How Division of Property in Ontario Works

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.

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.

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.

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.

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.

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. 

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.