Asset Division in Ontario
Divorce can be traumatic—even an amicable divorce is stressful. Dividing marital assets can be a contentious task. Who gets the silver? Who gets the cat? Should you use the present value of the asset, or should you be concerned about its long-term value? Just how much money will you lose? Will your lifestyle have to change?
If you find yourself in this situation, you are not alone. According to the Toronto Sun, Canada has the 29th highest divorce rate out of 87 countries surveyed. One out of every 309 adults in Canada has been divorced, which means that 38 percent of all Canadian marriages end in divorce.
According to Ontario’s Family Law Act (FLA), in general, couples who live together as spouses for three years or longer are considered to be in a “common-law” relationship—which is NOT a marriage. Even if this couple has children together and refers to each other as “husband” and “wife,” it does not mean they are married.
With family law issues such as spousal and child support, and parenting time and decision-making, Ontario’s rules are the same for married and common-law relationships.
However, the rules for marriage and common-law relationships are quite different when it comes to things like dividing property: who is allowed to remain in the family home, who decides to sell the family home, who receives funds from the sale of the family home, etc. For example, in a legal marriage, the value of a piece of property is automatically shared. This is not the case in a common-law relationship.
Family vs. Separate Property
Part 1 of Ontario’s FLA specifies how a married couple’s assets are divided. It clearly defines a family asset, what is separate property, and how these assets are to be divided if a marriage is ended.
Determining Family and Separate Property
The foundational principle of asset division law is that marriage is an economic partnership—and as such, all property acquired during the marriage belongs to both parties, irrespective of who holds the title.
There are two critical dates in this economic partnership: 1) the date the couple entered into the partnership (marriage date), and 2) the date on which the marriage (partnership) is dissolved (often called the “valuation date”). When a marriage ends, each partner is entitled to half of the accrued property value—but NOT half of the property itself.
Family property usually includes things like:
- Real property (homes, land, cottages, vacation properties)
- Personal property (jewelry, furniture, art, collectibles)
- Vehicles (cars, trucks, motorcycles, recreational vehicles)
- Stocks, stock options, and investments
- Funds held in a trust
- Outstanding loans due to one or both spouses
- Intangible property (intellectual property, patents, rights to music and art)
Generally speaking, inherited property or gifts received during the marriage can be excluded as marital assets, just as long as they have no connection to the matrimonial home. Likewise, any property owned before a marriage is considered to be a personal (not a family) asset, again, just as long as it is not connected to the matrimonial home.
The Matrimonial Home
As suggested above, under Ontario family law, the matrimonial home is given special treatment. Part II of the FLAt defines the matrimonial home as follows:
Every property in which a person has an interest and that is, or if the spouses have separated, was at the time of separation, ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home. 2
A matrimonial home can include almost any type of housing (single-family residence, condo, cottage, etc.) a married couple resides in. Second homes or vacation homes can also fall under this category just as long as the property was occupied regularly during the marriage.
It is important to understand that both spouses, even when seeking a separation or divorce, have a legal and equal right to continue to live in the matrimonial home until:
- They have reached a mutual agreement as to the disposition of the property,
- A judge orders one spouse to move out, or
- Until the property is sold.
Therefore, until the property’s disposition is decided, neither spouse can prohibit the other from living in the property (i.e., no locks can be changed to keep a spouse out).
Sometimes it may not be realistic or advisable for both parties to stay in the family home until the divorce is final. Should one spouse decide to move out, they will not be allowed to come and go as they please. Should the vacating spouse need to return to the home to gather personal possessions or for some other appropriate reason, they must give the spouse in possession reasonable and adequate notice of their intention to return.
An Order of Exclusive Possession
In some cases, a family court judge will grant an Order of Exclusive Possession, which gives only one spouse the right to live in the matrimonial home. The other spouse will be legally required to move out and find another place to live. An Order of Exclusive Possession is often granted when domestic violence has occurred or has been threatened. The excluded party is often given the right to periodically re-enter the property after giving the resident party adequate notice in advance.
- It is important to note that an Order of Exclusive Possession of the matrimonial home:
- Is usually set for only a specific amount of time
- Gives only ONE spouse the exclusive right to possession
- Does NOT give the spouse in possession the right to sell the home or dispose of any furniture or other property in the house until the court has fully resolved all divorce issues
- Does NOT impact any property rights of either spouse, whether in possession of the property or not
- Does NOT give either spouse the right to sell, sublet, rent, refinance or place a line of credit on the matrimonial home unless BOTH spouses give written permission
Rules of Ownership For The Matrimonial Home
Any property that a legally married couple lives in before they separate is deemed the matrimonial home—even if only one spouse holds the title. Yes, this means that even if you purchased your home BEFORE you married, it automatically became the matrimonial home once you and your spouse lived there as a married couple.
This law even goes further: Should you have inherited the home or it was gifted to you BEFORE your marriage, it will still be considered a matrimonial home.
The same is true if you used funds gifted to you for the down payment on the house. Should you divorce, your spouse will not be required to repay the gifted funds to you.
The bottom line: The matrimonial home will always be equally divided unless you and your spouse have signed a written agreement that states otherwise.
Options For Dealing With the Matrimonial Home
For many couples, the matrimonial home is the most valuable asset they own together. Splitting up this asset can be emotionally and financially taxing. Ontario law gives divorcing couples four options when dealing with the matrimonial home:
- One spouse can keep the matrimonial home by buying the other one out. This scenario could be quite expensive. For example, say your home is worth $700,000. You have an existing mortgage with an outstanding balance of $250,000, which means you have $450,000 equity in the home ($700,000 minus $250,000=$450,000). Your spouse will be entitled to half of the equity in the home, which, in this case, is $225,000 ($450,000 divided by 2=$225,000. Most people do not have that much cash on hand, so the property is often refinanced. In this example the mortgage amount will increase from $250,000 to $475,000 ($250,000 + $225,000 =$475,000). Another thing to note is the value of the property in question must be determined by a formal appraisal completed by a professional appraiser.
- Both spouses agree to sell or rent the matrimonial home to a third party. Whichever a couple decides (i.e., rent or sell), all proceeds are equally divided. For example, should the property be sold and the net proceeds are $200,000, each spouse receives $100,000. If the property rents for $2,000 a month, each party will receive $1,000 each month. If the property is sold, it is important to be sure the separation agreement has been finalized; if it has not been completed, any sale proceeds will be held in trust until it is.
- One spouse stays in the matrimonial home for an agreed-upon period. This is a less common situation, but it does happen. One example is when a divorcing couple has children. They may decide to keep the children in the matrimonial home under one spouse’s supervision until everyone has graduated from high school. After the children have come of age, the property will be sold, and the proceeds divided equally.
- If divorcing spouses cannot agree upon the matrimonial home’s disposition, they can petition the court to decide. When a judge undertakes the task of deciding what to do with the matrimonial home, they will consider the following questions:
- How much money does each spouse have?
- Is there a written agreement?
- What is the best option for the children?
- Are there other places the spouses can live?
- Is there a history of domestic violence?
Challenges With Other Property Types
How Businesses are Valuated
Any businesses owned by either spouse will need to be valued. If the company was owned at the date of the marriage and still exists at the time of separation, the business must be valued at both the date of marriage and the separation date. If the business’s value increased during the marriage, the increased amount is divided equally between the spouses. For example, if your business as of your marriage date was worth $250,000 and was worth $500,000 at the time of your separation, your spouse will be entitled to half of the increased value, which is $125,000 ($500,000 minus $250,000=$250,000 divided by 2=$125,000).
There are two basic ways to set the value of a business. The first method is called the “liquidation value.” This method entails estimating how much money a company can derive if all its assets were sold and all debts were paid in full.
The second method is called the “going concern value.” This method takes into account the liquidation value described above and puts a value on more intangible things like goodwill and brand name.
Given a choice between these two methods, courts tend to use whichever way produces the highest value. However, courts prefer a “make sense” approach to any business valuation. For example, if the business is to be liquidated to pay off marital debt, then the liquidation method of valuation makes the most sense.
Pensions are property under Ontario law and are included in a spouse’s net family property. Determining the value of a pension and how it should be divided is a complex process.
There are two types of pensions: defined benefit and defined contribution.
A defined benefit pension is the traditional pension type where employees and employers pay a set amount into the pension every month.
In the second type, defined contribution, an employer pays a set amount each month into a Registered Requirement Savings Plan (RRSP) or other savings account.
Just as with other property, only the increase of value between the date of marriage and the date of separation is shared by the spouses.
The division of a pension plan has tax implications and is complicated. In most cases, a professional pension administrator is hired to determine the value of a pension. Of course, it is also advisable to retain a divorce lawyer to assist in this process.
The Family Pets
When a marriage ends, what happens to a family’s “fur baby” can be quite acrimonious. People often feel the courts should view children and pets in the same manner. However, Part I of Ontario’s FLA states that pets are considered “property,” and they do not give one spouse or the other “custody” of the pet.
As is the case with other property types, the person who brought the pet into the marriage is the owner. If the pet was purchased jointly during the marriage, the disposition of the pet becomes more difficult.
If a couple who is divorcing or separating cannot agree about who will ultimately end up with the pet, they can ask the court to decide which party is the legal owner. There are several ways to prove ownership:
- Receipt of purchase
- Bank statement that outlines purchase details
- Documentation from a veterinarian’s office showing you as the owner
- Breeder’s certificate showing you as the owner
- A city/municipal license showing you as the owner
When deciding which spouse ends up with ownership of the pet, the court will ask the following types of questions:
- Was the pet brought into the marriage, or was it purchased during the marriage?
- Was the pet a gift from one spouse to the other?
- Did either party surrender possession rights when they moved out of the marital home?
- What evidence is there that supports one of the spouse’s ownership over the other?
- What type of ownership supports the best interests of the children in the family?
It is essential to know that divorcing partners are free to mediate their pet ownership and develop a suitable plan for a much-loved pet’s custody. These types of agreements often look quite similar to parenting plans for children. There are accredited family law mediators that are well equipped to help a couple achieve a satisfactory agreement. Through mediation, it is possible to decide on a plan that meets each spouse’s needs, the needs of any children in the family, and the needs of the family pet.
How Assets Are Divided in Ontario
Under Ontario’s FLA, if a married couple separates or divorces, each party is entitled to the “equalization of net family property.” Spouses can jointly or individually petition the court for the division of their marital assets (instead of settling their affairs privately). Each party is entitled to apply for equalization following their decision to separate, regardless of the specific nature of their marriage or the spouses’ conduct. However, there are time limitations that apply to equalization claims. A claim for equalization must be made within the earliest of the following:
- Two years from the date of divorce
- Six years from the date of separation
- Six months from the date of a spouse’s death
How Equalization of Net Family Property Works
Regarding family asset division, Ontario law takes the view that “inherent in the marital relationship there is an equal contribution.”3 In short: Equal contribution in gathering family assets means equal division when the marriage ends.
Should you feel that equalization is unwarranted in your specific marriage, it is important to understand that equalization is the default position the courts will take. Without compelling extenuating circumstances, the court will consistently enforce the equalization process when a marriage is dissolved. Should you feel you have such extenuating circumstances, it is vital to contact an experienced lawyer specializing in asset division.
Calculating the Division of Assets in Ontario
As stated previously, the FLA provides for the equal division of “net family property” in the event of a separation or divorce. When an application for equalization is requested, each spouse must identify all property to be included and excluded from the value calculation.
Section 8(1) of the FLA designates that each spouse completes a sworn statement filed with the court and served upon each other. This statement must be comprised of:
- A list of the party’s property owned, along with debts or any other liabilities:
At the time of the marriage,
At the time of the valuation date (more about this below), and
At the time of the statement.
- Any deductions claimed under the definition of “net family property” (e.g., the value of all property owned at the time of the marriage, debts and liabilities as of the valuation date).
- All property the party claims should NOT be included in the net family property valuation. (These exclusions are detailed in Section 4 (2) of the FLA.)
- All property that a party disposed of during the previous two years before completing the statement—OR—during the marriage, whichever period is shorter.
The Valuation Date
The FLA defines the “valuation” date as follows:
- The date the married couple separates, and there is no reasonable expectation that they will cohabitate again
- The date a divorce is granted
- The date a marriage is nullified
- The date a spouse applies for “improvident depletion,” which is subsequently granted (per Section 5 (3) of the FLA)
- The date right before one spouse dies, leaving the other spouse surviving
The most commonly used valuation date is the date of separation. However, a couple may not agree on just what that date is. Sometimes the value of some assets, such as stocks or real estate, can fluctuate widely around the date of separation, leaving spouses in a contentious battle over valuation. In cases like these, an Ontario family law lawyer will be your best resource.
The Definition of Property
The FLA does not deal with the property’s actual physical division; the legislation is intended to simply divide the “value” of the property between the spouses. However, courts are empowered to determine things like ownership of the property, order the sale of the property, or declare that a “constructive trust” claim exists.
The FLA defines property in quite broad terms. Part I, Section 4 (1) defines “property” as follows:
“Property” means any interest, present or future, vested or contingent, in real or personal property and includes,
a) Property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,
b) Property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and
c) In the case of a spouse’s rights under a pension plan, the imputed value, for family law purposes, of the the spouse’s interest in the plan, as determined in accordance with section 10.1, for the period beginning with the date of the marriage and ending on the valuation date. 4
Generally speaking, for any property owned by a spouse BEFORE the marriage, any increase in value from the marriage date until the valuation date is divided equally.
It is vital to submit a complete and accurate asset statement to the court and your spouse. Non-disclosure or under-disclosure of assets only delays the process and often causes additional costs and rancor. Should you have any questions regarding your personal or marital property, it is always best to consult an experienced family law lawyer.
Property That is Excluded From Marital Asset Valuation
Certain types of personal property can be excluded from the net family property valuation. Part I, Section 4 (2) states:
The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:
- 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 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 earning under the Canada Pension Plan, R.S.O. 1990, c. F3, s.4 (2); 2004, c. 31, Sched. 38, s. 2 (`1); 2009, c. 11, s. 22 (5).5
How to Calculate Your Net Family Property
Determining the net value of your property can be complicated. It is crucial to be fair, honest, and accurate when you do this. When you get to court, you will have to swear that your statement is correct.
There are four basic steps to take when undertaking the task of calculating your net family property:
Step 1: Tally up the value of all property owned as of the date of separation. Property is anything that is in your name or belongs to you. “Property” includes:
- Houses (but not the matrimonial home)
- Money in the bank (including retirement savings, tax-free savings accounts, etc.)
- An Ontario pension
For any property owned jointly with your spouse, you should put half its value on your list.
Step 2: Tally up all your debts and liabilities. Examples of debts include:
- Any balances owed on credit cards
- Amounts left to pay on any houses (do not include the matrimonial home)
- Car loans
- Personal loans
Step 3: Subtract the value of your debts from the value of your property. The figure you end up with is your net family property. If this figure is a negative amount, it is considered to be zero.
Step 4: Determine if any money is owed to either spouse. At this time, the net value figure of each spouse is compared. The smaller value is subtracted from the larger value—and what is left is divided by two. The resulting figure is called the “equalization payment.”
For example: Spouse “A” has a net value of $30,000, while Spouse “B” has a net value of $10,000:
$20,000 divided by 2=$10,000 (which is the equalization payment that is due to
Cases When an Equalization Payment May Be For a Different Amount
There are instances when the Ontario court orders one spouse to pay the other more or less than a 50/50 equalization payment. This most often happens if a judge determines that the equalization payment is especially unfair to one party or if the divorcing couple has signed a written contract that outlines how property is to be divided.
Generally speaking, if the divorcing couple has such a contract, the court enforces the contract unless deemed significantly unfair. Likewise, the court will not enforce any marriage contract that was signed under duress.
Judges consider the following factors when deciding whether an equalization payment is fair:
- Did a spouse hide debt during the marriage?
- Did a spouse recklessly accumulate debt?
- Did a spouse intentionally reduce their property or spend money before the couple separated?
- Does the Net Family Property for one spouse include large gifts from the other spouse?
- Was the couple together less than five years, and the equalization payment gives one spouse more than their fair share?
Frequently Asked Question About Asset Division
How does asset division differ for common-law couples?
Ontario’s Family Law Act makes NO provisions for equal asset division for common-law relationships. Simply put: each common-law partner is entitled only to what they brought into the relationship or what they acquired during it.
Does the fact my spouse cheated on me enable me to get a larger share of the marital assets?
No. Canada has a “no-fault” divorce system. The actions of spouses or the reason for the divorce are not seen as relevant to property division. If your spouse was unscrupulous in handling assets (e.g., depleting assets right before separation, recklessly incurring debt, lying about debts and liabilities, etc.), the court does have the power to adjust the equalization payment. However, conduct not explicitly related to property does not entitle a spouse to a more significant portion of the marital assets.
Will I have to go to court?
Not necessarily. There is no obligation to involve the court at all, providing both spouses agree. You are not required to split family assets as it would be divided under Ontario’s Family Law Act. You and your spouse are free to divide assets in any way you both agree upon. The specifics of your asset division must be put into a signed separation agreement. It is advisable to contact a lawyer who specializes in divorce asset division before this agreement is signed.
My parents gave me money for the down payment on our home. Can I get that back?
Usually, not. The law states that any gifts used to help purchase property deemed the matrimonial home cannot be given back to the spouse who received the gift. This is also true if inherited money was used to purchase the home.
This law can be challenged in court by claiming “unjust enrichment.” You will be required to show that your parents’ gift unjustly benefited your spouse.
How long do I have to be married to split all assets 50/50?
After the first day of marriage, all property becomes marital property and MAY be divided evenly. However, no matter how long a person is married, there is never a guarantee that everything will be split 50/50.
What are the signs that my spouse is hiding assets?
There are ten significant signs to look for:
- Maintaining complete control of bank account information
- Being secretive, cagey, and uncommunicative during the divorce
- Owning a private mailbox
- Deleting financial computer programs
- Complaining about a sudden drop in business or failed investments
- Discrepancies between lifestyle and income
- Sudden and unusual bank account activity
- Demanding that you sign papers
- Gifting assets to family members and friends
- Making frequent trips overseas
Musson Morneau LLP is dedicated to helping you protect what you hold dearest. We know divorce is stressful even under the best scenarios. Asset division is complex and the decisions you make during your divorce will affect you for the rest of your life. Musson Morneau LLP has experienced lawyers who specialize in asset division who are ready to help guide you through this most uncertain time. Your interests are our top priority!
1 Toronto Sun: Canada Has the 29th Highest Divorce Rate Out of 87 Countries: Survey
2-5 Family Law Act R.S.O. 1990, c. F.3