How Division of Property in Ontario Works
How are finances split in a divorce?
One of the most common questions people ask when they separate is, “Who gets what in the divorce?”
If you get divorced in Ontario, the answer can be confusing. Property Division and Equalization in Ontario falls under the Family Law Act, and it focuses on ensuring couples leave the marriage on relatively equal footing.
It involves dividing your assets and debts and subtracting items that aren’t joint property. Then, the spouse with the highest total pays the other spouse half of the difference.
Yes, it can be confusing, but the division of assets in Ontario doesn’t have to be painful. Here’s what you need to know about the division of property in our province.
Division of assets in divorce focuses on the principle of “all things equal.”
Through a net family property (NFP) calculation you and your spouse share what was gained during your marriage.
Pensions earned during the marriage are property and are included in your NFP calculation.
If you started earning pensions before you got married, you begin calculating it on the date of your marriage and the date of your separation
Inheritances received don’t have to fall into your division of property.
Your matrimonial home has a special status under the Family Law Act.
There Are Exceptions to Equalization?
How are finances divided in divorce
Divorce law in Ontario focuses on the principle of “all things equal.” In essence, you and your spouse keep an equal amount of whatever is gained during your marriage through what is called a net family property (NFP) calculation.
To determine your NFP, you’ll both fill out copies of Form 13.1. The form asks each of you to combine all your assets and then subtract your debts from them (both values are from the day of your separation).
Then, both spouses must determine what net assets you had in your name before you got married. The value of these assets remains with you at the dissolution of the marriage unless you negotiate otherwise. So, you subtract this date of marriage value from your NFP.
You and your partner may not have the same NFP calculation. For example, if one of you was the higher earner, then that spouse may have saved or invested more, resulting in a higher NFP.
This is where equalization comes in.
The person with the highest NFP owes their soon-to-be-ex half of the difference between their two figures. The difference is your equalization payment.
For example, if one partner has an NFP of $100,000 and the other partner has an NFP of $30,000, then the difference is $70,000. The partner with the higher NFP then pays a $35,000 equalization payment to the other.
How are debts divided in a divorce?
Perhaps one of the fairest aspects of the law is its attitude towards debt.
While other places consider community property to cover both assets and debt, Ontario assigns only debts in your name to you.
If you and your spouse share a debt (both names on the account), then you split it.
This protects spouses who might be the victims of financial abuse. We explain in more detail below. See the exceptions to the equal division of property.
Will my wife get half my pension if we divorce?
Yes, the law considers pensions earned during the marriage to be property. You must include them in your NFP calculation.
If you started earning pensions before you got married, you begin calculating it on the date of your marriage and the date of your separation. A pension administrator can do this for you.
The same is true of your Canada Pension Plan (CPP) benefits. Whatever you earned while married can be split when the relationship ends. It also applies to common-law couples. The primary rule is that you must have lived together for a full year before the division requirement kicks in.
You can get a CPP split application from Service Canada Centres.
What assets are not divided in divorce?
Inheritances received both before and during the marriage don’t have to fall into your division of property agreements. Still, you must take specific actions when you receive it to keep them out of community property.
First, you have to show that the funds or gifts still exist. Second, you need to show that you didn’t mix the funds. Ideally, inheritances go into a separate bank account or into an asset fund that differs from your other investments.
If it goes into a joint account or you mix it into your regular chequing account, then it will be challenging to show that it was a gift. You usually lose the exclusion.
Additionally, you can’t exclude the money from your NFP if you used it to contribute to your matrimonial home. If you use it as a down payment or on a mortgage payment or even on renovations, then the exclusion is invalid.
The same is true of any gifted property. Once you and your spouse live in an inherited home, it is a matrimonial home, you must deal with it according to the processes listed below.
Are There Exceptions to Equalization?
Generally, the court prefers to see a genuine equalization payment. However, not all couples prefer to divide their assets equally. If they choose not to, the law refers to it as the “unequal division of net family property.””
If you intend to follow this route, you must show why equal division is not an option. It can’t be just unfair on its face. For example, you will struggle to argue that one spouse earned more, so they should keep more. You must provide evidence that “shocks the conscience of the court.”
For example, if one partner entered the marriage with soaring debt but did not disclose it to their spouse, then the judge may allow unequal division.
It also covers other bad faith issues, like secret gambling or credit card spending done without the other partner’s consent or even knowledge.
Unequal division also provides options to spouses who are victims of financial abuse, which is a common form of domestic abuse. For example, abuse can occur if one partner would not allow the other to work or confiscated their earnings or tried to take their inheritance. The abused partner could then argue for an unequal division.
Who has to leave the house in a divorce?
Your home differs from other assets and debts because it has a special status under the Family Law Act. Both you and your ex-spouse have equal access to it – even if only one of your names is on the deed. Your matrimonial home is just that even if one of you purchased the house before you got married – or before you met. As long as you lived in it together, it is a matrimonial home.
An interesting facet of the law is that it doesn’t just apply to your primary residence as a couple. It also applies to places where you spend time as a family. Your lake cottage can also be considered a matrimonial home.
Essentially, Ontario law allows you both access to the house until you both agree on who keeps it or if a judge rules on the matter and grants the home to one of the spouses.
How does the judge make the decision?
They look for any written agreements about the property and consider what’s best for the children (if any). Judges also weigh how much each spouse earns and will take away from the marriage and if there is somewhere else for each spouse to live.
However, the matrimonial home rule only applies to couples who sought a legal marriage. It doesn’t apply to common-law spouses; there’s no automatic entitlement if you did not get legally married. However, if you are a victim of domestic violence, you may be able to stay in the home even if you aren’t on the deed.
Finally, matrimonial home laws don’t apply to indigenous people living on First Nation reserves in the province of Ontario.
Are assets always split 50/50 in a divorce?
For couples that have finally decided on a divorce, there is much to consider, especially when it concerns division of property. Ordinarily, the question of how property should be divided can get messy, and will often be so, the greater the value of property at stake.
Ontario has a process designed to settle property issues in divorce so that both parties can leave reasonably satisfied. This process is called a “property equalization scheme”, and essentially amounts to equal division of property.
Under Ontario law, a marriage is considered an equal partnership. Both spouses are deemed to contribute equally to it, even if one spouse earns or does more than the other. For instance, if a spouse was responsible for earning family income and the other for running the household, their contribution is equally important.
As such, when the marriage comes to an end, there should be equal division of property. The legal rule is that the value of property acquired by either spouse during the marriage and still existing at the time of separation must be divided equally between the spouses. This is called the “right to equalization” and it is triggered by dissolution of the marriage or death of either party.
How does the equal division of property work? Couples seeking property division will be required to determine their assets and debts in other to work out their Net Family Property (NFP). They must both fill Form 13.1 to figure out their NFP. This amount is arrived at after deducting their worth at the date of marriage and the debts they accrued during the marriage. Then certain other items will be excluded from the total figure, so they can arrive at their NFP. The excluded items include:
- Property acquired by gift or inheritance from a third party
- Damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship
- Proceeds of a life insurance policy that continues to exist after separation
- Property that the spouses have agreed to exclude through a marriage contract
Once the NFP is established, the spouse with the higher value will be required to pay an amount that will be sufficient to “equalize” the value in assets. For instance, if one spouse is worth $200,000 while the other is worth $100,000, the first spouse will be required to make an equalization payment of $50,000. This brings both spouses level at $150,000 each.
Are there exceptions to the application of equalization? Yes. One of these is where the spouses have signed a marriage contract (also called a prenuptial agreement) that specifies how property should be divided upon divorce. If the contract bars the operation of the equalization rule, the courts will respect this. Other exceptions where the rule will not operate include where:
- One spouse intentionally depleted their property in order to avoid paying the other spouse a large equalization payment
- One spouse spends recklessly or incurs debts in bad faith and the debts are now claimed in reduction of their family property.
- The spouses cohabited for less than 5 years and if equalization were done, one would receive a disproportionately large payment.
- One spouse failed to disclose debts or liabilities that existed at the time of marriage.
- There is a written agreement between the parties on how property should be shared, though it does not have the force of a marriage contract.
- One spouse incurred an unreasonably large proportion of debts or liabilities for the support of the family.
If any of these exceptions can be proved, either spouse can apply to the court for an “unequal division of property” instead.
What is a fair settlement in divorce?
Unlike the rule as to equal division of property, equitable division of property anticipates a fair division of marital assets which may not necessarily be equal. The goal with equitable division is to ensure that property is divided fairly, even if this results in one spouse getting more than the other.
The rule as to equitable division of property does not apply in Ontario. It is more known in some states of the US where it is accepted that certain factors make ownership of marital property inherently unequal. These include educational attainment and employability, how much each party earns and spends, financial need, age and health of each party. It also considers the causes of divorce, including whether one party was abusive or unfaithful.
Although equitable division sounds less fair than equal division of property, it is actually fairer than equal division. It is forward-looking, with a focus on anticipating the needs of each party post-divorce, as well as the antecedents of both parties in the marriage. The aim is to come to an arrangement that does justice to the circumstances of the case.
Just like equal division, equitable division of property only applies to marital property. This is all property that was acquired by each spouse during the course of the marriage. Similarly, it does not include property obtained by gift or inheritance. Such property, along with assets acquired by each spouse before the marriage, is considered the separate property of the acquiring spouse.
Also, the operation of the rule can be excluded by a prenuptial agreement between the spouses. Under the agreement, both spouses can provide for how marital property should be shared, or whether it should be shared at all.
In determining how to carry out an equitable division of property belonging to the spouses, the court will consider several factors, including:
- The ages and overall health of each spouse
- The degree to which each spouse contributed to the acquisition of family property
- The need for child support, spousal maintenance or alimony payments
- The financial condition and earning power of each of the spouses
- The degree to which each spouse contributed to the earning power and education of the other
- Non-monetary contributions to the family, such as child-rearing, unpaid work in the home etc.
- The liquidity of marital property
- Which spouse has primary custody of children below the age of 18
- Adverse actions by each spouse, such as instances of domestic violence, gambling debts, extramarital affairs etc.
- The future liabilities and financial needs of each spouse
- The value of each spouse’s separate property.
What should you not forget in a divorce agreement?
Both the rules of equal division of property and equitable division of property are geared towards solving the problem of asset allocation in a divorce. As the details produced above show, both rules are comprehensive and try to take all material factors into account.
However, many spouses still come out of the process feeling disgruntled, unsatisfied or even cheated. The process has a tendency to get difficult when property of any significant value is in contention. But things can get really messy when the assets in contention are far larger.
Divorce is rarely a straightforward affair and is usually underpinned by various issues. While the rules for division of assets are made with the best of intentions, they often end up being inadequate. Sometimes, the conflict is not really about how much money each spouse can get, but about matters that run deeper. Sadly, court-supervised processes are ill-equipped to resolve these issues.
However, it is exactly to this end that mechanisms such as mediation were created. Often, resolving these kinds of issues is less about adamantly insisting on the rights of one party and more about facilitating the means of communication and collaboration between the parties.
The value of mediation in disputes bordering on division of property is exemplified by this story…
Example Net Family Property Calculation
John J Smith | Amount |
---|---|
Assets | |
Value of Real Estate | $1,200,000 |
Household (Cars, Boat Furniture, etc.) | $55,000 |
Financial Accounts (Pension, Savings, RRSP etc.) | $350,000 |
Other | $15,000 |
Subtotal of Assets | $1,620,000 |
Liabilities | |
Mortgage | $275,000 |
Car Loan | $9,000 |
Tax Allowance on RRSP and Pension | $45,000 |
RE Disposition Cost | $66,000 |
Subtotal of Liabilities | $395,000 |
Date of Marriage Deduction | |
RRSP | $12,000 |
Student Loan | ($4,000) |
Subtotal of Date of Marriage Deduction | $8,000 |
Excluded Property | |
Kids RESP | $23,400 |
Inheritance | $50,000 |
Subtotal of Excluded Property | $73,400 |
Net Family Property Summary | |
Total Assets | $1,620,000 |
Less Total Liabilities | $395,000 |
Less Total Marriage Deduction | $8,000 |
Less Total Excluded Property | $73,400 |
Net Family Property | $1,143,600 |
Final Thoughts
Navigating the complexities of property division during a divorce can be a challenging task, but understanding the principles of the Family Law Act and the concept of net family property can significantly ease the process. Whether you’re in a legally married or common law relationship, it’s crucial to understand your rights and responsibilities when it comes to dividing property, assets, and even debts.
Remember, the date of marriage and the date of separation are key factors in determining the division of assets. It’s not just about what you acquired during the marriage, but also what you brought into it. Items like personal property, bank accounts, and even registered retirement savings plans can come into play.
In Ontario’s family law, the matrimonial home holds a unique legal status. Regardless of who originally owned the property, both spouses have an equal right to it upon separation. This rule, however, does not apply to common law couples.
While the process may seem daunting, remember that help is available. A divorce attorney or a real estate attorney can provide valuable guidance during this complicated process. Additionally, consider seeking the assistance of a mediator. They can help facilitate discussions and negotiations, making the process of dividing property less adversarial and more focused on achieving a fair outcome for both parties.
Remember, every situation is unique. What worked for one couple may not work for you. Always seek legal advice tailored to your specific circumstances. And most importantly, keep your focus on the future. With the right approach and the right help, you can navigate this challenging task and move forward towards a new chapter in your life.
Conclusion
Transitioning through divorce can be a profound life event, filled with complexity and emotion. As a mediator and Accredited Divorce Financial Analyst (ADFA), I’m here to remind you that understanding the process of asset division, as stipulated by Ontario’s Family Law, can bring clarity and control during these challenging times. Remember, asset division rests on the principle of equal contribution to the relationship, focusing on the growth in value of your assets from the date of your marriage to the separation.
Each divorce, like each relationship, is unique, and the division of assets can vary based on numerous factors. From the intricacies of calculating Net Family Property, to the specific rules around matrimonial homes, pensions, and inheritances, each element requires careful deliberation and a tailored approach.
As a mediator and ADFA, my goal is to help you navigate this journey. Seeking professional advice is not just about understanding the financial implications; it’s also about working towards a fair and equitable resolution, which can be the foundation of your new beginning. Remember, there’s life after divorce – and the path to that future begins with understanding how your assets will be divided. Armed with the right knowledge and professional support, you can transition through this process in a manner that not only respects your past but also empowers your future.
Take the first step towards a brighter future by scheduling a Get Acquainted Call with me today. During our call, we can discuss your specific circumstances and explore how my services can support you during the property division process.
Ready to take control of your financial future? Click the button below to schedule your Get Acquainted Call now.
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What is the best way to negotiate a divorce settlement?
Let’s say you have a mother and a couple of children. The mother sees her kids fighting one day. There was an apple on the table, and both kids want it. In this case, what are the mother’s options?
Some parents would send each child to their room without either one of them getting the apple because of their bickering. Other parents would split the apple in half so that each child gets what they wanted. Experienced parents would foresee another argument potentially happening – what if the children start fighting about who gets a certain half? That’s when parents need to improvise. By letting one kid split the apple into two, and allowing the other kid to have first dibs on which half they want, the child learns the value in dispute fairness – the child cutting the apple has an incentive to split it down the middle because failure to do so could end up with them getting the smaller half.
The mother, in this scenario, is mediating a resolution. She asks both children why they wanted the apple in the first place. One child planned on making apple sauce, and the other child planned on baking muffins (peels were part of the recipe). Mom convinces her kids to make a compromise. One child can make apple sauce with the inner part of the fruit; the other child can have all the peels (the outer portion of the fruit). Both children walk away satisfied.
In modern society, we grow up thinking that when a conflict arises, there needs to be a winner and a loser. We aren’t used to coming up with win-win resolutions. This is not easy to do, but the outcome makes the process worthwhile. By working with one another collaboratively and cooperatively, we can think of a reasonable solution for any situation, be it parenting, business transactions, employment settings, or lawsuits.
When mediators ask people in the middle of a dispute what it is they want, they can efficiently allocate resources so that everyone walks away with a satisfactory outcome. If the children in this example had brought their conflict to court, a judge would either had them split the apple or sell the apple share the proceeds. This is just as applicable to arbitration. During mediation, disputants have the opportunity to talk about what they want, and the reasons why. Fairness is possible through mediation.
Excluded Property
Excluded Property is Property excluded from a net family property calculation because it was received as a gift or inheritance from a third party. The matrimonial home is never considered excluded property no matter how it was acquired or received.
Date of Marriage Deduction
A Date of Marriage Deduction is the value of property that a spouse owns on the date of the marriage is deducted from their net family property. This means that the wealth a spouse brought into the marriage is usually not divided as part of the divorce. However, the increase in the value of that property during the marriage is considered part of the NFP and can be divided.
Conclusion
As a Accredited Divorce Financial Analyst (ADFA), I understand the complexities and challenges that come with dividing assets during a divorce, especially when it comes to pensions. It’s crucial to have a clear understanding of pension valuation and how pensions are divided in a divorce to ensure a fair and equitable distribution.
This article by Ken Maynard, a fellow ADFA, provides valuable insights into this topic. He emphasizes the importance of creating separation agreements with clarity and soft landings for secure futures. His approach aims to avoid the overwhelming conflicts, confusion, and costs often created by legal proceedings.
If you’re navigating a divorce and grappling with questions about pension division, I highly recommend reaching out to a professional like Ken. He offers a ‘Get Acquainted Call’ where you can discuss your concerns and get expert advice tailored to your situation.
Remember, you don’t have to navigate this challenging time alone. Reach out, ask questions, and ensure you’re making informed decisions about your financial future.
Schedule a Get Acquainted Call with Ken Maynard today. It’s the first step towards a secure and financially stable future post-divorce.
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I assist intelligent and successful couples in crafting clear and straightforward separation agreements, ensuring a smooth transition towards a secure future. This is achieved in four meetings or less, sidestepping the excessive conflicts, confusion, and costs often associated with legal proceedings. You have the option to collaborate with me via video conference or in-person with a DTSW associate at any of our six Greater Toronto mediation centers, located in Aurora, Barrie, North York, Vaughan, Mississauga, and Scarborough.
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