Division of property and equalization relates to the assets and liabilities accumulated by the parties during their marriage, collectively called the “Net Family Property” (NFP). The equalization of Net Family Property occurs upon a dissolution of marriage.
In Ontario, the Family Law Act prescribes a formula to determine how property will be equalized ---that is how much needs to be paid by one spouse to the other so that you and your spouse end up with the same net property (“NFP”) upon divorce. This formula refers to the “equalization of net family properties.”
The spouse with the higher NFP must make a payment to the spouse with the lower NFP for half the difference between each party’s NFP to determine what is called an “equalization payment.”
Unlike married couples, common-law couples (couples who live together for 3 years or more) are not entitled to the equalization of their family property. However, depending on the circumstances, a common law partner may be able to claim a trust interest in the other spouse’s property.
Equalization recognizes both spouses’ contribution to the marriage. Marriage is considered an equal partnership, whether one spouse may be responsible for the financial well-being of the family and the other may be responsible for taking care of the household. Both contributions are recognized in law.
The purpose of an equalization payment is to put both spouses in an equal financial position with respect to property at the end of the marriage. The assets and debts that you and your spouse accumulated throughout the marriage are included in the calculation. Any assets and debts held on the Date of Marriage are deducted from the calculation. Some assets are excluded from the calculation, such as gifts from third parties, inheritances, monies received from personal injury claims, life insurance proceeds, and some assets that you have excluded by way of a marriage contract. Specific rules apply to the Matrimonial Home.
You must make your claim for equalization within 2 years from the date of a divorce, 6 moths from the death of the spouse, or within 6 years of the date of separation, whichever comes first, or you lose this right.