For many couples, real estate is one of the largest financial assets. While the matrimonial home often receives much attention during a divorce, rental properties and investment real estate can present their own set of legal challenges.
In Ontario, jointly owned investment properties which are not the matrimonial home are not automatically sold or divided. Instead, their value is generally considered as part of the equalization of the Net Family Property, or NFP, under the Family Law Act.
HOW JOINT PROPERTY IS TREATED IN THE NFP CALCULATION:
When spouses separate in Ontario, each spouse calculates their NFP by determining the value of assets they own on the valuation date and deducting eligible debts and liabilities.
If both spouses own a rental or investment property equally, each spouse’s share of the property’s equity is included in their NFP. If the spouses own the property in different proportions, the calculation may reflect those ownership interests.
For example, if a rental property is worth $900,000 and has a $500,000 mortgage, the equity is $400,000. If the spouses own it equally, each spouse may include $200,000 on their side of the NFP. The property itself does not necessarily have to be divided physically. Instead, its value becomes part of the overall equalization calculation.
For a more detailed explanation as to how equalization works, see our article: Equalization & How It Is Calculated.
WHAT CAN HAPPEN TO THE PROPERTY?:
Spouses may have flexibility in determining how these assets will be dealt with following separation.
For example:
• One spouse may retain ownership of the investment property and make an equalization payment to the other spouse by simply writing a cheque. • The property may be sold, with the proceeds used to satisfy equalization obligations.
• One spouse may transfer their interest in the property to the other as part of a negotiated settlement.
• The parties may agree to continue co-owning the property after separation, although this is generally less common.
The specific arrangement can be documented in a Separation Agreement or Court Order, depending on the circumstances of the case.
If the parties cannot agree on what should happen to the property after separation, options may include:
• Selling the property and dividing the proceeds;
• One spouse buying out the other’s interest;
• Refinancing the property to facilitate an equalization payment; or
• Applying to the court for directions regarding the property
COMMON LAW COUPLES:
The equalization regime applies only to legally married spouses. Common law spouses in Ontario do not have an automatic right to equalize NFP. This means that property acquired during a common law relationship does not automatically become subject to division when the relationship ends.
CONCLUSION:
In Ontario, jointly owned rental properties and real estate investments are usually dealt with through the NFP and equalization process. The property is included on the owners’ side of the calculation, and an equalization payment is made if one spouse has a higher
NFP than the other. Spouses may negotiate various solutions, including buyouts, transfers, refinancing or sale of the property.
Because every property portfolio and family situation is unique, obtaining legal advice early can help protect your financial interests.
Attention Legal Counsel: Professional Mediation Services
When your clients have reached an impasse in settlement discussions, Andrew Feldstein offers third-party mediation services specifically designed for cases where both parties have independent legal representation.
Why lawyers refer cases to Andrew:
• 30+ years family law litigation experience providing courtroom-informed reality testing
• Expertise in complex financial matters including business valuations and professional corporations
• Efficient, structured process that respects counsel’s time and maintains client relationships
• Flexible scheduling including virtual mediation and travel to counsel offices
Cases we handle: Negotiation stalemates, complex asset division, support calculation disputes, parenting arrangements, multi-jurisdictional matters, and post separation modifications.
Refer your next mediation: Call Andrew directly at 905-415-1635 ext. 255 or email info@separation.ca. Virtual and in-person sessions available throughout the GTA.
Categories: Divorce and Separation, Property Division, Investment Properties and Real Estate, Net Family Property and Equalization