Under the Ontario Family Law Act, married people are entitled to an “equalization” of assets. Essentially, this means that at the end of a marriage, all of the assets and debts that each spouse accumulated during marriage must be calculated to determine his or her “net family property”, which is similar to “net worth”. The spouse who has a higher net family property must pay one half the difference to the other spouse.
By way of example, if spouse A had a net family property of $100,000 at separation and spouse B had a net family property of $200,000, spouse B would have to pay spouse A one half of the difference between these values, which is $50,000. Neither party may have a net family property of less than zero. A negative net family property is considered zero. A spouse may deduct from his or her net family property any assets that he or she owned on the date of marriage (date of marriage deductions). For example, if spouse A had a net property of $100,000, but owned $20,000 in RRSPs as of the date of marriage, spouse A would have a net family property of $80,000. Debts must also be taken into account. Using the same example, if spouse A had RRSPs as of the date of marriage in the amount of $20,000 but also had debts of the same amount, spouse A would have a net family property of $100,000. The one exception to the exclusion of property owned on the date of marriage is the matrimonial home. If either party brings the matrimonial home into a marriage and this property remains the matrimonial home on the date of separation, its value cannot be deducted from the net family property calculation unless this is agreed to in a marriage contract.
There are other potential exclusions that a spouse can claim. The following is a list of property that a spouse may own on the date of separation that does not form party of his or her net family property:
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of marriage.
- Income from property referred to in paragraph1 above, if the testator or donor has expressly stated that it is to be excluded from the spouse’s net family property.
- Damages or right to damages from personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
- 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.
- Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
- Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
- Unadjusted pensionable earnings under the Canada Pension Plan.
It is important to note that the spouse claiming a date of marriage deduction or excluded property has the onus of proving that the deduction or exclusion is valid. For example, when claiming the value of an RRSP on the date of marriage as a date of marriage deduction, it is important to produce the RRSP statement which substantiates the value of the RRSP on that date. If a spouse claims an asset to be a date of marriage deduction but is unable to prove the value of the asset on the date of marriage, the deduction may be lost.