What do I have to share with my spouse when we separate?
Upon the breakdown of a marriage, each spouse is entitled to share equally in the value of property that was acquired during the marriage, as well as the increase in value of property brought into the marriage. This is known as the "equalization of net family property" or simply "equalization."
In a previous post, we discussed how the "Matrimonial Home" is treated during equalization. This post provides a more comprehensive overview of what equalization is, and how the process works.
Who is entitled to equalization?
In order to be entitled to an equalization of net family properties, you must fall under the definition of "spouse" in the Family Law Act. In short, equalization applies to people who are married to each other. Couples who are living together (cohabiting or "common law"), are not entitled to an equalization of net family property, regardless of how long they have been cohabiting.
What is "Net Family Property" (NFP)?
Net family property is the total value, minus all debts and liabilities, of all the property acquired by each spouse during the marriage, less any "excluded property". If one spouse's NFP is higher than the other's, a payment known as an "equalization payment" is made.
How do I determine my NFP?
In order to determine your NFP, you must calculate your net worth on the date of your marriage and on the date of your separation. First, calculate the value of all the property you own on the "valuation date" (the "valuation date" is the date of separation), and subtract the value of any debts or liabilities you have on the date of separation. Then, do the same calculation for the value of all the property you owned on the date of your marriage, minus your debts and liabilities at that time.
To determine your Net Family Property for the purposes of equalization, subtract your date of marriage net worth from your date of separation net worth. The resulting number is the total increase in value of all your property during the marriage, or your "net family property".
Note: Not all property is included in your NFP. There are special rules defining what property can be excluded. An inheritance or gift from a third party acquired during the marriage is an example. Learn more here.
The following table illustrates how this all works:
What is an "Equalization Payment"?
An "equalization payment" is a payment made by the spouse with a higher NFP to the other. The amount is equal to one-half of the difference between the two spouse's NFP's. The objective of this payment is to "equalize" both spouse's Net Family Properties. The following is an example Equalization Payment calculation using the figures from the above table:
Spouse A has a total NFP of $150,000
Spouse B has a total NFP of $75,000
Difference between NFPs: $150,000 - $75,000 = $75,000 difference
One-half the difference = $37,500 equalization payment
Spouse A NFP after equalization: $150,000 - $37,500 = $112,500
Spouse B NFP after equalization: $75,000 + $37,500 = $112,500
Equalization can be a complex process due to factors such as pensions, property valuations, and notional expenses or taxes such as the taxes paid on your pension. Likewise, one spouse may want to exclude property that the other spouse thinks should be shared. If you have any questions about equalizing your net family property, please do not hesitate to contact our office.