Upon separation, a common question asked is whether the husband and wife automatically share all their assets equally. The answer is yes and no. In a typical marriage with no marriage contract, with each party having the same net worth when married and with neither having received inheritances or obtained insurance monies, the answer is yes. However, the Family Law Act of Ontario sets out rules to be applied and which may result in an unequal division. It should be noted that it is not the assets which are divided, but the value of these assets. The spouse with the higher value of “net family property” pays the other spouse an “equalization payment” so that each party has the same net family property. Therefore, if one spouse owns a business, the other spouse does not get a share of the business, rather the business and all other assets are valued and then a cash payment is made to equalize the net family property.
Net Family Property
To arrive at the net family property, you first start with the value of all property each owned on the date of separation. Every conceivable type of property is included, including the right to a pension (which has a value considerably more than just one’s contributions). From this value is subtracted the debts of each party on the separation date. From that figure, you subtract each party’s net value of assets owned on the date of marriage except for the value of the matrimonial home (that is still a matrimonial home on the date of separation). Then from this amount, specific excluded property is subtracted so to give each party’s net family property. The equalization payment is therefore, one-half of the difference between the two net family properties.
The Family Law Act states that certain types of property are to be excluded in the calculation. These properties are basically gifts or inheritances from a person other than one’s spouse, the income from gifts or inheritances where the donor of the gift specifically stated that the income was not to be net family property, settlements from personal injury actions and life insurance proceeds. Also excluded is property other than the matrimonial home that was obtained with excluded property. Therefore, if an inheritance is spent on a vacation or used to pay down the mortgage on the matrimonial home, the inheritance is not excluded in the calculation, whereas if the inheritance is put in the bank, it is excluded.
The Court has the power in certain circumstances not to follow the formula, but to make an unequal division. This can occur when; there was an agreement between the parties; when the marriage was less than five years; when one spouse recklessly depleted his or her assets or incurred debts; or, when there was nondisclosure of debts when married. Improper conduct is not a reason to make an unequal division.