Property & Equalization

Property

Part I of the Family Law Act addresses property (assets) and how it is divided when married couples separate. More specifically, section 4(1) of the Act defines “property” as:

“any interest, present or future, vested or contingent, in real or personal property and includes:

(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself;

(b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property; and

(c) in the case of a spouse’s rights under a pension plan, the imputed value, for family law purposes, of the spouse’s interest in the plan, as determined in accordance with section 10.1 of the Act, for the period beginning with the date of the marriage and ending on the valuation date.”

Under section 4(1), the “valuation date” means the earliest of the following dates:

1. The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.
2. The date a divorce is granted.
3. The date the marriage is declared a nullity.
4. The date one of the spouses commences an application based on subsection 5(3) (improvident depletion) that is subsequently granted.
5. The date before the date on which one of the spouses dies leaving the other spouse surviving.

Equalization

Simply put, separating married couples are obligated to divide the property (assets) accumulated from the date of marriage to the date of separation. This division is called equalization. For example, if Spouse A has a Net Family Property (“NFP”) of $500,000 and Spouse B has an NFP of $300,000, Spouse A is worth $200,000 more and would owe Spouse B half of that difference: an equalization payment of $100,000. Spouse A’s NFP is reduced by $100,000 to $400,000, and Spouse B’s NFP rises by $100,000 to $400,000, so the spouses are now equalized. It is important to note that equalization payments can be made in ways other than a one-time lump sum.

Excluded Property

Under section 4(2) of the Act, the value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.
4. 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.
5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
7. Unadjusted pensionable earnings under the Canada Pension Plan.

A caveat: excluded property may lose its exempt status where it has been co-mingled with the other spouse’s property or put into the matrimonial home.

In the case of common law couples, there is no legislative entitlement to a division of property. However, a spouse may have a trust claim based on contributions made to the other spouse during the common law union.

Examples of Types of Assets

• Real estate
• Pensions (family law value)
• Businesses (goodwill value)
• Bank account balances
• RRSPs
• Tax-Free Savings Accounts
• Cryptocurrency
• Vehicles, boats, furniture and similar items
• Reward points