Property Division, Equalization After Divorce
In Canada, rules and legislation governing the division and equalization of marital property differ in the various provinces and territories.
Married couples have had a marriage ceremony which was legally recognized. Common law couples usually live together as spouses or have children together but are not legally married.
Property rules are different for married couples and couples in a common law relationship.
What happens to property if a married couple separates or one spouse dies?
Property value is shared in case of a married couple when one spouse dies, or the couple separates.
Marriage is classified as an equal partnership, and each spouse’s contribution is equal whether they run the household or earn income for the family.
Once the marriage breaks up, all the properties are divided equally. This includes properties which were acquired during the marriage and were present at the time of separation. Any property individually owned by spouses before marriage is not to be divided, but any increase in its value has to be shared with the other spouse equally.
All family assets are subject to this equal division except a few assets including the matrimonial home.
How the property value is determined and divided amongst spouses?
When a married couple separate, one spouse makes an ‘equalization payment’ to the other spouse.
This payment is a lump sum dollar amount which can be calculated in a two-step process outlined below.
- Net family property (NFP) of each spouse need to be calculated. Each spouse does the calculation by totalling the value of the properties they own on the date of separation and deduct all value of property on the date of marriage. The value of property taken must be a net value arrived at after deducting the debts and mortgage on the property.
- The spouse who has the higher Net Family Property pays the equalization payment which is worth half the difference between their respective NFPs.
- Any matrimonial home on the date of separation is included in the Net Family Property of the spouse who holds the title to it on the date of marriage.
- Any gifts and inheritances received by any spouse are included in the net Family Property calculation only if it was used to help purchase a matrimonial home.
- Canada Pension Plan credits are divided in a separate process and are not included in the ambit of the Net Family Property calculation.
What is included under marital assets or marital property?
Marital assets include all the assets acquired during the marriage and include financial assets, bank accounts, real estate, household possessions, vehicles, personal items and much more. Pensions, RRSPs insurance policies and investments are all included.
At the time of separation, the home in which the legally married couple resides in is classified as a Matrimonial Home. It is possible that more than one matrimonial home exists, like a cottage.
In Ontario, married spouses have an equal right to stay in the matrimonial home. The right is valid even if the legal title of the property is in only one of the spouses name’s. The right no longer remains if:
- The couple makes an agreement which expressly mentions that one spouse cannot live there
- A court order is issues which mentions that one spouse cannot live there
- The matrimonial home’s lease expires or the home is sold
- Spouses divorce
The matrimonial home cannot be sold or mortgaged without the other spouse’s written permission.
Common-law couples do not have the same rules for property. They are not entitled to the automatic right to live in the home if their legal title does not exist.
Any common-law spouse can sell or mortgage the house if they are its legal owner. The other spouse’s permission will not be required.
Canada Pension Plan credits
The Canada Pension Plan (CPP) is a pension plan which majority of the workers and employers contribute to. CPP provides for pension payments when you retire, get disabled and cannot work. The pension amount is a direct result of the dollars contributed.
CPP pension credits earned by a couple after they lived together for at least one year are added up and divided equally between them after they separate. This is called Division of Unadjusted Pensionable Earnings” (DUPE).
A spouse has to apply for a DUPE within 3 years of the spouse’s death if they did not divorce and the death happened after their separation. Otherwise, applying for DUPE does not have a time limit.
Common-law Couples need to apply for DUPE within 4 years of separation and need to be separated for at least on year.
What are the Exclusions to Marital Assets?
Few exclusions to marital assets exist which include:
- Gifts, trust and inheritances received by any spouse
- insurance settlements received
- proceeds from an insurance policy
- business assets of any spouse (in case a spouse has made significant contributions to the business, that will be considered a marital asset and exclusion will not be allowed)
- all assets and properties exempt from inclusion as per a separation agreement, cohabitation agreement, prenuptial agreement or a marriage contract
- all properties acquired by a spouse after separation
The exclusions apply only if the marital assets were not used for the benefit of the family in any manner during the course of marriage. In case, any asset was used to benefit the family; it will not be considered as an exclusion.
How is the marital property treated when couples in common law relationships separate?
Property sharing clauses are not applicable for couples in common-law relationships.
Only trust claims are allowed to balance out the contributions of the spouses to the properties owned by them.
All assets of a partner in a common-law relationship whether purchased before or during the marriage belong to them only. If any asset increases in value during the relationship, the other partner has no right upon such increase.
How We Can Help
At Nanda & Associate Lawyers, our capable family law lawyers help in making effective representation for the division of property. They understand your specific circumstances and provide tailored and customized solutions for each of them. Many legal complexities exist in formulating equalization payment claims, and an experienced family law lawyer can help you to navigate better in those complex situations.
Our Mississauga Family Law Lawyers are available for a consultation. Come and experience our quality legal counsel and personalized care we give to each client.