What are the specific sections that deal with equalization of family property?

Section 5(1) of the Family Law Act (“FLA”) provides that there will be an equalization payment made from the spouse with the greater net family property to the spouse with the lesser net family property. The value of this equalization payment under s. 5(1) of the FLA is described as “one-half [the] difference between [the spouses]”.  Meaning the spouse with the greater net family property pays 50% of the difference to the spouse with the lesser net family property. However, this equalization payment can be varied should the court find that the payment would be unconscionable.  Section 5(6) of the FLA provides us with the following criteria that could result in a varied equalization payment amount:

What does section 8(1) specify?

Section 8 of the Family Law Act describes what is needed for an application under section 7. Each party needs to serve to the other and file with the court a statement that is verified by oath or statutory declaration disclosing particulars about:

1. The party’s property, debt, and other liabilities
   1. As of the date of the marriage
   2. As of the valuation date
   3. As of the date of the statement
2. The deductions that you claim under the definition of “net family property”
3. The exclusions that you claim under subsection 4(2)
4. All property that the party disposed of during the 2 years immediately after the making of the statement, or during the marriage (whichever is shorter)

How do you determine the valuation date?

The valuation date is determined by looking at section 4(1) of the Family Law Act, which is outlined below.

The valuation date is importance in this process. In some cases, the valuation date is a quite complex thing to determine, so it is important to understand exactly what it is and how to figure it out. It is the day that your property will be valued, as well as the day that starts the one-year period of separation needed to receive a divorce.

For many, the day that the spouses separate is the valuation date, but what does this mean exactly? What is considered separation?

The case of Oswell v. Oswell set out the following factors for consideration:

1. There must be a physical separation
2. There must be a withdrawal by one or both spouses from the matrimonial obligation with the intent of destroying the matrimonial consortium
3. The absence of sexual relations (not conclusive, but a factor)
4. The discussion of family problems, communication between the spouses, joint social activities, the meal pattern
5. The performance of household tasks

Keep in mind though that each situation is different. Maybe you and your spouse expressly agreed to a separation, or perhaps instead one day your spouse suddenly started to withdraw from the marriage. Each situation is different. 

There are other things besides separation that can determine the valuation date, specified in section 4(1) of the Family Law Act, which we discuss below.

What does section 4(1) state?

Section 4(1) of the Family Law Act states that the valuation date is the earliest of the following dates:

1. The date that the spouses separate, with no reasonable prospect that cohabitation will resume
2. The date that a divorce is granted
3. The date that the marriage is declared to be a nullity
4. The date that one of the spouses commences an application based on section 5(3)* (improvident depletion) that is subsequently granted
5. The date before the date on which one of the spouses dies leaving the other spouse surviving 

*Section 5(3) is the improvident depletion of spouse’s net family property, and states that when spouses are cohabitating (living together), if there is a serious danger that one spouse may improvidently deplete his/her family property, the other spouse may, on an application under section 7, have the difference between the net family properties divided as if the spouses were separated and there was no reasonable prospect that cohabitation would resume.

What does section 4(2) specify?

Now, according to section 4(2) of the Family Law Act, there are some exclusions as to what is included in net family property:

1. Property (not including the matrimonial home) that was inherited or gifted to one spouse (unless it was registered in both spouses names)
2. Income from property above (if the testor/donator explicitly stated that it is to be excluded from the net family property value)
3. Money from an insurance company due to someone’s death
4. Property that both spouses have agreed to not include (through a domestic contract)
5. Money received (or have the right to) from personal injury
6. Money from a life insurance policy 
7. Unadjusted pensionable earnings under the Canadian Pension Plan

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 property with documentation to support it.

Can a couple chose not to equalize their property after separation?

You do not need to equalize your property after separation, because equalization is not a requirement, but rather what you are entitled to.

Can you make an agreement to not equalize?

You can enter into a separation agreement or marriage contract to set out how you want property to be split after separation/divorce. Note that when you are entering into a marriage contract, you need to disclose everything, and disclose it honestly.

Section 56(4) of the FLA states that a domestic contrast or a provision from it could be set aside if:

1. A party failed to disclose to the other significant assets, debts, or other liabilities that existed when the contract was made
2. A party did not understand the consequences or nature of the contract
3. Otherwise, in accordance with the law of contract

So, while entering into some sort of contract to split up property is an option, make sure you do so properly so as not to run into any issues, such as having the contract or parts of it set aside.

The contract can also deal with other things, such as child/spousal support, who will get to live in the home, etc.

You can use the marriage contract to designate a certain property as the matrimonial home, even if you and your spouse do not live in it. 

It is also important to note that marriage contracts can only deal with property rights, not possessory rights. No matter what the marriage contract says, even as the owner, you cannot kick your spouse out of the matrimonial home, or sell/mortgage it without their knowledge. 

What if, after separation, you or your spouse no longer agree with the terms of the contract? What if you cannot agree on changing the contract? You would have to get this sorted out in court. 

How does section 5(6) of the Family Law Act allow unequal division of assets?

The court can decide to not equalize your and your spouse’s net family property, but instead either increase or reduce the amount of the equalization payment.

Section 5(6) of the Family Law Act states that the court is able to award a spouse either more or less than half the difference between the spouses respective net family properties if the court thinks that equalizing the property would be unconscionable, regarding:

Section 5(6) of the Family Law Act states that the court is able to award a spouse either more or less than half the difference between the spouses respective net family properties if the court thinks that equalizing the property would be unconscionable, regarding:

(a) A spouse fails to disclose to the other spouse debts and/or liabilities existing at the date of the marriage

(b) Debts and/or liabilities that were claimed in reduction of a spouse’s net family property were incurred recklessly and/or in bad faith

(c) The portion of a spouse’s net family property that consists of gifts from the other spouse

(d)A spouse’s intentional and/or reckless depletion of their own net family property

(e)The fact that the amount that a spouse would receive under subsections (1), (2), and (3) is disproportionately large in relation to a period of cohabitation of less than 5 years.

(f) The fact that one spouse has incurred a disproportionately larger amount of debts and/or other liabilities than the other spouse because of supporting the family

(g) A written agreement between the spouses that is not a domestic contract

(h)Any other circumstances that relate to the acquisition, disposition, preservation, maintenance, or improvement of the property

 What is the purpose of section 5(7) of Family Law Act?

Section 5(7) of the Family Law Act provides details as to why this provision exists: it recognizes that the joint responsibilities of the spouses are childcare, household management, and finances, and built-in to a marriage is the equal distribution of joint responsibilities, financial or not. By assuming these responsibilities, each spouse becomes entitled to the equalization of the net family value, subject to the considerations in section 5(6). 

CASE 1: Booth v. Bilek is a case from 2021 that deals with this issue. A married couple separated after four years and four months of cohabitation, and had no children. This case was an appeal regarding their 2020 case, where the trial judge had decided not to equalize the property and instead only award the wife 10% of the equalization amount. The wife was appealing this because she believed that the judge erred in finding that full equalization would be unconscionable, and 10% of the equalization was not a fair amount. This appeal was denied. The trial judge found that the wife had financially benefited from the short marriage, receiving almost $200,000 from the sale of their matrimonial home. The trial judge had also found that the difference in the spouse’s net family value was because of investments made by the husband before the marriage had even begun. At the time of trial, the husband was 69 and living off of income from his investments, CPP, and OAP, while the wife was 46 and self-supporting.

Finding unconscionability has quite a high threshold, as observed by the trial judge. Section 5(6)(e) of the Family Law Act says that cohabiting for less than 5 years is also a factor to consider when deciding whether or not regular equalization is unconscionable. The trial judge also noted that the wife was left in a much better position financially than before she entered the marriage, even though she did not contribute much financially, if at all. 

Now, in terms of whether or not the 10% of equalization was unfair, the wife claimed that the trial judge did not explain how she decided on the amount of 10%. It was found that the trial judge’s decision of 10% was valid and reasonable. 

CASE 2: We can also look at Kucera v. Kucera, a 2005 case which covers a matrimonial home. The couple were only cohabitating for 10 months before separating. The equalization payment was calculated to be approximately $86,000, and the issue is whether or not the wife was entitled to it, seeing as most of the difference in the spouse’s net family value was due to the matrimonial home that the husband brought into the marriage, and could not claim a credit for the date-of-marriage value.

The judge took the following factors into consideration:

1. The husband bought the home a while before the marriage, and had no contribution from the wife
2. The home was not improved at all during the marriage
3. All of the bills for the maintaining of the home were paid for by the husband, as well as living expenses for both of the spouses while they were cohabitating
4. The bulk of the equalization payment value stem from the matrimonial home, not an increase in any assets
5. The wife’s financial position improved during the marriage
6. There were no children of the marriage, and no contribution from the wife whatsoever

It was determined that the full equalization payment amount would be unconscionable, so all that was left was to determine what amount would actually be considered fair. The appropriate amount was determined to be approximately $8500. This was calculated by assuming the full equalization amount would be about $51000, had the loan that the husband had taken out for the house and the matrimonial home been excluded as date-of-marriage liabilities/assets, and then calculating 1/6 of that amount. 

CASE 3: Dillon v. Dillon is another case where the equalization payment amount was reduced. They were married for 39 years with 3 children before separating. Both the husband and wife had worked, but the wife eventually quit her job in order to take care of the children. The situation became difficult due to the husband’s alcohol issues; he would become violent, and was even charged with criminal harassment against the wife. The husband had lost multiple jobs due to his alcoholism. The wife did not know about the family’s financial situation, because the husband kept all information from her, stating that there was nothing to worry about. 

The husband filed his financial statement for this case but did not have any evidence. Also, the husband had not filed income tax returns since 1995 at this point. 

Issues began in 2005 when creditors began to pursue him for his debt, which the wife took loans from her mother to help pay off. The wife also returned to work due to this. She had been paying all of the costs for the family home since 2005, including taxes, bills, etc. Even up until the trial the husband had been incurring more and more debt. Due to all of this, the wife had been living in quasi-poverty, and had been diagnosed with Adjustment disorder, and was dealing with anxiety and depression as well. 

The equalization payment was found to be $63,000, with the husband having the lower net family property value, meaning that he was entitled to the equalization payment. 

However, the wife claimed under section 5(6) of the Family Law Act that it would be unconscionable to have her pay the equalization payment, due to the husband’s conduct and her own circumstances at the time. 

It was found that the husband had indeed recklessly dissipated the assets of the family, and found that the wife had contributed at the beginning of the marriage to buying the family’s cottage and $150,000 in her RRSP. 

With everything taken into consideration, it was decided that it would be unconscionable for the full equalization payment to be paid to the husband, so the equalization payment amount was reduced by $50,000.

As you can see, many factors must be considered when it comes to deciding whether or not an unequal division of property is just.