Under section 5(1) of the Family Law Act, it states that when a divorce is granted, a marriage is declared null or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them. This is commonly referred to as “equalization”.
Equalization refers to the process of dividing property, finances and making the assets and debts between the spouses equal. Under section 4(2) of the Family Law Act, certain assets are excluded from equalization. Excluded property includes:
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
- Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.
- 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.
- 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.
- Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.
- Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.
- Unadjusted pensionable earnings under the Canada Pension Plan
Conversely, pursuant to section 5(6) of the Family Law Act, the court has the authority to award more or less than half the difference between the net family properties if they believe that equalizing the property is “unconscionable”. While the bar for unconscionability is high, the court has on occasion deemed it unconscionable to equalize property. Section 5(6) in specific states:
Variation of share
(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,
- (a) a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
- (b) the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;
- (c) the part of a spouse’s net family property that consists of gifts made by the other spouse;
- (d) a spouse’s intentional or reckless depletion of his or her net family property;
- (e) the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;
- (f) the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
- (g) a written agreement between the spouses that is not a domestic contract; or
- (h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.
A recent case where the court found that equalization was not unconscionable:
In M.N.B. v. J.M.B. 2022 ONSC 38: the parties cohabitated for two years and were married for three years. The parties had two children together. When examining Section 5(7) of the Family Law Act, the court held that to make an unequal division of net family property, the court must find that:
- (a) the parties cohabited for less than five years;
- (b) payment of the presumptive amount would be unconscionable; and
- (c) that the presumptive amount is disproportionately large in relation to the length of cohabitation.
The judge considered the household and financial responsibilities of each party, which spouse brought the matrimonial home into the marriage, improvements to the home, and expenses paid by each party. The judge did not find equalization unconscionable under the meaning explained in Serra v. Serra ONCA 105, i.e. that in order to cross the threshold of unconscionability, an equal division of net family properties must “shock the conscience of the court”.
A case where the Court found that equalization was unconscionable:
Kruschenske v. Kruschenske 2018 ONSC 4342, The parties cohabitated for either 6 years or 2 years prior to marriage (the dates are disputed) and were married for 4 years and 2 months. The husband brought almost all of his assets into the marriage, including the matrimonial home. Applying a time-based formula to a period of cohabitation that was one year less than the five-year threshold, Justice Kane concluded that the husband had to pay 80% of what he owed the wife as per the net family property equalization calculation, that is, $170,127.08 (instead of $212,658.85),
If you are considering a separation and want to know more about your potential rights and obligations, contact HGR Graham Partners LLP. Our team of experienced Family Law Lawyers will be happy to set up a consultation.