What Is Equalization in Ontario?

Equalization in plain language

When a married couple separates in Ontario, the Family Law Act treats the marriage as an economic partnership. The value each spouse built up during the marriage is shared, usually equally. This is called equalization of net family property.

Equalization doesn’t mean every asset is split down the middle. Each spouse keeps what they own, and the spouse who gained more during the marriage usually makes a payment to the other to balance things out.

How net family property is calculated

Each spouse calculates their own net family property (often called NFP). In simple terms:

1. Add up what you own on the valuation date. This is usually your date of separation. Include your share of the home, bank accounts, investments, RRSPs, pensions, vehicles and business interests.

2. Subtract what you owe on that date. Mortgages, lines of credit, credit cards and other debts.

3. Subtract what you brought into the marriage. The value of property you owned on your wedding day, minus the debts you had then. The matrimonial home is an important exception, explained below.

4. Leave out excluded property. Certain types of property aren’t counted at all.

The spouse with the higher NFP generally pays the other half of the difference. As a simple illustration, if one spouse’s NFP is $300,000 and the other’s is $100,000, the difference is $200,000 and the equalization payment would be $100,000.

Real files are rarely that tidy. Pensions need a specific family law valuation, businesses may need an expert valuation and taxes can affect what an asset is really worth.

What’s excluded

Some property received during the marriage is generally excluded from your NFP, as long as you can trace it:

• Gifts and inheritances from someone other than your spouse

• Income from a gift or inheritance, but only if the person who gave it said in writing that the income should be excluded

• Personal injury damages and settlements

• Life insurance proceeds received on someone’s death

• Property you’ve agreed to exclude in a valid marriage contract or cohabitation agreement

Keeping inherited money in a separate account in your own name makes it much easier to show it is excluded.

The matrimonial home is different

The matrimonial home is the home you and your spouse ordinarily lived in as a family at the time of separation. It has special rules:

• No date-of-marriage deduction. If you owned the home when you married and still lived there at separation, you usually can’t deduct its value as of your wedding day.

• Inheritances can lose their protection. If you used an inheritance to buy or pay down the matrimonial home, that money may no longer be excluded.

• Equal right to live there. Both spouses generally have an equal right to stay in the matrimonial home, no matter whose name is on title, until there is an agreement or court order.

• No selling or mortgaging alone. One spouse can’t sell or mortgage the matrimonial home without the other’s consent or a court order.

Common-law partners: a different set of rules

This surprises many people: common-law partners do not get equalization in Ontario, no matter how long they lived together. Each person generally keeps what is in their own name.

If you contributed to property owned by your partner, for example by paying toward their mortgage or working in their business without fair pay, you may have a claim based on trust or unjust enrichment. These claims are more complex and depend heavily on the facts.

Common-law partners can still have rights to spousal support, for example after living together for at least three years, or in a relationship of some permanence where you have a child together. Child support applies no matter what the parents’ relationship was.

Deadlines you need to know

Equalization claims have limitation periods. Generally, a married spouse must start a claim by the earliest of:

• Two years after the divorce is granted

• Six years after separation, if there is no reasonable prospect of getting back together

• Six months after the other spouse’s death

Courts can extend these deadlines only in limited situations, so don’t count on it. Common-law property claims have their own, different time limits. If either applies to you, get advice early.

Courts can also order an unequal division, but only when equal sharing would be unconscionable, which is a very high bar.

Talk it through with us

Equalization is part maths, part paperwork and part judgment call. In a free 30-minute confidential consultation, we can help you understand what may be shared, what may be excluded and which deadlines apply to you.