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Property and Equalization

Property and Equalization 

 

Part 1 of the Family Law Act addresses the concept of property/assets and how it is divided upon separation of married couples.  More specifically, section 4(1) of the Family Law Act, defines "property" as:

"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 him/her self;

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 of the Act, for the period beginning with the date

    of the marriage and ending on the valuation date."

Section 4(1)(c): "Valuation Date" means 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 subseequently granted. 

  5. The date before the date on which one of the spouses dies leaving the other spouse surviving." 

Equalization

Simply put, separating married couples are obligated to divide property (assets) accumulated from date of marriage to date of separation.  This concept of division is called equalization.  As an example, if spouse A had a Net Family Property ("NFP") value of $500,000, and spouse B had an NFP of $300,000, spouse A would owe spouse B half of the $200,000 ($500,000 vs. $300,000) by which they are worth more, and would therefore owe spouse B an equalization payment of $100,000 (half of $200,000).  The net effect is an equalization since spouse A's NFP is reduced by $100,000 to $400,000 and spouse B's NFP rises by $100,000 to $400,000.  As you can see, the married spouses are now equalized since they each have a new NFP value of $400,000.  It is important to note that equalization payments can be made in alternate ways other then as a one time lump sum payment.    

Excluded property

"Section 4(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."

A caveat to excluded property is that the exemption status may be compromised under circumstances where the excluded property is co-mingled with the other married spouse or into the matrimonial home.    

In the case of common law couples, there is no legislative entitlement to a division of property.  However, a spouse may have a trust claim based upon contributions made by one spouse to another during the common law union. 

Examples of Types of Assets

  • Real Estate

  • Pensions (Family Law Value)

  • Business (Good Will Value)

  • Bank account balance(s)

  • RRSP('s)

  • Tax Free Savings Account(s)

  • Cryptocurrency value

  • Vehicles/Boats/Furniture/etc.

  • Reward points

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