Equalization of Property: What’s in and What’s out?

lorisa stein equalization of propertyIn Ontario, if there is no domestic contract executed prior to or during the marriage, married spouses who face a breakdown in their relationship will divide the value of their respective family property according to the statutory scheme. An accounting by ownership and value of the property held by each spouse as at the date of marriage and as the date of separation (‘valuation date’) will be exchanged between the spouses. Jointly held family assets and debts will be recorded as a 50% interest on each spouses’ financial statement.

What’re Counts as Property?

The governing statute, the Family Law Act defines property to mean

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 favour 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, the imputed value, for family law purposes, of the spouse’s interest in the plan, as determined in accordance with section 10.1, for the period beginning with the date of the marriage and ending on the valuation date; (“Bien”)

The propriety interest does not change: the value of the asset less any associated debt or allowable tax consideration is divided on an equal basis between the spouses. There are a number of legislated exceptions which to an automatic equal division are reconsidered. For example, marriages of less than 5 years duration, a court has the discretion to determine whether the payment based on an equal division of property would be unconscionable and should be reduced or not allowed in its entirety. For spouses negotiating this issue outside of court through mediation or collaborative family law process, the quantum of any payment may be different than what a court may (dis)allow.
Once the valuation and property division have been settled there arises a new relationship between the spouses. The recipient is now a creditor entitled to receive the payment and is in a position to exert a monetary claim against the payor, who is now properly a debtor.

Examples of What Can be Divided, What Can’t and How to Share

Banked vacation leave and sick day benefits, vested pension plans, an investment advisor’s book of business, and registered savings plans are all property valued net of tax. Non-vested plans or plans with no spousal contribution need to be carefully considered.

Accumulated air miles points can be agreed to be shared in kind (the spouse holding the points arranges for the travel of the other) or paid on an agreed cash basis (for example, $.30 per point).
Professional licenses are not property and as Canada Pension Plan benefits are divided under their own legislative scheme, they are not considered property under the Family Law Act.

Jointly held furnishings of the matrimonial home, vacation home, and other residences may be divided by agreement. If spouses are not able to agree, an auctioneer may be appointed by the court to sell off the contents and the net proceeds of sale divided between the spouses. If the spouses are in a collaborative family law process and are unable to agree, they may enlist the assistance of a mediator to resolve the issue,

Only Once

The equalization of net family properties occurs only once. It is most common to occur at the breakdown of the marriage. However, when there is a serious danger that one spouse may improvidently deplete his or her net family property a court may order the property accounting to take place prior to separation. Improvident depletion may occur as a result of a fraudulent transfer designed to defeat a spouse’s claim for equalization or by gambling, illicit drug or heavy alcohol consumption.

If a spouse predeceases the other, the surviving spouse has two options as to how to proceed. She may elect to accept either the amount calculated under the statutory equalization of net family properties scheme or priority or monetary settlement as may be provided by bequest, legacy or residue under a valid Will of the deceased. For the option to take under the property equalization scheme, assets, debts and liabilities will be valued at the close of business the day prior to the passing of the spouse.

Equalization of the net family properties of married spouses who have not entered into a domestic contract prior to separation can be a daunting task not unlike preparing an income tax return. Documents to prove ownership and value are necessary. Retaining a chartered business valuator, and often an accredited land assessor will provide the best evidence of value acceptable in a court process or in a negotiation process. A formal exchange of the sworn summary disclosure statements together with all supporting documents is handled through each spouse’s legal counsel.