MATRIMONIAL HOME WHEN CALCULATING NET FAMILY PROPERTY

This only applies to parties who are married. It does not apply to common-law partners.

One of the more irrational aspects of Ontario’s family law system is the treatment of the family residence when it comes to the division of marital property. The matrimonial home is often by far the largest monetary factor in a marriage/separation, often in the range of many hundreds of thousands of dollars. Pursuant to this rule, whether the spouses keep and live in the home that was brought into the marriage or sell it and purchase another, could have life-changing financial consequences for the parties. It is critical you understand how this works.

The Law

As a result of section 5 of the Family Law Act (FLA), when a marriage breaks down, spouses are entitled to a division of their net family property (NFP). A spouse’s NFP is the amount that their net worth (i.e., the value of their assets minus their liabilities), has increased during the course of the marriage. To calculate a spouse’s NFP, the court calculates their net worth on the “valuation date” (generally, the date of separation), and then subtracts their net worth on the date of marriage.

For example, if one party had a net worth of $5,000 on the date of marriage, and a net worth of $205,000 on the date of separation, their NFP would be $200,000 ($200,000 minus $5,000). If the other party had an NFP of $100,000, the court would equalize their NFPs by ordering the party with the higher NFP to pay their spouse $50,000, resulting in them equally sharing the $300,000 in wealth that they amassed together during their marriage, at $150,000 each.

However, NFP calculations are subject to a number of exclusions and exceptions. Section 4 of the FLA contains one of these and states that when calculating the value of property owned by a spouse on the date of marriage, that spouse is entitled to include the value of all property owned by them at the date of marriage, other than the value of a “matrimonial home”. Section 18 of the FLA, defines a matrimonial home as “…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.” The key phrase here is “was at the time of separation ordinarily occupied,” because a residence brought into a marriage by one of the spouses, and which is still the family residence at the moment of separation, fits the definition in that section of a matrimonial home; but a residence that is brought into the marriage and sold prior to separation, does not.

Consequently, if a person has an interest in a residence that is worth $200,000 on the date that they get married, but that residence is sold before they separate, they are entitled to a marital date deduction of $200,000 when calculating their NFP. Remarkably, this remains the case even if the sale proceeds were used to purchase a new residence that is occupied as a family residence on the separation date.If the parties continued to occupy the original residence as their family residence up until the time they separated however, no deduction is permitted, resulting in an NFP that is $200,000 greater than in the prior example.

While it is makes sense for lawmakers to treat matrimonial homes differently from other property, this distinction between residences that are sold during the marriage and residences that remain the family residence creates inequity, and unless you are aware of this, could cause significant financial loss or gain, depending upon who brought the home into the marriage.

Family lawyers in Ontario have tried for years to have this rule changed, without success.

Conclusion: What to Do & What Not to Do

If you enter or entered marriage with a home and the two of you move into it together, your best personal financial strategy would be to sell it and buy another home.

Assume for example’s sake that the home you brought into the marriage was worth $1,000,000 (and had no mortgage). If you still live in it at the date of separation your spouse gets half the value ($500,000) upon separation. If you sell it after marriage, buy another home and later separate, you do not lose that $500,000!Conversely, if your spouse came into the marriage with such a home, your best personal financial strategy would be to not move out of it and to never buy another home together. That way, upon separation you would wind up with an additional $500,000!

Needless to say, the rule makes no sense. Knowing what to do about it is your best bet.

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Please be advised that all articles written on this website are for informational purposes only and do not constitute legal advice on any subject matter. The information contained within these articles is subject to change at any time and should not be acted upon without previous consultation with legal counsel. 

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