A Guide to Equalization

Either spouse can apply for equalization under the Family Law Act of Ontario (“FLA”) after separation. This is however, restricted by a limitation period codified by the FLA, which prevents one from bringing a claim for equalization later than the earliest of the following:

1. Six months from the date of the spouse’s death.
2. Six years from the date of separation.
3. Two years from the date of divorce.

What is Equalization? 

Upon the triggering of equalization, each spouse becomes entitled to one half of the value of property amassed during the marriage. This should not be confused with the value of one half of the property value itself, but rather the increase in value of the net family property between the Date of Marriage and the Date of Separation (or alternatively, referred to as the Date of Valuation), as explained below. The court will then order one spouse to pay the other an “equalization payment,” to align the value of each spouse’s net family property.

‘Date of Separation’ Determination

The Family Law Act in S4(1) defines “valuation date” as the earliest of following dates:

• The date that the spouses separate without reasonable prospect that they will resume cohabitation
• The date of divorce
• The date that the marriage is declared null
• The date that one of the spouses commences an application, based on a claim for improvident depletion (namely that the spouse is depleting his or her net family property)
•  , , The date before the date on which a spouse dies, leaving the other spouse surviving

Calculating Equalization

1. The first step is to calculate each spouse’s Assets and Debts at the Date of Separation as well as their Assets and Debts at the Date of Marriage.

2. In calculating Assets for the Date of Separation, there are several exclusions, as codified by S4(2) of the Family Law Act. These are:
   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 (a), 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 (a) to (d) 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.

2. The second step is to subtract the debts from the assets. This will give you a total valuation for both the Date of Separation and the Date of Marriage. 
   1. If the Date of Separation value is below zero, then the value is automatically valued at zero for the subsequent calculation. 
   2. However, if the Date of Marriage value is below zero, its value is taken at face. 

3. The third step, for each spouse, is to subtract the Date of Marriage valuation from the Date of Separation valuation. This will give you the NFP = Net Family Property. 

4. The fourth and final step is to take the spouse with the higher NFP and subtract the lower NFP from that value. Divide the difference in half. This is the Equalization Payment.

For Math-Prone People

Assets-Liabilityat DOS-Assets-Liabilities at DOM=Net Family Property of Spouse

NFP Of Spouse 1 spouse with higher NFP-NFP of Spouse 2 spouse with lower NFP÷2=Equalization Payment