Equalization Payment

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*Please note that the information on this website is intended as a guide only. Each case is unique and context-specific. Legal advice should be sought in regards to your family issue. Provincial and territorial legislation on family law policy and legislation will differ from province to province. If you or anyone you know requires legal advice, an experienced family lawyer should be contacted. If you have any questions not covered on this website, send an email enquiry to info@nanda.ca and we’ll be sure to get back to you shortly.

Who owns the property in our marriage?

Depending on certain qualifications, each person owns property in his or her own name. If an item does not involve title documents, the item is regarded as owned by the person who paid for the item. In regards to gifts, although a person might not have paid for the gift, the gift is legally yours. If the item was bought from a joint bank account or on the understanding that it was the couples’ (ie: ours), it is owned by both you and your spouse jointly.

In the event that an item is bought with one spouse’s money and put into the name of another spouse, the court will conclude that it is a jointly owned item or that it is owned by the person who paid for it. This occurs when a non-titled spouse claims an interest because of a trust. Laws relating to trusts (constructive trusts, remedial constructive trusts, and resulting trusts) are a complex area of law as it deals with property acquired during marriage. However, the law of property and trusts is used by the courts to give property rights to common law spouses who would otherwise not have such rights.

The courts can assist common law spouses by applying the doctrine of unjust enrichment, often used in equity to try to remedy a situation in which one party ends up with a benefit which they may be entitled to in law, but not in fairness.

Generally speaking, the courts start with the proposition that “what is yours is yours, and what is mine is mine.” Having said this, there are other factors which apply. A knowledgeable family law lawyer will explain the application and the process used to determine shares of property.

How does family property, or matrimonial property, get divided?

Each province or territory handles the division of property upon separation and divorce differently, and a consultation with a family lawyer in your area is required. To understand how the division of property in your province or territory is handled, click here. If you live in Ontario, the following information may pertain to you.

In Ontario, the Family Law Act governs how property is dealt with upon separation and divorce. Simply stated, property is left in the hands of the owner, and not dealt with directly. However, an equalization payment is ordered.

What is an equalization payment?

In Ontario, when spouses separate, there is no division of property, but there is a calculation. The calculation is based on how much money a party’s net asset value has increased the most during the marriage. The party whose net asset value has increased the most should pay the other party in order to reach asset levels of equal value for the period of their marriage. This payment is known as the equalization payment.

How is the equalization payment calculated?

The Equalization payment is calculated via each party’s economic standing. For instance, a snapshot is taken of the value of the assets that each party owns (on the date of the marriage and on the date of the separation). The date of separation is also known as the valuation date. All items are counted and valued as of these two dates. The current value of each party’s books, furniture, automobiles, bank debt, student loan debt, and so forth, are valued. The value of these items is measured by their value before the marriage and on the valuation date.

For example, if you were married in 2004 and owned a classic 1960 BMW, a silverware collection, and a leather couch when you got married, the question is: what was the value of each item on the marriage date in 2004? If any of these items were still in your possession at the time of your separation, for example, in 2008, then you would set out the 2008 value for each item you still have on the date of separation (the valuation date). The 1960 BMW may no longer be in your possession on the separation date, and the leather couch which may have been purchased for $1000 may be worth only $200 at a garage sale. However, the silver collection worth $600 at the date of marriage may now be worth $1000. As a result, you would enter the couch at $200 and the silverware collection at $1000 for the valuation date values.

Once the value of the items that each party has brought into marriage has been calculated (less any debt), this value is subtracted from the value of items owned at the separation date (less any items received as gifts or inheritance). This equation is known as Net Family Property (NFP). Each party must calculate their own NFP. The lower NFP is then deducted from the higher NFP and the difference is then divided in half. This new figure is the amount of the equalization payment. It is termed as an equalization payment because it is paid from the financially well-off party to the party with less. It should be noted that one party may have more assets than another due to the reasons mentioned below.

The equalization payment may be further complicated by the fact that there are certain items which are not included in the calculation. For instance, the value at separation date of an inheritance or gift received after marriage is excluded from his or her NFP calculation. If one inherits $25,000 from an uncle a few years before separation, and he or she spends it on a vacation, or to pay off the mortgage (and none of the funds are left at separation), there is no value to the inheritance. However, if the $25,000 inheritance is put into a separate bank account or it is invested in stocks, the value of the bank account or the stocks at the date of separation is not taken into account with the NFP. In some cases, the amount of the exclusion is greater than the value of the gift or inheritance, especially if the item has been invested in a stock which has increased in value, or an investment which has increased in value.

There are other exclusions from the NFP to keep in mind, such as specific policies which state that one cannot deduct the value of the matrimonial home in one party’s name. Due to the importance of these deductions and exclusions in determining an equalization payment, a knowledgeable family law lawyer should be given all information pertaining to the issue, in order to properly calculate each party’s entitlements. A lawyer with wide experience in family law matters will also outline your rights in regards to such payments.

What is a matrimonial home and does it get special treatment?

Under the Ontario Family Law Act, a matrimonial home is all property in which a person has an interest. In addition the interest is determined by the home which was occupied by the person and his or her spouse and deemed as the family residence at the time of the separation. There can be multiple matrimonial homes: summer time shares, cottages, ski chalets, condos in other areas, etc. The matrimonial home in Ontario qualifies for special treatment in two ways.

The first way is that regardless of whose name the matrimonial home is in, both spouses have equal rights to the possession of the home. This right continues until the parties are no longer spouses, or until there is a court order in which an agreement is made, proving otherwise. No one can “throw out” the other spouse because the “thrower” owns the house.

The second way is if a matrimonial home at the time of separation (owned by one of the parties and the other party moved in before/after the marriage or it was purchased to be the family’s home by one of the parties) is the same home lived in at the date of the marriage. The owner cannot deduct the marriage date value when calculating his or her NFP. The matrimonial home’s valuation date is included as a valuation date asset but without a corresponding deduction. This situation is rare, but it can have an impact on equalization payments.

How does pension come into play?

Pension is considered property, and must be taken into account when calculating the NFP and equalization payment. However, a pension is difficult to value and as such, requires the assistance of an actuary. Generally speaking, one can assume that the pension that each party has is worth more than one can accrue. A pension is worth more than the value of contributions made to it. In addition, the value of a pension changes, depending on how many more years the pension member will work. In addition, pension takes into consideration whether an early retirement will take place, and whether the pension member was terminated at the valuation date or whether the member will continue to work until a normal retirement date.

Pension is governed by federal legislation and provincial/territorial legislation. In addition, each pension plan has its own set of terms and provisions. A myriad of rights will apply if you are separated at the time the pension becomes payable (in some cases, this may not apply). For instance, the rules on pension can differ in the following scenarios: contribution to the pension plan prior to marriage, remarrying after separation but before retirement, entering into a new common law relationship. There are many situations in which the calculation of pension will vary greatly.

Due to the fact that pension calculation is still a relatively new concept, there is uncertainty in how it is calculated. For instance, there is a provision for dividing pensions under federal jurisdiction, yet there is no provision under the jurisdiction of Ontario and most other provinces and territories.

While the marital home can be lived in or can be sold to raise money, a pension cannot be. If a pension is valued and made part of the equalization payment, there may not be sufficient funds to make the payment.

All of the issues raised above are areas to consider, in determining your rights. The two key pieces of information to remember is that wherever there is a pension to contend with, it is advisable to contact a family law lawyer to make the correct determination.

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