Equalization of Net Family Property

Equalization of Net Family Property

There are a lot of terms that float around during a divorce proceeding. In Ontario a common term is the equalization of net family property. The purpose of this exercise is to ultimately determine how much money there is in the marriage and to divide it according to the rule of law.

Dividing Property

Each partner is entitled to receive the value of one half of the family property accumulated during the marriage. For instances, if two houses are owned by the married couple, it does not mean that one partner gets one house and the other automatically gets the remaining house. It means that the value of both properties will be assessed and an equal monetary value of the total of the two houses will be awarded to each divorcing spouse. Some properties have significantly higher values than others, so the value of everything needs to be taken into consideration.

The property calculation will account for all assets, including real estate, vehicles, bank accounts, RRSPs, investments, pensions, jewellery etc. and all debts, such as mortgage, car loan, line of credit, or consumer debt. The resulting balance is the Net Family Property, which must be divided.

Whichever spouse has a higher net family property value (NFP) will pay the other spouse half the difference between the two figures. For instance, if the wife has $60,000 higher NFP than her husband, both spouses receive $30,000 each to balance, or equalize, their net property values. The wife would provide the husband with assets to make up the difference such as a cash payment, RRSP, bonds, pension, or proceeds from a home sale or the sale of other assets.

Valuation Date

It’s also important to know that things are calculated for their value as at the valuation date. As a general rule, the valuation date is the date the spouses separate and there is no reasonable prospect that they will resume cohabitation.

A specific date needs to be implemented across the board because certain items can fluctuate in value over time and there needs to be a constant baseline with which all parties can work with.

Once a date is determined, which in most cases is the date of separation or when you ceased to be living together as a married couple, all property can be valued and a total of all marital assets can be reached. Some assets are excluded from this calculation under the Family Law Act, for example gifts or inheritances received after the date of marriage, damages for personal injuries, proceeds of a life insurance policy, etc. You should consult with a family lawyer with respect to what is excluded before making the valuations.

Understanding Debt

Marriages accumulate quite a bit of debt depending on the lifestyle lived by the couple. Habitual shoppers or frequent travellers may have incurred more debt than a more frugal couple who worked hard at staying in the black. Take a total of all debt, including mortgages, car loans and credit card debt, and this total will be subtracted from your total assets in the calculation.

There is more to calculating the net family property beyond simply adding and subtracting. The law allows for different inclusions and exclusions and as a result calculations can take months to acquire at times. It is also important to obtain evidence confirming the value of your debts and assets. Let your family lawyer guide you through the process in order to finish the calculation as quickly and accurately as possible.

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