The Family Law Act (FLA) is pivotal in Ontario's family law matters, particularly in governing property rights. Its provisions cover crucial aspects, ensuring fairness and justice in property division.
Equalization Payments
Ontario law recognizes marriage as an economic partnership in the event of marriage dissolution. The law mandates that the accumulated benefits during the marriage should be shared equally between the parties. This is determined by calculating the net growth in the value of each party's assets during the marriage, known as their Net Family Property (NFP). The law ensures fairness by requiring the spouse with the higher NFP to make an equalization payment to the other spouse, thereby upholding the principle of justice in property division and providing reassurance about the fairness of the process.
Property definition
Section 4 of FLA offers a comprehensive definition of property, encompassing any interest in real or personal property, whether present or future, vested or contingent.
In Ontario, property acquired during a marriage must be split equally when a marriage ends for any reason. Your assets include the following:
Matrimonial home
Car
Business
Furniture
Pension
Money
Matrimonial Homes
Under section 18 of the FLA, a matrimonial home is simply the family residence of a married couple at the time of separation. This section also emphasizes the requirement for spousal consent when dealing with the property, such as selling or mortgaging it.
In Ontario, the rights to matrimonial property are clearly outlined in Part I of FLA. They are specifically designed to protect the interests of married or formerly married spouses, including same-sex couples. These crucial rights come into play after a marriage breakdown or, in exceptional cases, when seeking to equalize property before a breakdown occurs, providing security about your rights under the law and ensuring your interests are protected.
What is considered a Matrimonial Home?
In Part II, Section 28(1) of the FLA specifies that the term "matrimonial home" applies to homes located in Ontario. However, suppose one of the parties has a stake in a Florida condominium used as the family residence at the time of separation. In that case, the rights and obligations regarding the matrimonial home in Part II of the FLA do not apply.
Calculation of NFP and Equalization
The FLA sets out a regime for the division of property upon the breakdown of marriage to equalize the difference in the growth of each spouse's net worth from the date of marriage (M-Date) to the valuation date (V-Date).
V-Date means the earliest of the following dates
The date the spouses separate, and there is no reasonable prospect that they will resume cohabitation.
The date a divorce is granted.
The date the marriage is declared a nullity.
The date one of the spouses commences an application based on Ss.5 (3) (improvident depletion) that is subsequently granted.
The date before the date on which one of the spouses dies, leaving the other spouse surviving.
Once the NFP value has been determined for each spouse, the spouse with the more significant NFP pays the spouse with the lesser NFP an equalization payment.
Three steps in determining what is included in the NFP
Property must meet the property definition under s.4(1) of the FLA.
A value must be assigned to the property on the V-Date and/or the M-Date.
The ownership of the property must be ascertained. The spouse with the property title must be included in the spouse’s NFP.
The equalization payment is half the difference between the parties' NFP values. Regardless of their nature, all properties are included in the NFP calculation, and contingent interests must be valued. Significant exceptions, referred to as exclusions, determine what is not included in the computation of NFP.
Calculating NFP involves determining shared assets and exclusions, such as gifts, inheritances, and certain pensions. These exclusions can affect the final NFP’s figure, so understanding these exceptions is essential to ensure a fair calculation and to make you feel informed and prepared for the process.
Landmark Cases
In Lowe v. Lowe, the Ontario Court of Appeal (COA) definitively ruled that pensions from the Workplace Safety and Insurance Board (WSIB) should not be considered "property" when calculating net family assets—despite the general practice of including pensions in such calculations. Based on specific case law, this pivotal decision sets a clear precedent for treating WSIB pensions in family law matters.
In a more recent case, Dembeck v. Wright, the COA deliberated on whether severance packages should be counted as property for equalization calculations, either as of the date of marriage or the date of separation. The court's conclusion was impactful: a right or entitlement must be established at those specific dates for a severance package to qualify as property. Notably, the ruling clarified that accumulated severance under the Employment Standards Act (ESA) as of the date of marriage did not meet the criteria for property, as the spouse had no right or entitlement to the severance unless their employment was terminated.
Understanding Equalization Payment Terms
The court can allow a spouse who owes an equalization payment up to 10 years to satisfy the obligation. The spouses can extend this period by agreement. Often, the payment is made in a much shorter time. The court also has discretion concerning whether the equalization payment bears interest (the presumption is that interest will be paid).
Uncovering the Depths of Unconscionability
The equalization payment may differ in rare cases, known as an 'unequal' equalization. This can be justified if the normal calculation is considered 'unconscionable.' This is rare and mostly seen in marriages lasting less than five years, contracts other than domestic ones, imprudent depletion of NFP, and extreme misconduct during the marriage. In such cases, the court can order more or less than the difference between NFPs to be paid by one party to the other.
Post-valuation date events are rarely considered, but severe financial misconduct by one spouse may be considered. Instances of severe decreases in the payor’s net worth after the V-Date are excessive in certain circumstances.
Time Limit for Equalization Claim
Without an extension of time order, a claim for equalization must be made within six years of separation, two years of a divorce or annulment, or six months of the first spouse's death.
Exclusive Possession of the Matrimonial Home
Part II of FLA outlines rights unique to matrimonial homes in Ontario. In some cases, married couples have more than one matrimonial home. If one spouse has sole title to a matrimonial home, the other spouse may register a designation to ensure the property is not encumbered or disposed of. A matrimonial home cannot be sold or encumbered without the other spouse's written consent, and the court has the power to award exclusive possession of a matrimonial home to either spouse under exceptional circumstances.
FLA section 24(3) outlines the factors a court will consider when deciding whether to issue an order for exclusive possession.
Consideration of the children's best interests.
Evaluate any current Part I (Family Property) orders and support orders.
Assessment of both spouses' financial situations.
Review of any written agreements between the parties.
Availability of alternative housing options.
Examination of any instances of violence by one spouse against the other spouse or the children.
If a matrimonial home is jointly owned but used exclusively by one party, the other can claim occupation rent. This is rarely granted as it is usually offset by the occupant bearing most expenses or receiving support.
Preservation Of Property
During legal proceedings, a court may order either spouse to preserve property. The order must specify the type of preservation required and the reasons for it. This may involve preserving the property's value or freezing assets. A spouse can also seek a certificate of pending litigation to prevent dealings with real property.
Protecting Property Rights for Common Law Couples
Although Canadian courts have extended spousal rights to common-law and same-sex couples in the last ten years, the Supreme Court's decision in Walsh v. Bona limits property rights for common-law couples, regardless of sexual orientation.
In Ontario, unmarried spouses' property rights are restricted to common law rights and equitable claims. The FLA does not cover common-law couples and does not automatically have an equal division of their family property. This means that each partner in a common-law relationship is only entitled to what they brought into the relationship or acquired during it. However, it's essential to know that common-law couples can create domestic contracts, such as cohabitation or separation agreements, to clearly outline their property rights.
If a common-law couple decides to marry, their cohabitation agreement can seamlessly transition into a marriage contract, effectively governing their changed status and the corresponding rights and obligations unless their agreement specifies otherwise. Furthermore, the property rights of a common-law partner are still protected by the law of constructive trust under unjust enrichment. This legal protection ensures fairness and security in the event of changes in the relationship.
Conclusion
Navigating divorce proceedings can be incredibly complex, particularly when dividing assets. Conflicts beyond financial matters may arise, making the process even more intricate. While resorting to the court may seem the only solution, it may not always resolve these issues. While some may suggest mediation, it can substantially drive up the overall cost. However, enlisting the expertise of a competent lawyer can facilitate effective communication and cooperation among the involved parties without significantly increasing expenses. Additionally, consider the benefits of a case and a settlement conference, where a judge facilitates discussions and allows you to reach agreements with your partner, all at no added cost.
Should you have any further inquiries, please get in touch with our law firm.
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