DIVIDING FAMILY PROPERTY IN ONTARIO

The law in Canada about the division of family property is governed by each individual province and territory. This article deals with Ontario’s Family Law Act and only applies to residents of Ontario. In the eyes of the law, a marriage is an equal partnership and the law recognizes the equal contribution of each partner to the marriage. When a marriage ends, the economic partnership that was established by the marriage is over and the family’s assets have to be divided. To recognize the equal contribution of each spouse, the general rule is that the value of any assets that were acquired during the marriage and that still exist at the time of separation, must be divided equally. Property that either spouse brought with them into the marriage is theirs to keep. Any increase in the value of a couple’s assets during the marriage, however, must be shared. Note that the actual assets are not divided, it is the “value” of the assets, which is divided. 

Ontario’s Family Law Act

One of the major issues dealt with by the Family Law Act is the division of property acquired by spouses during their marriage. The  provisions within the act which deal with the division of family property apply only to spouses who are married. They do not apply to "common law" spouses or unmarried "same sex partners." For the purposes of valuing and dividing family property, the Family Law Act defines property very broadly. Property can include pensions, RRSPs, vehicles and boats, stocks, money that is owed to you (such as income tax refunds), shares in a company, stock options (the right to purchase shares), the right to collect money (royalties), tools, jewelry, electronic equipment, furniture, collectibles, art, and any interest you may have in an unincorporated business. Note that this is not an exhaustive list. The Family Law Act sets out the rules for how the property of a married couple is to be both valued and divided on separation. The Act provides that the value of any kind of property that was acquired by either spouse during the marriage, and still exists at separation, must be divided equally between the spouses. This is accomplished by having each spouse add up the value of their assets acquired during the marriage and subtract the value of their liabilities acquired during the marriage. The spouse with the largest net worth pays half the difference to the other person so that in the end, they both have the same net worth. The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property.

Why is the Separation Date Important?

In calculating net family property, disagreements can arise when valuing assets and debts. The source of many of these disagreements is the date of separation. One spouse may say, "we separated in June 2005", the other spouse may maintain that "it was not until January 2006." Does it make a difference? Indeed it does. The difference in the date of separation can be significant in terms of valuing the family’s assets. While in many circumstances the date of separation does not have a significant impact on the net family property, if either spouse acquired a significant asset after the date of separation, that asset will not be included in the calculation of the net family property.  Similarly, if one spouse accumulated a large amount of debt prior to separation, this amount will have an impact on the value of their net family property. These factors could have a big impact on the equalization payment the other spouse may be entitled to.

Generally, the separation date is considered to be the date when one of the two spouses decided the relationship is over and there is no reasonable chance of reconciling. How do the courts determine that? Although the definition provided above is relatively subjective, the courts try to look at objective evidence if there is a dispute about the date of separation. For example, a court might look to see what the parties stated on their income tax returns. Using the above example where the dispute is between June 2005 and January 2006, if either spouse indicated on their 2005 income tax return that they were separated, that would be considered persuasive evidence that they separated in June of 2005. If both parties stated on their 2005 income tax returns that they were married, that would be considered strong evidence that they were not separated in June 2005. A court might also look at if and when either of the parties may have consulted a lawyer. If one of the parties went to a lawyer in June 2005 that could be considered as evidence that the party considered the relationship over. On the other hand, if the parties went on a holiday together to celebrate their anniversary in November 2005, that would be evidence that the parties considered themselves as still a couple in November 2005. None of those pieces of evidence on their own is determinative of the issue, and one party or the other can always try to explain away the evidence. These are the types of things judges consider when there is a dispute over the valuation date.

Calculating Net Family Property

The first step in determining net family property is to calculate the net value of each spouse’s property as of the date of marriage and the date of separation. This is done by adding up the value of each spouse’s assets on the date of marriage and subtracting each spouse’s debts as of that date as well. This calculation will show each spouse’s net worth on the date of marriage. The next step is to add up the value of each spouse’s assets as of the date of separation and subtract each spouse’s liabilities on the separation date. This will provide the net worth of each spouse on the date of separation. Each spouse must then subtract their net worth on their date of marriage from their net worth on their date of separation. This calculated value shows how much the person’s net worth has increased during the marriage. This figure is often referred to as a party’s net family property, sometime referred to as the NFP. The Family Law Act requires the spouse with the higher net family property to make a payment to the spouse with the lower net family property in an amount that equalizes the increase in their assets. This is called an "equalization payment." 

Pensions Are Included In Net Family Property Calculations

One of the most difficult aspects of family property division involves pensions. Most people don’t realize it, but many pensions may be a significant asset worth a considerable amount of money. A pension is considered property because it really is an individual’s right to receive money in the future. Even though the money has not yet been received, the value of the future right is considered an asset. It is the value of that entitlement on the date of separation that is considered an asset which must be valued for the purposes of property division. Each spouse’s pension must be valued by an actuary and the value included in their calculation of their net family property. Valuing a fixed benefit pension is a highly technical process. It is not something you can do for yourself or that your employer can do for you. It requires the involvement of a trained and qualified actuary. The best advice is to retain an actuary and provide them with your most recent pension statement. Let them know both your date of marriage and date of separation. The actuary will provide you with a report which contains a number of scenarios of what your spouse’s share of your pension might be based on your possible retirement dates. The actuary will also take into account a deduction to reflect the taxes you will have to pay on your pension income. There are other adjustments that may be made depending on the type of pension.

Controversy about pensions arises because the pension holder is expected to account for the value of their pension in spite of the fact that they may never collect it. Unlike other assets, a pension does not have a fair market value because it cannot be sold and the pension holder cannot generally cash it in. As a result, the pension holder often feels that it is unfair to assign a cash value to the pension that he or she has to account for on equalization, when they might not see their pension monies for many many years. On the other hand, if a spouse has RRSPs they can either cash them in or transfer them to the other spouse to satisfy an equalization payment. It has been argued that a fairer way to deal with pensions might be  to provide the other spouse with a share of the pension when it actually begins to be paid. Unfortunately, this is generally not permitted under pension plans or under the law.

Canada Pension Plan Credit Spitting

When a relationship ends, the Canada Pension Plan (CPP) pension contributions that a couple made while they lived together can be shared equally between them. This division is called credit splitting. You must ask to have CPP credits split. To qualify, you must have lived together for at least one year (either common-law or married). If you are divorced or have had your marriage annulled, you can apply for credit splitting at any time (there is no deadline)If you were living common-law, you can apply for credit splitting after you have been separated for one year. You must apply within four years of the date of separation. You get more information about CPP credit splitting on separation or divorce, from this Human Resources Canada website.

If You Own a Business

If you own a business,  the value of your business or of your share in a business must be included in the calculation of your net family property. Remember, it’s the value of your assets that are equalized, not the assets themselves. If you own a business, the value of the business will need to be calculated by a professional business valuator, and this value will need to be included in your net family property. Retaining a business valuator can be an expensive and complicated process, depending on the complexity of your business. Make sure that you consult with a lawyer to get the best possible advice.

The Value Of Your Degree Or License

Courts have decided that a spouse’s degree or professional license is not to be included in the calculation of net family property. If you supported your spouse while they were going to school to obtain a license or degree, you might be granted spousal support to compensate you for educational or career opportunities you may have foregone in order to stay in a secure job and support the family.  In other words, the increase in income your spouse might obtain from the degree or license that you helped them obtain would be shared via spousal support rather than a judge arbitrarily assigning a value to your spouse’s degree or license.

The Matrimonial Home

The residence where you and your spouse lived at the time of separation is referred to as the matrimonial home. It can be a home that you own or an apartment that you rent. It can include more than one residence, such as a primary home in the city and a cottage. The matrimonial home is an exception to the general rules set out in the Family Law Act and is treated differently from other property or assets. For the purposes of calculating an equalization payment, the matrimonial home is valued at the date of separation. Unlike other types of property, however if you owned what is now your matrimonial home before you were married, you do not get to keep what the house was worth at the time of your marriage, after you separate.

According to the Family Law Act, when your marriage ends, the full value of your matrimonial home must be shared, even if only one of you owned the home before you were married. The same applies if you received the home as a gift or inherited it and then lived in it with your spouse. The effect of this rule can be seen in the following example where a spouse’s property or assets consists of savings. On the date he married he had $200,000 worth of savings. By the separation date the value of those savings had increased to $500,000. The increase in his net family property is $300,000. Assuming that his wife has no assets, he would owe her an equalization payment of $150,000. ($500,000 - $200,000 = $300,000) then $300,000 / 2 = $150,000.00. Compare that to the situation where the spouse owned a home worth $200,000 on the date of marriage. He and his wife were living in the home when they separated, so it was considered the matrimonial home. On the date of separation the value of the home had increased to $500,000 and remained in the husband’s name alone. Because he is not allowed to deduct the value of the matrimonial home on the date of marriage from the value of his property at the date of separation his net family property is $500,000.00 and if his wife has no assets, he will owe her an equalization payment of $250,000.

The Family Law Act gives each spouse certain rights in the matrimonial home. Those include the right to reside in the home, the right to consent to any mortgages placed on the home and the right to approve any sale of the home. This means that the matrimonial home cannot be sold unless both spouses agree, no matter whose name is on the title to the house. It also means that any sale without the consent of both spouses may be set aside, that is, declared null and void. In order to ensure such a sale does not happen, the spouse whose name is not on the title to the house should see a lawyer to register a “Designation of Matrimonial Home” on the title to the home. If the matrimonial home is in the names of both parties then either party may seek an order from the court to have the home sold and the proceeds divided equally.

Exclusive Possession of the Matrimonial Home

When you separate, both you and your spouse may want to remain in the matrimonial home and if you are married, both of you have an equal right to stay in your home. If you cannot agree on who should stay in the matrimonial home, you can use the services of lawyers, a mediator or an arbitrator to help you decide. Alternatively you may have to apply to a court to have a judge decide which one of you may have exclusive possession of the matrimonial home. An order for exclusive possession allows one spouse to remain in the house but not the other.  In order to be given exclusive possession, the spouse seeking the order will have to satisfy the court that continued cohabitation with the other spouse is practically impossible because of violence, tension or arguments. The spouse seeking the order will also have to provide the court with evidence as to what accommodation is available to the other spouse. If there are children, their best interests will also be considered by the court. You should be aware that it is not easy to get an order for exclusive possession.

What is Not Included In the Calculation of Net Family Property

The Family Law Act specifies that certain assets are excluded from the calculation of net family property. These include life insurance proceeds, gifts, inheritances, and monetary damages arising from personal injury awards. To exclude these from your net family property, you must have kept these assets separate from your joint family assets during your marriage. You must also be able to trace where these funds have been and how they have been used from the day you received them. That means that if you used monies from an inheritance or personal injury award to purchase something, you must be able to show that it was this specific money that was used to purchase the item you wish to exclude. The only exception to this exclusion rule is the matrimonial home. You must include the value of a matrimonial home in your net family property even if you used proceeds from a gift, inheritance or personal injury award to help pay for your home.

Valuing Property

Valuing property or assets requires that each spouse produce documentary evidence such as bank statements, credit card statements, mortgage statements, etc. Disagreements between spouses frequently occur over the value of assets such as the value of a business, the value of company stocks, the value of vehicles, the value of artworks or jewelry, the value of a pension as well as the value of debts and who should be responsible for them. You should be aware that the value of an asset or debt after the date of separation is not relevant. For example, if you owned stocks that on the date of separation were worth $50,000, but after separation dropped in value to $10,000, your net family property and equalization payment would be calculated based on the $50,000.00 figure which existed on your date of separation. The Family Law Act dictates that fair market value, not replacement value or acquisition value be used as the criteria for valuing property.  If you are valuing household contents or a car, for example, the realistic value to use is what a stranger would pay for that particular asset.  You should also consider the "real" value of the asset to the person who owns property. For example, if you own $50,000 in RRSPs on the date of separation, the real value of that asset is $50,000 less the amount of income tax you would have to pay if you withdrew the money from your RRSP. The amount of income tax you would have to pay is commonly referred to as a “disposition cost”.

Not Always a 50-50 Split

You and your spouse can agree to an unequal division of net family property and in some circumstances, you can ask the court to divide things differently. In almost all cases, the spouse owing an equalization payment must pay the full amount of money owed to equalize their net family property and their spouse’s net family property. A court will typically only reduce the amount of the required payment if it finds the calculated payment would be unconscionable, that is, unfair - and it is very rare that a court will find this. A court might reduce the equalization payment if you can prove that your spouse recklessly depleted the family’s assets. The final reason that a court might reduce the equalization payment owed is a situation where spouses have lived together for less than five years.

Property Acquired After Separation

Your spouse is not entitled to a share of any property you may have acquired after your separation.

Don’t Rush In

It is not uncommon for someone going through a separation or divorce to be overwhelmed by the all the decisions which have to be made and not feel that they can cope with making major decisions about assets and property. Don’t feel pressured to make decisions. You have the earlier of six years from the day you separated or two years from the date your divorce is final, to reach an agreement about property or apply to the court, whichever date comes first.

Common Law Couples

The property sharing provisions of the Family Law Act only apply to married spouses. Common law partners in Ontario do not have the same rights to equalization of net family property as married spouses. If you are in a common law relationship, you are not entitled to an equalization payment. Any claim that common law spouses may have against each other with respect to property varies according to their individual circumstances and contributions, Common law spouses do not automatically receive an interest in the matrimonial home. You may be entitled to a payment from your spouse to compensate you for a direct or indirect contribution you have made to property that he or she owns. For example, if you have contributed to paying for a house owned by your partner, you can ask your partner to pay you back for your contribution to the property. If your partner does not agree, you can go to court to make a claim to be compensated for your contribution. These claims are referred to as trust claims. That claim will be based on another, quite complicated area of law, not family law. You should ask a lawyer for advice about your particular situation.

Conclusion

The legal rules that you have to follow to calculate the value of your property and divide it between you and your spouse can be complicated. It is a good idea to protect your interests and consult a lawyer about how the law and the rules apply to your particular case.

Please note that the information is general in nature and not intended to be a substitute for legal advice. If you are concerned about how to divide your family property following the breakdown your marriage or common law relationship, please contact a lawyer. You can get free information about how to select and retain a lawyer by getting a copy of the FREE REPORT offered at the top right-hand corner of this page. Do not sign a separation agreement without independent legal advice.