Assets that may be excluded from equalization calculations
If you are divorcing in Ontario, you and your soon-to-be ex can expect to equally share in the increased net worth of your marriage. In other words, if the husband’s net worth from the date of marriage to the date of separation increased by $1,000 and the wife’s net worth stayed the same, then the husband owes the wife one-half the difference: $1,000 divided by two = $500. Simple, n’est-ce pas?
The law requires you to share the wealth accumulated during the marriage. So, spouse “A” will pay spouse “B” an “equalization payment”. The theory and philosophy is that A and B had a marriage partnership and should therefore exit the marriage on an equal footing. But for every rule, they say that there are exceptions. You may be able to exclude certain assets from these calculations, which can result in a dramatic effect on the bottom line. [The link in this sentence is to the Ontario Family Law Act. Good luck in understanding this if you are not a lawyer.]
Property to exclude
Per the Family Law Act, excluded property can include:
- Property acquired by gift or inheritance (not including matrimonial home) acquired after the marriage date;
- Financial damages from personal injury claims (if you kept them separate from your other monies);
- Life insurance proceeds;
- Any property parties identified as excluded in a marriage contract.
These assets shall not be taken into account when calculating division and equalization payments. However, you must be able to trace them. This process can become very complicated, especially if you or your ex mixed excluded property with shared property or accounts.
For instance, if you receive an inheritance, you could exclude its value if you keep the funds separate and can trace it. If you put money into shared accounts or spend it on improvements to your marital home, you may not be able to exclude some or all of the value.
What this means for your case
Valuing property and calculating equalization payments is complicated. There can be challenges with valuing property and determining what is eligible for exclusion, and financial and legal guidance can be essential in helping you navigate this process.
Whether you exclude property or not can have a significant impact on the equalization of net family property. It could ultimately be a matter of hundreds or thousands of dollars, which will affect life after divorce.
However, knowing what excluded property is and how it affects the property division process can help you get a handle on the financial stakes ahead of you. And if all of this still sounds confusing, then there’s proof that it is a good idea to seek out legal representation.
