Brahm Siegel, a specialist in family law and partner of Nathens, Siegel LLP answers:
How is property divided between two spouses in a divorce in Ontario?
A lot of people think, erroneously, that the way we deal with property in Ontario is by just dividing everything equally. That’s absolutely not true and any lawyer who tells you that is a lawyer to stay away from. We don’t take the RRSP or the pension and chop them in half to give 50% to each side. Obviously, if something is in joint names and owned by the parties as joint tenants, each is entitled to half – but that’s not how it works for all property.
So, how does property work? Every province has its own rules, but in Ontario, we have something called “equalization.” Equalization is a fancy legal term for a monetary payment that one spouse pays to the other to make life equal. A good way to think about it is that we must take a picture of two different times in the parties’ lives: the date of the marriage and the date of the separation. The law says that we have to take a picture, so to speak, of what each person’s net worth was – net worth meaning assets minus liabilities. We do this both at the date of marriage and the date of separation, which is also called “the valuation date.”
We do it for both parties, because the law says you have to look at the increase in the net worth of each party from marriage to separation. If both parties wind up increasing their net worth by the same amount of money from marriage to separation (it goes by increase in dollars, not by percentages), then neither of them owe anything to the other. Anything either of them has individually stays with that person; if there are any individual debts, they stay with that person.
Cases in which both parties increase the same amount from marriage to separation are pretty easy. Most cases, however, are not so simple. Usually, one person has increased more than the other – either because they have assets that their spouse doesn’t have or they have the same amount of assets but their spouse has more debt. The law says that marriage is a partnership, and so any increase that one party has over the other has to be shared. The way it’s shared is by one person paying the other a chunk of money – which can be paid by writing a cheque, or rolling over from one spouse’s RRSP to the other spouse’s RRSP, or transferring their interest in the marital home to the other spouse.
Let me leave you with two other concepts related to equalization: deductions and exclusions.
Deductions are things that people own at the date of marriage. As I said, we look at the increase in your net worth from marriage to separation, so if you come into the marriage worth something, that value is deducted from what you own at separation and, therefore, it’s called deduction. It can be anything from a car to an RRSP to a house that you owned at the date of marriage (however, if the house that you owned at the date of marriage is the same house you have at separation, and it’s the matrimonial home, you may not get to deduct the pre-marriage value – but that’s for another discussion).
Exclusions are things that we include at the date of separation, but which then get factored out. At the end of the day, they make no difference to the bottom line – they make no difference to an equalization payment. The law has listed a few of these and determined that they should not be shared with the other spouse through equalization. Exclusions are things like life insurance proceeds, gifts a party received from a third person during the marriage (not from the other spouse), or an inheritance or the part of an inheritance that you can trace. If you have, for example, inherited $5,000 during the marriage and you used it to buy a piece of art that’s worth $10,000 at the date of separation, then the value of the art gets excluded for purposes of equalization.
Here’s an example of how equalization works in practice. Let’s take a couple – John and Jane – and say that John has increased his net worth by a $100,000. (Note: he could have been worth zero at marriage and increased to $100,000 at separation, or at marriage he could have been worth $1,000,000 and increased to $1,100,000 – the key is the growth, which is $100,000 in this example.) Let’s say Jane increases her net worth by $80,000. The difference between them is $20,000 – but that doesn’t mean the equalization payment is $20,000. The equalization payment, if you haven’t figured it out already, is half: $10,000, which would bring John down to $90,000 and bring Jane up to $90,000.
Contact one of our offices to discuss your case with a Mississauga or Toronto family law lawyer. You can reach us by phone at 888-353-1817 or via email to get started.
Nathens, Siegel LLP – http://www.nathenssiegel.com/