Written by: Naa Lansana
Equalization, authorized under the Family Law Act (FLA), is a legal framework designed to share the economic gains accumulated by parties during their marriage. This applies in several scenarios, among them, when the marriage ends due to separation or the death of a spouse. In the event of a spouse’s passing, the surviving spouse has the option to pursue equalization under the FLA instead of their entitlements under a will, or, if no will exists, their entitlements under the Succession Law Reform Act. In Ontario, only legally married spouses undergo property equalization, that is, if they have not contracted out of the regime through a valid marriage contract.
The underlying principle of equalization is that both spouses contribute vitally to the family’s well-being, regardless of their specific roles. Therefore, any increase in the family’s wealth over the course of the marriage should be shared equally. It is important to note that during equalization, each party retains ownership of their individual property. What is shared is the increase in value, rather than a division of specific assets.
To determine the equalization payment, the Net Family Property (NFP) of each spouse must first be calculated. This involves assessing the assets and liabilities of each spouse at both the date of marriage and the date of separation (valuation date), while also considering any applicable deductions and exclusions. If a spouse’s NFP is negative, a zero value is assigned to them.
Deductions are determined by subtracting all liabilities unrelated to the matrimonial home from the total assets acquired by that spouse prior to marriage that are also not related to the matrimonial home. This ensures that a spouse retains the portion of their net worth obtained before marriage and not tied to the matrimonial home, as equalization focuses on gains achieved during the marriage. The matrimonial home receives special considerations in family law such that, among other things, even if one party owned the property before marriage, they will not receive a deduction for it.
Additionally, there are exclusions that impact a spouse’s NFP, such as property acquired through gifts or inheritance from a third-party after the date of marriage, income from such property that the donor or testator explicitly excludes from NFP calculations, and insurance proceeds payable upon the insured individual’s death. It is important to note that there is no exclusion for a matrimonial home if it is purchased with an inheritance or gift from a third-party.
Once the NFP calculations are finalized, the difference between the two values is determined, and the spouse with the higher NFP amount transfers half of this difference to the spouse with the lower NFP amount as an equalization payment.
