The property division in divorce and separation raises many questions: How is it divided? Do we have to sell the house? Do I have to share my pension? What about my inheritance?
The uncertainty leads to many sleepless nights. Everyone fears they will end up with nothing. The classic country song by Jerry Reid comes to mind for many: “She Got the Gold Mine, I Got the Shaft”. (Women may insert “He” instead of “She” in the title and lyrics. The fear is the same for both genders.)
In Ontario, some of the uncertainty is eliminated by the Family Law Act which describes a formula so both you and your spouse end up with about the same net property. It looks like this:
+ Add up your assets on the date of separation
– Subtract your debts on the date of separation
– Subtract any gifts from third parties, inheritances or proceeds from a personal injury claim received during the marriage which was kept separate and is still in existence on the date of separation
– Subtract your assets less any debt you had on the date of marriage.
= The resulting number is called your Net Family Property (NFP). Your spouse does the same calculation.
÷ 2 If your NFP number is higher than your spouse’s NFP number, you owe half the difference so as to make the NFP’s equal.
Here is an example:
| ASSETS ON DATE OF SEPARATION | HUSBAND | WIFE |
|---|---|---|
| Home (Jointly Owned) worth $240,000 | $120,000 | $120,000 |
| Cars (Fair Market Value) | $20,000 | $12,000 |
| Pensions | $60,000 | NIL |
| RRSP (deduct 25% for taxes) | $10,000 | $45,000 |
| Snowmobiles (Fair Market Value) | $5,000 | NIL |
| Total A | $215,000 | $177,000 |
| DEBTS ON DATE OF SEPARATION | HUSBAND | WIFE |
| Mortgage | $80,000 | $80,000 |
| Visa | $10,000 | $7,000 |
| Car Loan | $8,000 | NIL |
| Total B | $98,000 | $87,000 |
| GIFTS, INHERITANCES, PERSONAL INJURY CLAIMS | HUSBAND | WIFE |
| Snowmobile – Gift From Parents | $5000 | NIL |
| Total C | ||
| ASSETS LESS DEBT ON DATE OF MARRIAGE | HUSBAND | WIFE |
| Pension | $15,000 | NIL |
| RRSP | NIL | $5,000 |
| Car | $3,000 | $4,000 |
| Car Loan | NIL | ($2,000) |
| Total D | $18,000 | $7,000 |
To Summarize:
| HUSBAND | WIFE | |
|---|---|---|
| Total A (Assets) | $215,000 | $177,000 |
| Minus Total B (Debt) | ($98,000) | ($87,000) |
| Minus Total C (Gifts, Etc) | ($5,000) | NIL |
| Minus Total D (D of M) | ($18,000) | ($7,000) |
| Net Family Property | $94,000 | $83,000 |
DIFFERENCE $94,000 – $83,000 = $11,000
EQUALIZATION OWED BY HUSBAND TO WIFE IS $5,500.00!
Once the Husband pays the Wife $5,500.00, each will have $88,500.
The Home: In this example, the home is jointly owned. If the Husband wants to purchase the Wife’s interest in the home, he would have to pay his Wife the equalization of $5,500 plus pay her for her one-half interest in the home. This is calculated as $120,000 minus the mortgage of $80,000 equals $40,000. So, the Husband would have to pay the Wife $40,000 plus $5,500 for a total of $45,500. The Husband would then own the house solely and paid out his Wife. Alternatively, the house could be sold and sale proceeds divided or the Wife could buy out the Husband’s interest.
Ownership: You and your spouse keep the assets and debts in your own names. So, all we deal with in Ontario is the value of the various assets and debts. You don’t have an ownership interest in your spouse’s pension or other assets. Just a potential right to an equalization payment if they have more stuff (a larger NFP number) than you.
Household Contents: If you want help dividing up the furniture and other items in the home, here is a blog about it.
Adjustments: You may wish to adjust the assets or debts so as to equalize the NFP numbers and avoid an equalization payment. So, in this example, the Husband might give his Wife some of his assets or take on some of her debt so there is no equalization payment owed.
Excluded Property: An inheritance, a gift from a third party or a payment for a personal injury that is received during the marriage is not shared. If it was used to pay joint debts or invested into a jointly owned asset or is spent, it cannot be deducted.
Debts: I often hear complaints from clients about having to take into consideration debts incurred by their spouse without their consent or knowledge. It is very frustrating. The law says that the reason debts were incurred does not matter except if it was for an illegal purpose. Your debts (meaning the ones in your name) are yours and your spouse’s debts remain your spouse’s debts, and jointly owed debts are shared. But everything is balanced out by the equalization process. If you have more debts than your spouse, your spouse may have to make an equalization payment to balance everything out.
Whole Picture: Some clients get confused because they want to equalize each asset or each debt one at a time. You have to look at the whole picture, using the formula above, and not look at individual assets or debts.
Unequal Equalizations: In rare cases, it is possible to ask for an “unequal equalization” if ordering an equalization payment according to the normal formula would be “unconscionable”. Our lawyers can help you determine if your case would be an exception to the general rule.
We have seen many people get the equalization calculation wrong, including other lawyers. Our Barrie family lawyers only do family law and work with equalization calculations every day. We can help you get it right.
Case Study: If you are interested in reading how a typical case is resolved, read this article.
Personal Insights: When I went through my own divorce (yes, divorce lawyers can get divorced… just like doctors can get sick), I learned some personal lessons. Here they are.
Perhaps Jerry Reid wasn’t living in Ontario when he wrote the lyrics to his famous and hilarious song:
Well, she got the gold mine!
I got the shaft.
They split it all down the middle,
And then they give her the better half.
Well, I guess it all sounds funny,
Hoo, hoo, hoo, ha-ha-ha-ha-ha!
But it hurts too much to laugh.
She got the gold mine – I got the sha-a-aft.
… or maybe he just retained the wrong law firm!
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