Streamline Asset Division with Our Equalization Payment Guide

property-equalization

Understanding Divorce Equalization Payments in Ontario

The process of divorce can be emotionally and financially challenging. In Ontario, one important aspect of divorce settlements is the equalization payment. This article provides an in-depth understanding of equalization payments and how they are calculated.

We will explore the purpose of these payments, the legal framework, the factors considered in their calculation, and the role of assets, debts, and spousal support. Additionally, we will discuss challenges and disputes during the determination of equalization payments and provide strategies for negotiating fair settlements.

Lastly, we will touch on the tax implications associated with divorce equalization payments.

How is an equalization payment calculated in Ontario?Ken Maynard CDFA, Acc.FM2024-06-13T00:10:57-04:00

In Ontario, the equalization payment is calculated by determining the net family property of each spouse at the date of separation. The spouse with the higher NFP must pay the other spouse half of the difference between their NFP values

Net Family Property Equalization – A Case Study

equalization payment
Bruce Smith (Husband) Amount
Assets
Value of  Real Estate (matrimonial home value at $1,800,000) $900,000
Household (Cars, Boat Furniture, etc.) $55,000
Financial Accounts (RESP, Savings, RRSP etc.) $350,000
Business $135,000
Subtotal of Assets $1,440,000
Liabilities
Mortgage $275,000
Ford Motor Credit Car Loan $9,000
RBC Visa Credit Card (50% of Joint card with a $22,600 balance) $11,300
Tax Allowance on RRSP $45,000
Business Tax Adjustments $34,000
Real Estate Disposition Cost $52,545
Subtotal of Liabilities $426,845
Date of Marriage Deduction
RRSP $12,000
Line of Credit ($4,000)
Subtotal of Date of Marriage Deduction $8,000
Excluded Property
Kids RESP $123,400
Inheritance $50,000
Subtotal of  Excluded Property $173,400
Net Family Property Summary
Total Assets $1,440,000
Less Total Liabilities $426,845
Less Total Marriage Deduction $8,000
Less Total  Excluded Property $173,400
Net Family Property $831,755
Mary Smith Amount
Assets
Value of  Real Estate (50% of matrimonial home value at $1,800,000) $900,000
Household (Cars, Furniture, etc.) $35,000
Financial Accounts (Teachers’ Pension, Savings, etc.) $650,000
Time Share $5,000
Subtotal of Assets $1,590,000
Liabilities
Mortgage $275,000
Honda Finance Canada Car Loan $15,000
RBC Visa Credit Card (50% of Joint card with a $22,600 balance) $11,200
Tax Allowance on and Pension $114,000
Real Estate Disposition Cost $52,545
Subtotal of Liabilities $467,845
Date of Marriage Deduction
RRSP $18,000
MasterCARD Credit Card ($4,000)
Subtotal of Date of Marriage Deduction $14,000
Excluded Property
Inheritance $23,400
Gift $30,000
Subtotal of  Excluded Property $53,400
Net Family Property Summary
Total Assets $1,590,000
Less Total Liabilities $467,845
Less Total Marriage Deduction $14,000
Less Total  Excluded Property $53,400
Net Family Property $1,054,755
Equalization Calculation NET FAMILY PROPERTY
Bruce Mary
$831,755 $1,054,755
Mary $223,000
Financial Imbalance has a greater NFP then
Bruce
Mary $111,500
Equalization Amount To equalize she needs

Pay / Transfer to

Bruce
Soft Landing Settlement Example
Matrimonial Home Value (appraised market value) $1,800,000
Obligations:
Disposition Cost (RE Commission + Legal + HST) $105,090
Mortgage (Bruce will assume) $550,000
Subtotal of Obligations:  deductions from home equity $655,090
Subtotal: Equity = $1,144,910
Share of Net Equity: Value due to Mary (50%) 1/2 $572,455
Offsetting Values:
Equalization due from Mary to Bruce (see above) $111,500

Bruce Transfer RRSP to Mary (Tax-Free Rollover)

$190,000
Bruce pays Mary cash $270,955
Subtotal of Payments Value of payments to Mary $572,455
Total Balance due to Mary $0

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About the Author:
Ken Maynard CDFA, Acc.FM

I assist intelligent and successful couples in crafting rapid, custom separation agreements that pave the way for a smooth transition towards a secure future. This efficient process is achieved in about four meetings, effectively sidestepping the excessive conflicts, confusion, and costs commonly linked to legal proceedings. Clients have the flexibility to collaborate with me either via video conference or in-person through 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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Ken Maynard CDFA, Acc.FM2024-06-13T14:57:27-04:00