In Ontario, equalization is a process where spouses share the value of their property acquired during the marriage when they separate or divorce. The Family Law Act governs the equalization and here is a general overview of how it works:

  1. Determine Each Spouse’s Net Family Property (NFP)
    • This is done by determining the value of all assets owned on the date of separation (aka the valuation date) and subtracting any debts and liabilities.
    • From this amount, each spouse subtracts the value of the assets they brought into the marriage (after deducting any debts and liabilities at that time), except for the matrimonial home, which is treated differently.
  2. Calculate the Equalization Payment
    • The spouse with the higher NFP pays the other spouse half of the difference between their NFPs. This payment is known as the equalization payment.

Key Considerations

  • Matrimonial Home: The value of the matrimonial home is treated differently. If it was owned by one spouse before the marriage, its value on the date of marriage is not deducted from that spouse’s NFP.
  • Exclusions: Certain properties are excluded from NFP calculations, such as inheritances or gifts received during the marriage, provided they were not used towards the matrimonial home.
  • Debts and Liabilities: Both assets and debts are considered in the calculation of NFP.

Example

  1. Spouse A:
    • Assets on separation date: $500,000
    • Debts on separation date: $100,000
    • Assets on marriage date: $200,000
    • Debts on marriage date: $50,000
    • NFP: ($500,000 – $100,000) – ($200,000 – $50,000) = $250,000
  2. Spouse B:
    • Assets on separation date: $300,000
    • Debts on separation date: $50,000
    • Assets on marriage date: $100,000
    • Debts on marriage date: $20,000
    • NFP: ($300,000 – $50,000) – ($100,000 – $20,000) = $170,000
  3. Equalization Payment:
    • Difference in NFP: $250,000 – $170,000 = $80,000
    • Equalization Payment: $80,000 / 2 = $40,000
    • Spouse A pays Spouse B $40,000.