Contrary to what many people may think, the court does not just divide property in half when married spouses divorce. If you and your spouse do not have a marriage contract and you cannot agree on how property will be divided, your property will be handled according to the detailed rules and calculations established under the Family Law Act.
The easiest (and most cost efficient) way to settle property issues is by agreement. If you and your spouse can reach an agreement on how to divide property to your mutual satisfaction, you do not need to follow the scheme set out in the Family Law Act. However, most couples who are separating use the Family Law Act as a guideline. An agreement on how to allocate property can be reached directly between the spouses who are separating or through their lawyers. Spouses negotiating their own allocation of property should each get their own legal advice to make sure they know what they are entitled to under the laws of Ontario and to make sure the agreement will be legally binding. By reaching an agreement you can avoid the financial and emotional costs of a trial or other court hearings.
If you and your spouse do not reach your own agreement your property rights will be determined according to the rules set out in the Family Law Act. Although there are some specific pieces of property which may belong to each spouse, it is actually the value of all the property you and your spouse own which is "divided", after subtracting the value of all property owned by each on the date of the marriage. The courts will not normally decide on who gets each specific item. Generally speaking the value of all property is equalized between the spouses and can include everything from land, cars and personal possessions to money in the bank, business interests, investments and pensions.
In general, the adjustment of property claims under the Family Law Act is intended to let each spouse keep the value of what they brought into the marriage plus half the value of property acquired during the marriage. However, there are special rules about some types of property, especially the "matrimonial home". For legal advice on your specific situation, speak with a lawyer.
CALCULATING PROPERTY DIVISION
The following six steps are intended to give you a basic understanding of how property is dealt with under the Family Law Act. The process is fairly complicated and requires legal advice.
1. List and value your property as of the separation date
The first step in determining property rights under the Family Law Act is for each spouse to make a list of their assets and provide a value on the Date of Separation. This may include personal property, real estate, bank accounts, shares in corporations and pensions including Registered Retirement Savings Plans. The value of most assets can be easily determined by reference to current fair market value. However, there are some assets where the determination of value can be quite complex, such as pensions or shares in companies that are not traded publically. You may very well require the assistance of an accountant as well as a lawyer. If you and your spouse own property together, you count half of the value of the property as being yours.
Not all property is taken into consideration. For example, money or assets received after marriage as an inheritance or a gift from a person other than your spouse is exempt under certain circumstances. Monies received under life insurance policies or as compensation for personal injuries need not be included. You should consult a lawyer for details in any particular case as there are limitations on the exemptions. For example, money from these sources may lose the exemption if it has been used to purchase a matrimonial home or to pay down a mortgage on a matrimonial home.
2. Subtract your total debt as of the separation date
The next step is to add up all of your debts on the date of separation. If you and your spouse have debts together, count half of the debts as being yours. You then subtract your total debt from the total value of things you owned on the date of separation. This will give you a total NET value of your property as of the day you and your spouse separated.
3. Calculate the value of your property less debts as of the date you were married
Next, you make a list of everything you owned, and all of your debts, on the day you and your spouse married. Add up the value of everything you owned at the date of the marriage. Remember that "value" means value as of the date of the marriage and not current value. Subtract the value of all your debts on the day you were married. This will give you a total marriage date NET value of your property.
4. Subtract #3 from #2
You are now in a position to determine your net family property. In summary, you total the value of your property at the date of separation. You then calculate the value of your property less debts existing at the date you married and then deduct any debts on the day you and your spouse separated. The resulting calculation is your net family property. It cannot be less than zero. In other words it cannot be a negative number.
5. Subtract compensation for personal injury, inheritances and proceeds of life insurance
As noted in determining your "net family property" you are entitled to deduct the value of any inheritances or gifts from persons other than your spouse that you personally received while you and your spouse were married, any money you may have received from court as compensation for personal injury and any proceeds from a life insurance policy. There are a few other things that you may be able to subtract from your total but there are exceptions, so you should consult a lawyer for more information. For example, money from these sources may lose the exemption if it has been used to purchase a matrimonial home or to pay down a mortgage on a matrimonial home.
6. Deduct the lower "net family property" from the higher, and divide by two
You and your spouse will each have your own total net family property amount. The court will compare these two totals and require the spouse who has the higher total to pay the spouse with the lower total half of the difference between them. For example, if a wife has a net family property of $20,000 and the husband has a net family property of $30,000, the difference between these two totals is $10,000. The Family Law Act says that the person who has the higher total has to pay the person with the lower total half of the difference between them. Half of $10,000 is $5,000, so the husband would have to pay the wife $5,000.
The money that the spouse with the higher total has to pay the spouse with the lower total is called an "equalization payment". The purpose of an equalization payment is to put both spouses in an equal position. The result is that both spouses end up owning the same total value of property. There can be many issues about the value and ownership of a spouse's assets. There may even be issues about the amount of the equalization payment. In some circumstances, such as a marriage of less than five years duration, the court can order a lesser payment in order to prevent an unconscionable result. To protect your rights, spouses who are separating should each consult a lawyer for specific advice.
Equalization payments are not protected by proceedings in bankruptcy. However, child and spousal support are protected under bankruptcy.
Walter Drescher is a partner at the law firm of Cobb & Jones LLP. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice.