Married Spouses – Equalization of Net Family Property
In Ontario, family legislation presumes that married spouses made equal contributions to the property acquired during the marriage, and that their property should be divided equally. In the event of a relationship breakdown, married spouses have the right to apply for an equalization of their respective “net family properties”. A married spouse also has this right when the other spouse dies. On death, the surviving married spouse may elect to equalize family property instead of receiving any bequests left to him or her under the deceased’s will. This right to equalize family property only applies to married spouses.
In order to determine the appropriate division of assets on marriage breakdown, each spouse is required to account for all of the assets and debts the spouse accumulated over the course of the marriage. The general rule is that the value of any property acquired during a marriage is divided equally, 50-50. The net value (all assets minus all debts) of each spouse’s property on the date of marriage is deducted from the net value of their property on the date of separation in order to determine each spouse’s “net family property”. If one spouse has acquired a higher net increase of family property accumulated during the marriage, they are required to make a payment to the other spouse of one-half (1/2) the difference between their respective net family properties. This payment is called an “equalization payment” because it equalizes the values of property that each spouse acquired during the marriage.
In exceptional and very limited circumstances, a married spouse may apply to the court for an unequal division of net family property. Spouses can also choose to opt out of the property sharing regime imposed by Ontario family legislation. They can do this by entering into a marriage contract that sets out how the property will be divided in the event of the breakdown of the relationship. A family lawyer should prepare the marriage contract in order to ensure that it is prepared properly.
There are certain key exceptions, under which some property may be excluded from net family property calculations. The rules regarding these exceptions are fairly strict. “Excluded Property” includes:
- Property, other than the matrimonial home that was acquired by gift or inheritance from a third party after the date of marriage which still exists on the date of separation;
- Income from property outlined above, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property;
- Damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship;
- Proceeds of a policy of life insurance received during the marriage which still exist on the date of separation;
- Property, other than the matrimonial home, into which property outlined above can be traced; and
- Property that the spouses have agreed through a domestic contract not to be included in the spouse’s net family property.
The trend for couples to live in common-law relationships is increasing. Common-law spouses often mistakenly believe that once they have been living together long enough, they will be treated the same as married spouses and share everything 50-50. However, in Ontario, and in many other provinces in Canada, common-law spouses are excluded from the property sharing provisions of family legislation, and the right to equalize net family property only applies to married spouses. As a result, common-law spouses generally leave the relationship with the assets and debts registered in their names.
If a common-law spouse wants to make a claim against his or her former spouse’s property, they must do so based on contract law or equitable principles, for example by way of a claim for unjust enrichment. In February of 2011, the Supreme Court of Canada made it easier for common-law spouses to obtain a more equitable division of assets accumulated during the relationship in circumstances where the relationship can be described as a “joint family venture” in the landmark case, Vanasse v. Seguin. Couples who choose to live in common-law relationships should speak with a family lawyer and discuss their long-term financial expectations before moving in together.
Ownership of Assets and Liability for Debts Matters
Regardless of whether or not spouses are married or common-law, ownership of assets and liability for debts matters. Ontario’s Family Law Act does not provide for property division between married spouses, but instead provides for an “equalization payment” if the value of one spouse’s “net family property” is less than the value of the other spouse’s “net family property”. However, a spouse owns and gets to keep the assets and debts in his or her name, unless he or she has to sell it or transfer it to the other spouse to make an equalization payment.
The “matrimonial home” has a special significance in the context of a separation. The “matrimonial home” is the home that is ordinarily occupied by married spouses as their family residence at the time of separation. Read more…
Next to your home, if you have a pension, there’s a good chance it’s your largest asset. In the equalization process, the value of any pension benefits accumulated during the marriage by either spouse will be part of the calculation. When valuing pensions, you will normally be required to obtain a report on the value of the pension from an actuary. Please note that the value of a pension under the Family Law Act property division sections is usually significantly different from the value of a pension as provided by the employer.
If you or your spouse has a defined benefit pension, it will have to be valued by an expert. Defined benefit pensions are pensions which will provide you with a pre-determined monthly benefit for life, once the pension is payable, determined by a formula based on years of service and salary at the time of retirement. The value of the pension will vary based on the characteristics of the plan, life expectancy and tax liabilities.
If you or your spouse has a defined contribution plan, the amount of the pension is determined by the amount you or your spouse contributed to the plan, and the amount earned from investing those contributions. These types of pensions will pay a benefit for so long as there are funds in your plan, much like an RRSP, and once they are depleted, there would be no further benefit payable.
If you have a federally regulated pension, or a pension regulated in another pension or province, you will need an actuary’s opinion regarding the value of the pension under Ontario legislation.
Engagement and Wedding Rings
An engagement or wedding ring is given as a gift, which means the person to whom it was given becomes its owner. When couples separate, there is no legal obligation that gifts given between spouses, including their rings, be returned. There may however be sentimental reasons to return a ring, for example where the ring has special meaning or is a family heirloom that has been passed down through generations. Unlike gifts and inheritances received from a third party, if you choose to keep a gift from your spouse, including your wedding ring, it may form part of your net family property, which is used to calculate the equalization payment payable by married spouses when they separate. Realistically, compared to other property you bring into the marriage, it is unlikely that your engagement and wedding rings will form an important part of the equalization of net family properties. The cost of a fight over the ring, including the cost of an appraisal, may well be more than the actual value of the ring itself.
Disputes over the ownership of pets, particularly dogs, in the context of separation or divorce have been argued before Canadian courts in a variety of ways. When you separate, it is important to consider what your intentions are with regard to ownership and living arrangements for your pets. Much of the litigation in this area has arisen where a separation agreement failed to specifically address family pets. Family pets hold a greater importance to their owners than most other physical possessions, and are often considered a member of the family and treated in a manner similar to children. While Canadian courts are generally sensitive to the special bond we share with our pets, they have found that family pets are considered a personal possession that should be divided the same as other items in a home, and not in a similar way to the custody and access of children. Some of the factors that courts have considered in determining ownership of a family pet include who purchased, trained and registered, provided day-to-day care, and paid for the expenses of the dog. They also include who the dog is more bonded with, who is listed as the owner at the vet and who has been caring for the dog since separation.
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