What kinds of assets are included in equalization?

In equalization, numerous types of assets are included. In fact, basically any assets acquired during the marriage are included. This includes but is not limited to: vehicles, real estate, debts, business, furniture, jewelry, collections (wine, for example), bank accounts, and more. These assets should be compiled into a list for easy organization and reference; this is key in any proceedings like these, to keep your items and information organized. It is important to note that assets include things like RRSPs, pensions, investments, etc. Again, make sure all of your paperwork and forms are organized ahead of time to keep everything in order. 

How are assets that are brought into the marriage handled? 

Any assets that are brought into the marriage are considered to be date of marriage assets, and are not included in the net family property calculation. However, if the asset was brought into the marriage and then grew in value during the marriage, then the growth in value is included in the net family property. For example, if you made investments before the marriage that then grew during the course of the marriage, the amount of growth would be included in your net family property. 

Keep in mind that you have to be able to prove that you already had the asset(s) on the date of the marriage; for example, if you are claiming a car to be a date of marriage asset, you will have to show proof that you bought it before the marriage commenced. 

The main takeaway is that for net family property, you are including things that were obtained during the marriage, and any growth in value of things that were obtained before the marriage.

How would gifts and inheritances count towards equalization?

Gifts and inheritances will not count towards the net family value, unless, for example, it was put into the couple’s joint bank account or used to buy the matrimonial home. Also, if the matrimonial home was received as a gift or an inheritance, it will still count toward the net family property. 

However, gifts between spouses count towards the net family property. 

Gifts given by a third-party are not counted towards the net family property, but it is important to know that some conditions have to be met for this:

1. If the gift is something that can accumulate interest, it has to be made clear with a gift document that the interest is not meant to be included in net family property.
2. The gift has to be clearly given to one spouse, not both.

Even though the property above is not included in the calculation of net family property, it still must be disclosed on the list of properties with documentation to support it.

What is the matrimonial home, and how is it divided?

Part II of The Family Law Act covers what a matrimonial home is in Ontario. The matrimonial home is the home that the couple lived in before the separation process commenced, or both spouses had an interest in; this can be a condo, apartment, house, etc. There can even be more than one matrimonial home. It is included in the equalization process even if it was purchased by only one of the spouses before the marriage began. It is also important to note that unlike other assets included in the equalization of net family property, it is not just the increase in value that is included in the equalization, but the entire value of the matrimonial home. 

Many spouses opt to enter into a marriage contract or prenuptial agreement to set-out how things would be split up in the event of a separation/divorce. The contract can include things such as how the property would be divided, spousal/child support, including or excluding specific property, etc.

Would a business be considered net family property?

Whether or not a business is considered net family property is unique to every case. That said, if the business was acquired or began during the course of the marriage, then it is included in net family property calculations. If it was received as a gift or inherited, it is not net family property. Also, if the business was acquired/began before the marriage, then it is not considered to be net family property.

If the business is considered to be net family property, it will have to be evaluated. Now, there is not a specific way to valuate a business according to legislation or otherwise; however, there are different strategies. 

The value of the business at the marriage date must be declared (if it existed at the time), and then, valued at the separation date (again, if it existed at the time). As we have discussed before, any increase in the value of an asset, or assets acquired during the course of the marriage, is included in the equalization of net family property. So, if the business was acquired before the marriage, while the business itself is not net family property, any increase in the business’s value during the marriage is.  

A business can be valuated by either looking at what the business would be worth right now, or its money-making potential in the future. 

Again, each case and business will be looked at and evaluated differently; ultimately, it is up to the court to decide what is fair. 

You will need to provide information about your business for it to be valuated, including but not limited to:

1. Tax returns
2. Bank statements
3. Copies of cheques given to the owner
4. Information about benefits that the owner of the business has received
5. Financial statements

Hrvoic v. Hrvoic is a case from 2021 dealing with the equalization of a business. The judge used principles set-out in another case, Glass v. 618717, to help make a judgment. The principles are as follows:

1. Valuation is a fact-based assessment, requiring an important element of judgment by the court
2. The court must be prudent, not optimistic, when exercising it’s judgment
3. Neither party bears the burden of providing the fair value of shares
4. Judges should exercise caution when attempting to mix and match portions from competing experts reports
5. Market value is “the highest expressed in money obtainable in an open and unrestricted market between knowledgeable, prudent, and willing parties dealing at arm’s length, who are fully informed and under no intention to transact”
6. Fair value is a value that is just and equitable. It is one that provides “adequate compensation (indemnity), consistent with the requirements of justice and equity”
7. While hindsight evidence is generally excluded, there are some limited but potentially significant exceptions. 

When all is said and done regarding the valuation, the value will have to be divided somehow; this can be done by buying your spouse out, transferring shares, etc. 

How do you calculate the equalization payment?

Equalizing net family property can be done by completing the following:

1. Each spouse must determine the value of their respective assets at the date of separation 
2. Then, subtract any debts from the assets 
3. Subtract any money that is legally exempt from the Net Family Property 
4. Finally, determine the value of the assets that each spouse brought into the marriage, and subtract it (even if the value being subtracted is negative)

After this, you will each have your respective net family property value. Now, you can figure out the equalization payment value: take the difference between your and your spouses the net family property values, divide it by two, and that is the equalization payment value. If yours is higher your ex, then you will get half of the difference. The most popular way to make this payment is through payment of proceeds of matrimonial house.

Here is an example of how a hypothetical net family property equalization could look like

The equalization payment amount was calculated by subtracting $2,655,000 (Spouse 1 Net Family Property) from $2,729,700 (Spouse 2 Net Family Property), which gives us $74,700 (difference between the spouses Net Family Property), then dividing that by 2 to reach $37,350 (equalization payment). Spouse 2 will pay Spouse 1 $37,350.