How is Family Law Equalization Calculated in Ontario?

In Ontario, one of the most complex parts of a divorce involves the division of property. Equalization payments are designed to allow spouses to keep their personal property and split joint financial assets evenly. While this may seem like a simple fifty-fifty proposition, family law equalization calculations, when not performed properly and legally, can leave one spouse at a significant financial disadvantage after the marriage.

Prior To Equalization

Before equalization can take place, the law must determine the ownership status of property and belongings for both parties. This first step requires that spouses calculate the value of what they currently own. During this part of the proceedings, issues can sometimes arise in terms of who owns what.

Sometimes, figuring this out involves following special rules put in place to create a process that results in fair payouts. For example, the special rule for matrimonial homes states that an equalization payment for this type of property, which includes cottages, calculates according to the current value, instead of the difference in value during the elapsed time of the marriage.

Related: Marriage Contracts and the Matrimonial Home

Gifts and Inheritence

Gifts and inheritances are not considered to be part of equalization payments, although, if the gift was cashed in to pay for part of the home, then it becomes part of the calculation. Individual cases and precedents could refine or provide exceptions based on specific circumstances.

CPP Credits

Canada Pension Plan credits include their own protocol, which involves a “Division of Unadjusted Pensionable Earnings”, also referred to as DUPE. DUPE adjustments take place when the total amount of credits between both spouses are pooled before being divided evenly.

Unfortunately, if divorce proceedings happen to be acrimonious, one or both spouses may be attempting to hide financial resources from the other, which can complicate the process. In 2010, a legal hearing upheld jail time for a spouse who siphoned funds away from an RRSP to reduce equalization payments, sending a strong message to those who might attempt to commit this crime.

Related: Lessons Learned: Consequences of ‘Bad Faith’ Actions in Divorce Proceedings

Calculating Net Family Property

When current assets are calculated for both parties of the divorce, the next step involves calculating what all this property was worth when the two of you tied the knot. The total value of the assets when married are then subtracted from the value of currently held assets, with the difference between the two considered to be the total Net Family Property (NFP). When the NFP has been calculated for both spouses, the lesser NFP is subtracted from the higher NFP. What remains is divided in half, which formulates the equalization payment that the richer spouse must provide for the poorer spouse.

This outline gives you the basic calculation that takes place. However, depending on the situation that you find yourself in, you may wish to attempt to fight for adjustments based on potential variables that don’t fit neatly into the equation.

In the event that a spouse didn’t reveal the true amount of their debts prior to marriage, the court may decide to alter the judgment to increase payment to the spouse who was kept in the dark. Other causes that might lead to adjustments outside the plain formula include:

• A spouse who took on significantly more debt to support the family.
• A spouse with an NFP total that’s largely made from gifts from the spouse.
• Intentional depleting of the value of the matrimonial home.
• Cohabitation of less than five years along with a disproportionate equalization payment.

Fight For Fair Equalization

Equalization payments are designed to reduce the impact of divorce on those who may be financially vulnerable to separation. Considering the importance of this procedure, and the potential for complication, hiring a family law expert is the best way to proceed.

Fine & Associates Professional Corporation is a well-respected Toronto Law Firm that prides itself on providing quality personal service and favourable outcomes in Family Law and Divorce Law.

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