Equalization: The Calculations

Once you and your spouse satisfy the definition in s. 1(1) and show that an event has occurred which triggers your entitlement to bring a claim under s. 7(1) then the net family property of each spouse must be calculated.

You should be aware of the fact that the triggering event that allows you to bring a claim for an equalization payment also becomes the valuation date for the purposes of a net family property calculation.

Valuation Date

“Valuation date” is defined in s. 4(1) as “the earliest of the following dates:

1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.
2. The date a divorce is granted.
3. The date the marriage is declared a nullity.
4. The date one of the spouses commences an application based on subsection 5 (3) (improvident depletion) that is subsequently granted.
5. The date before the date on which one of the spouses dies leaving the other spouse surviving.”

Statement of Property

It is crucial that you identify the relevant property that is to be both included and excluded in the net family property calculation. This is done initially by serving a statement of property and filing it with the court pursuant to s. 8 detailing:

• the party’s property and debts and other liabilities,
  • as of the date of the marriage,
  • as of the valuation date, and
  • as of the date of the statement;
• the deductions that the party claims under the definition of “net family property”;
• the exclusions that the party claims under subsection 4 (2); and
• All property that the party disposed of during the two years immediately preceding the making of the statement, or during the marriage, whichever period is shorter.

Resulting or Constructive Trust

It may also be necessary to resolve any disputes regarding ownership of or interests in property according to s. 10(1) of the Act so that it may be included in the net family property calculations. Under this section a spouse may bring an action against the other spouse or his or her estate claiming ownership of, or right to possession of, particular property based on a resulting or constructive trust.

If he or she is successful then the court has the power to:

• declare the ownership or right to possession;
• if the property has been disposed of, order payment in compensation for the interest of either party;
• order that the property be partitioned or sold for the purpose of realizing the interests in it;
• order that either or both spouses give security, including a charge on property, for the performance of an obligation imposed by the order, and
• May make ancillary orders or give ancillary directions.

  Section 14 limits the application of this section in two circumstances:

  14. The rule of law applying a presumption of a resulting trust shall be applied in questions of the ownership of property between spouses, as if they were not married, except that, (a) the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants; and (b) money on deposit in the name of both spouses shall be deemed to be in the name of the spouses as joint tenants for the purposes of clause (a).

  Definition of Property

  You should also be aware of the definition of property which will indicate what is considered to be property and consequently what can be included in the calculation of net family property.

  “property” means any interest, present or future, vested or contingent, in real or personal property and includes, (a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favor of himself or herself, (b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and (c) in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons;

  This definition has been interpreted to also include a beneficial interest in property arising from a constructive trust as well as a contingent interest in an inheritance. It does not extend to professional degrees or licenses but it does include an interest in a professional practice. Therefore, property can be any of the following (but is not limited to):

  • Real Estate
  • Vehicles
  • Cash
  • Bank Accounts
  • RRSPs
  • Stocks
  • Bonds
  • Pension,
  • etc.

  Exclusions to net family property are listed under s. 4(2) and in order to have them deducted from the calculation the spouse claiming the exclusion must satisfy the court of such.

  Excluded property (2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property: 1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage. 2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property. 3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages. 4. Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured. 5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced. 6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property. 7. Unadjusted pensionable earnings under the Canada Pension Plan.
  Onus of proof re deductions and exclusions (3) The onus of proving a deduction under the definition of “net family property” or an exclusion under subsection (2) is on the person claiming it

  Formula for Calculation

  Section 4(1) also provides the formula that is to be used to calculate the net family property for the purposes of equalization.

  “net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting, (a) the spouse’s debts and other liabilities, and (b) the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of the marriage;

  Subsection (b), therefore, contemplates, that the full value of the family home must be shared even if one of you owned the home before you were married, received it as a gift or inherited it. The matrimonial home will never be excluded from a net family property calculation. In order to determine what property will and will not constitute a matrimonial home please refer to: The Matrimonial Home.

  A caveat that is mentioned in s. 5(5) is that the net family property can not be less than zero. Should this be the case then the net family property of the spouse in question is deemed to be zero and the equalization payment is awarded accordingly. However, this may be varied based on one of the s. 5(6) factors discussed above.

  Example of Equalization Calculation

  1. Determine the valuation date. (i.e. the triggering event. See: ss.4(1), 5(1)-(3))
  2. Determine all assets owned by both spouses on valuation date.
  3. Account for any exclusions. (See: s. 4(2))
  4. Determine all debts and liabilities of both spouses on valuation date.
  5. Deduct the debts and liabilities from the assets owned.
  6. Repeat step 2 for all assets owned on marriage date.
  7. Repeat step 4 for all debts and liabilities on marriage date
  8. Deduct the debts and liabilities from the assets owned.
  9. Subtract the marriage date total from the valuation date total to determine each spouse’s net family property.
  al from the valuation date total to determine each spouse’s net family property.

  Marriage Day

  Husband - Total $320,000

  • Owned a home worth $400,000
  • Had a savings account with a balance of $5,000
  • ($75,000 mortgage)
  • ($10,000 student loan)

  Wife - Total $17,000

  • $20,000 stock portfolio
  • ($3,000 student loan)

  Valuation Day

  Husband - Total $380,000

  • Matrimonial home (worth $750,000) owned jointly with wife = $375,000
  • $10,000 savings
  • $5,000 joint bank account with wife
  • ($10,000 credit card debt)

  Wife - Total $442,000

  • Matrimonial home (worth $750,000) owned jointly with husband= $375,000
  • $5,000 joint bank account with husband
  • $50,000 stock portfolio
  • $15,000 in dividends from father’s shares (silent on income therefore it is included pursuant to s. 4(2)2
  • ($3,000 credit card debt)

  Net Family Property

  Husband - $60,000
  Wife - $425,000

  Once the net family properties of each spouse are determined then pursuant to s. 5(1) the courts may equalize the amounts.

  Equalization of net family properties
  Divorce, etc.
  5. (1) When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.

  Therefore, using the example above equalization would result in the following:

  • the wife has a net family property of $425,000
  • the husband has a net family property of $60,000
  • therefore, the husband, who has a lower net family property, is entitled to one-half the difference between the two amounts
  • $425,000 - $60,000 = $365,000
  • $365,000 ÷ 2 = $182,500
  • The wife must pay the husband $182,500.

  You should be aware that division of property and equalization does not necessarily equate the transfer of title between spouses unless it is ordered by the court or agreed to by the parties. Therefore, if one spouse holds legal title to all of the property involved in a net family property calculation then once the equalization payment is made he or she will continue to own and benefit from it without accounting to the other spouse for any increases or changes. It should be emphasized that the result of an equalization calculation is merely a payment, from one spouse to the other, in the amount of one-half the difference between their respective net family properties.Once the payment is made and received by the recipient-spouse then he or she can make no further claims to additional monies or title to the property.

  Unequal Division of Property

  It may also be possible for a spouse to be granted an unequal division of property pursuant to s. 5(6) of the Act. This section gives the court the discretion to award an amount that is more or less than half the difference between the net family properties of the spouses if equalizing would be unconscionable to one of them.

  After the initial calculation is completed a court may consider the following factors in order to make a determination as to whether or not a s. 5(6) variation would be appropriate:

  • spouse’s failure to disclose to the other spouse debts or liabilities existing at the date of the marriage;
  • debts and liabilities claimed in reduction of a spouse’s net family property that were incurred recklessly or in bad faith
    • In 2004 the Ontario Superior Court of Justice ordered unequal division after it was discovered that the husband was losing approximately $20,000/yr by gambling. The court clarified that gambling per se does not equate unconscionability and reckless deprivation of the family property and it must be considered in light of other factors, such as: the amount of the net assets involved, the proportion of family means put at risk, the parties’ incomes, the resources that the parties brought into the marriage, and the conduct of the parties. The wife had paid to put her husband through medical school. The court therefore ordered that in addition to the equalization payment the wife was to receive $12,000.
  • the portion of a spouse’s net family property that is made up of gifts given by the other spouse
  • a spouse’s intentional or reckless depletion of his or her net family property
    • In 2000, the Ontario Superior Court of Justice ordered that a husband’s full lottery winnings be included in his net family property after it was shown that he gave away $420,000 to family members a few weeks prior to separation to hide the fact that he had won $2.5 million dollars.
  • the length of the marriage
    • It may be that an equalization payment would be disproportionately large in relation to a marriage that lasted less than 5 years.
    • A 2003 decision from the Ontario Superior Court of Justice is illustrative. The husband and wife were married for one year and she had no assets and was unemployed and the only contribution she had made was in the form of helping her husband decorate the house. The court ordered that she was not entitled to an equalization payment.
  • if a spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family
    • In1996 the Ontario Superior Court of Justice (General Division) heard a case where the spouses were married for 19 years and had 4 children. During the marriage the wife had incurred a proportionally larger amount of debts and liabilities in order to support the family. The husband had no relationship with his children and did not pay any child support totaling $72,000 in arrears. The court ordered that the wife was entitled to the matrimonial home.
  • a written agreement between the spouses that is not a domestic contract, or
    • In 1997 the Ontario Court of Appeal deferred to an agreement by which the wife would receive an additional sum on the sale of the matrimonial home in consideration for agreeing to its refinancing.
  • Any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

  Death of a Spouse

  As was mentioned under s. 5(2) a triggering event may be the death of one of the spouses. When this occurs there might be a will outlining the inheritance to which the surviving spouse is entitled. If the surviving spouse determines that the inheritance is less than what she or he would receive from an equalization payment then according to s. 6(1) the spouse has six months to waive the right to take from under the will and instead apply for an equalization of the net family properties.

  You should note that s. 6(5) allows a surviving spouse to receive an equalization payment in addition to an inheritance if the deceased spouse expressly provides for it in his or her will. Moreover, to ensure that the deceased spouse’s estate is not completely exhausted by an equalization payment s. 6(6)-(7) provides that a pension, life insurance policy or property of which the surviving spouse is the beneficiary will be used to satisfy the equalization payment.

  Amounts to be credited (6) The rules in subsection (7) apply if a surviving spouse elects or has elected to receive an entitlement under section 5 and is, (a) the beneficiary of a policy of life insurance, as defined in the Insurance Act, that was taken out on the life of the deceased spouse and owned by the deceased spouse or was taken out on the lives of a group of which he or she was a member; (b) the beneficiary of a lump sum payment provided under a pension or similar plan on the death of the deceased spouse; or (c) the recipient of property or a portion of property to which the surviving spouse becomes entitled by right of survivorship or otherwise on the death of the deceased spouse.
  Same (7) The following rules apply in the circumstances described in subsection (6): 1. The amount of every payment and the value of every property or portion of property described in that subsection, less any contingent tax liability in respect of the payment, property or portion of property, shall be credited against the surviving spouse’s entitlement under section 5. 2. If the total amount of the credit under paragraph 1 exceeds the entitlement under section 5, the deceased spouse’s personal representative may recover the excess amount from the surviving spouse. 3. Paragraphs 1 and 2 do not apply in respect of a payment, property or portion of property if, i. the deceased spouse provided in a written designation, will or other written instrument, as the case may be, that the surviving spouse shall receive the payment, property or portion of property in addition to the entitlement under section 5, or ii. in the case of property or a portion of property referred to in clause (6) (c), if the surviving spouse’s entitlement to the property or portion of property was established by or on behalf of a third person, either the deceased spouse or the third person provided in a will or other written instrument that the surviving spouse shall receive the property or portion of property in addition to the entitlement under section 5.

  A surviving spouse’s right to an equalization payment is important and when the election is made there may be no distribution of the deceased’s estate for a period of 6 months, unless it is for the purposes of dependent’s relief. The equalization payment has priority over and must be distributed before:

  • the gifts made in the deceased spouse’s will, if any, subject to subsection (13);
    • unless the gift is made in accordance with a contract entered into in good faith and for valuable consideration then that takes priority
  • a person’s right to a share of the estate under Part II (Intestate Succession) of the Succession Law Reform Act;
  • An order made against the estate under Part V (Support of Dependants) of the Succession Law Reform Act, except an order in favor of a child of the deceased spouse.
  Should a personal representative make a distribution contrary to subsections (14) and (15) then he or she may become personally liable to account for:
  • the amount that was distributed, or
  • The amount that is lacking and necessary to satisfy the equalization payment.

  Method of Compensation

  After all calculations have been completed, and it is determined which of the two spouses is entitled to one-half the difference between the amounts, the court has a broad discretion to order any of the following methods of compensation:

  • that one spouse pay to the other spouse the amount to which the court finds that spouse to be entitled under this Part;
  • that security, including a charge on property, be given for the performance of an obligation imposed by the order;
  • that, if necessary to avoid hardship, an amount referred to in clause (a) be paid in installments during a period not exceeding ten years or that payment of all or part of the amount be delayed for a period not exceeding ten years; and
  • that, if appropriate to satisfy an obligation imposed by the order,
  • property be transferred to or in trust for or vested in a spouse, whether absolutely, for life or for a term of years, or
  • Any property be partitioned or sold.

  Variation Orders

  There is also the possibility of varying the type of order made if the paying spouse is able to satisfy the court that there has been a material change in the circumstances such that he or she is no longer able to comply with it. However, you should be aware that a variation in the order does not mean that there will be a variation in the amount that is to be paid. You should also be aware of the fact that there is a 10-year limitation period imposed and so all amounts must be paid within that time if necessary and the court has no authority to extend that time limit.

  Conclusion

  Lastly, you should note that everything discussed in this section may be contracted out of or modified pursuant to a separation agreement. If you are dissatisfied with the way the Act deals with the division of property and equalization and you and your spouse are able to cooperate and come to an agreement then you should both seek the services of independent lawyers. It may be in your best interests to get together and draft an agreement to suit your particular needs and circumstances.

   

  The fact scenario and figures for the Equalization Calculation have been reprinted from Family Law: Practice and Procedure, 3rd edition by Joanne Kurtz, published by Emond Montogmery Publications. For this and other high quality, accessible publications, please visit http://www.emp.ca.