are inherent to the marital relationship and therefore, upon marriage breakdown, each spouse should be entitled to share equally in the financial gains that occurred during the marriage.* Not all marriages are truly equal partnerships. Nonetheless, to depart from the equal sharing regime the test is quite onerous.
Concise Summary of How it Works:
(1) We take a snapshot of each spouse’s financial position as at:
(a) Separation Date; and,
(b) Marriage Date.
(2) On each date [ie. on (a) and (b)] we add up the spouse’s assets and we deduct his/her liabilities. That gives us a net value for each spouse on each relevant date.
(3) For each spouse, we subtract (b) from (a). That gives us each spouse’s net family property (“NFP“).
(4) Who has the higher NFP? Take the higher NFP value and deduct from that the lower NFP value.
(5) For illustrative purposes. Let’s say that the difference between the two NFP numbers is $50,000.
(6) Divide that latter number by 2. (eg. $50,000/2). That gives us the “equalization payment” (eg. $25,000).
|(a) Separation Date||· Assets: $750,000
· Liabilities: $150,000
· Net Value: $600,000
|· Assets: $850,000
· Liabilities: $150,000
· Net Value: $700,000
|(b) Marriage Date||· Assets: $50,000
· Liabilities: $0
· Net Value: $50,000
|· Assets: $500,000
· Liabilities: $300,000
· Net Value: $200,000
|Net Family Property (NFP)||· $600,000 – $50,000 =
|· $700,000 – $200,000 =
|Equalization Payment Calculation||Jane’s NFP is higher than John’s. Jane NFP minus John NFP = $50,000.
Divide that $50,000 by 2. (= $25,000)
Jane owes John an equalization payment of $25,000.
Note that in the above example John is clearly the better off of the two. But his NFP rose by $500,000 during the marriage while Jane’s NFP rose more – by $550,000. That’s why Jane has to pay an equalization payment to John.
Exceptions: There are a number of exceptions that would change the above analysis. Here are a few:
(1) If you owned a matrimonial home on the marriage date and the same home on the separation date, then you are not allowed to deduct the marriage date value of that matrimonial home. So effectively, the entire separation date value of the matrimonial home comes into play.
(2) If you received a gift or inheritance from a third person after the date of the marriage AND if you kept that gift or inheritance separate, then you effectively get to exclude the value of that gift or inheritance from your calculation as of the separation date.
(3) If you received monies for an accident settlement AND if you kept the funds separate, then you effectively get to exclude the value of that fund from your calculation as of the separation date.
Who: The above applies only to married spouses who have last lived together in Ontario. This regime does not apply to common law partners. Common law spouses might have some property rights but they are not under the statute and there is a different type of evidence that one requires to establish common law spouses’ property claims.
Time Limitations can quash a claim: Wait six years since the date of separation? You are out of luck. Wait two years from your divorce date? You are out of luck. Do not delay bringing these claims.
Importance of Hiring a Family Law Lawyer:
There are many good reasons why if at all possible that you should not try to negotiate or litigate such issues on your own. There are complications in the statute law and in the case law that interprets the Family Law Act. For many “rules”, there are indeed exceptions. You can’t just read this article and then consider yourself an expert. Here are just a few of the complicating factors briefly summarized:
(1) Excluded property: The actual NFP calculation is not as straightforward as we have described here. There are exceptions depending upon the facts. Without a family law lawyer, your rights could be compromised.
(2) Disclosure: In order to calculate one’s NFP, you need accurate and comprehensive disclosure. One has to know what to produce and what to expect from the other spouse. It’s not always crystal clear. Sometimes you even need professional valuations. If NFP values are calculated based on incomplete information and documents, this can leave you vulnerable against later claims to reopen what you thought was a final deal. A family law lawyer should know what is required and can ensure that you comply with disclosure requirements. Refer to our blog post on why Timely Financial Disclosure is Essential for more information.
(3) Delay: We find that a large hiccup in moving matters forward is a party’s delay in providing financial disclosure. Undue delay can precipitate potentially expensive compliance motions and in some cases, even contempt motions. A lawyer can help to keep you focused on what is important to complete. For those overwhelmed by the process, a law clerk under a lawyer’s supervision can receive proper written authorizations from you and gather and organize the disclosure for you.
(4) Special circumstances: In circumstances that a judge finds are “unconscionable” (that’s the word that the Family Law Act uses), there can be a division of NFP that is other than an equal sharing. This could include such situations as huge gambling debts, very unprofitable and what should have been seen as fool-hardy investments, or some other very bad economic behavior that shocks the conscience of the court. It’s complicated. You need a lawyer.
(5) Domestic Contract Alternatives: Prior to marriage you can work with a family law lawyer to prepare a Prenuptial Agreement/Marriage Contract. (You can also legally sign a Marriage Contract during the marriage.) Such a contract can specify the couple’s own custom designed property regime in the event of marriage breakdown. You can work with a family law lawyer to craft a Separation Agreement which similarly allows a couple to determine what they want as opposed to what the law otherwise dictates. Family law lawyers are skilled in negotiating both Marriage Contracts and Separation Agreements.
*The preamble to the Ontario Family Law Act reads in part: Whereas it is desirable to encourage and strengthen the role of the family; and whereas for that purpose it is necessary to recognize the equal position of spouses as individuals within marriage and to recognize marriage as a form of partnership; and whereas in support of such recognition it is necessary to provide in law for the orderly and equitable settlement of the affairs of the spouses upon the breakdown of the partnership…
This blog post is authored jointly by Jessica Cohen and Gene C. Colman.