Equalization – What is It and How is It Calculated?

In Ontario, equalization refers to property (assets and debts) division for married spouses only. This does not apply to common-law couples (i.e., couples who cohabit but do not marry).

Generally, for each spouse, the following calculation is completed:

  1. add up all of the assets that the spouse owned on the date the parties separated (also known as the “valuation date”);
  2. subtract all of the debts that the spouse had on the date of separation from the value in (a) above to obtain that spouse’s net worth on the date of separation; then
  3. subtract the net worth (assets less debts) that the spouse had on the date of marriage.

The result of this mathematical exercise equals a spouse’s net family property (NFP). NFP refers to the increase in net worth that a spouse has obtained during the marriage. The spouse with the highest NFP pays the other one-half the difference between the parties’ NFPs. Confused yet? An example may help:

Let’s say the Husband had the following assets and debts

  1. on the date of separation:Matrimonial Home – 50% owned with wife: $150,000.00
    Car: $10,000.00
    Bank Account: $5,000.00
    Investments: $5,000.00
    Employment Pension: $100,000.00
    Mortgage on Matrimonial Home ($75,000.00)
    Credit Card ($5,000.00)
    = net worth on date of separation: $190,000.00
  2. on date of marriage:Car: $15,000.00
    Bank Account: $2,000.00
    Pension: $50,000.00
    Credit Card: ($10,000.00)
    = net worth on the date of marriage: $57,000.00
  3. Husband’s NFP = $190,000 less $57,000.00 = $133,000.00.Let’s say we did the same calculation for the wife (using different numbers) and the wife’s NFP was $75,000.00.The difference in NFPs would be $133,000.00 less $75,000.00 = $58,000.00 half of which is $29,000.00. That means that the Husband would owe the wife an equalization payment of $29,000.00 and since the matrimonial home is jointly owned each party is entitled to half the equity in the home as well. The parties would keep all of their other property that is in their sole names and their own sole debts.

This is a simple example, but equalization can get quite complicated as there are laws relating to the matrimonial home owned on the date of marriage, excluded property, valuations, whether there should be an unequal division of NFPs and many more. Spouses should retain lawyers to assist them with the equalization calculation and applicable laws associated with same.

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