Equalization of Net Family Property
One of the major guiding principles of Canadian family law is the idea that marriage is a partnership, the profits of which should be equally divided upon separation. Under the Family Law Act, every married person is entitled to equalization of net family property upon the dissolution of their marriage. Common law couples are not entitled to equalization of net family property.
Net family property (“NFP”) is not all property a married couple owns. It is the increase in value of the parties’ assets from the date of marriage to the date of separation (also known as the valuation date). An NFP value for each spouse is calculated by adding up the net value (assets minus debts) of all property owned by each spouse on the date of separation and then subtracting the net value of all property owned by that spouse on the date of marriage. If one spouse has a higher NFP than the other, they must pay their spouse half the difference.
There are certain exceptions to this general rule. The principal exception is the value of the matrimonial home [hyperlink to Matrimonial Home article]. If the matrimonial home was owned at the date of marriage, its value at that time does not form part of the date of marriage assets for the spouse that owned it.
If a matrimonial home brought into the marriage is sold and another is purchased prior to separation, the matrimonial home exception does not apply and the value of the original home is included in the owner’s date of marriage assets. This will normally remove the effect of the matrimonial home exception on the calculation of net family property, unless the new home was purchased with assets that would otherwise have been excluded property.
Certain other assets are termed “excluded property”, as they do not form part of net family property. Examples include inheritances, gifts from third parties, money received as a result of a personal injury claim, and the proceeds of a life insurance claim. Property bought with such assets may also be excluded from net family property, unless that property is the matrimonial home.
Courts do have very limited discretion to award an unequal division of net family property in exceptional cases where an equal division of net family property would be “unconscionable” due to behaviour of a spouse with respect to that property. An example would be if one spouse took on large amounts of debt for the sole purpose of depleting his or her net family property in an attempt to avoid equalization. The burden of proof is very high, and unequal division rarely occurs.