FLA & Net Family Properties
Ontario is a no-fault divorce jurisdiction in which separating spouses are governed by the Family Law Act (“FLA”) when it comes to property division. Absent a domestic contract, separating spouses sever property ties with one another through a process known as the Equalization of Net Family Properties. This process is governed by Section 5(1) of the FLA which states:
When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is lesser of the two net family properties is entitled to one-half the difference between them.
When calculating the quantum of an equalization payment, each party will calculate the net wealth they have accumulated during the marriage to determine their respective “Net Family Property” (NFP) values. They then calculate the difference between their NFPs and the spouse with the higher NFP will pay “one-half the difference between them” to the spouse with the lower NFP.
It is important to note that this is a general outline of the equalization process; a process which often times becomes more difficult depending on the debts and assets involved. The calculations can become more complex as a result of assets that are considered “exceptions”, the value of which are not included when calculating one’s NFP value. By way of singular example, the value of property that was received as a gift from a third party (with the exception of a matrimonial home) will not be shared.
The intention of the FLA is to ensure that spouses walk away from a marriage with a financial equilibrium, so to speak. Notwithstanding the intended mathematical determination described above, the law recognizes that situations will occasionally arise in which an equalization would not be fair to one of the spouses. Specifically, Section 5(6) of the FLA provides the court with discretion to order “an amount that is more or less than half the difference between the net family properties”. This concept is also commonly referred to as “unequal division”. When a claim for unequal division is made, a court will have regard to the factors outlined in Section 5(6) of the FLA. Some of these factors include situations in which one spouse may have incurred debts recklessly or in bad faith, depleted his or her own NFP intentionally or recklessly, or incurred a disproportionately larger amount of debts or other liabilities for the support of the family.
Upon review of the legislation it quickly becomes apparent that situations in which a court will deem the standard equalization process to be “unconscionable” and allow an unequal division are strictly limited. When making its decision, the court must consider all of the factors outlined above and must satisfy itself that an equalization payment in accordance with Section 5(1) would be shockingly unfair given the circumstances. When making this claim, the onus falls on the spouse requesting an unequal division of net family property. A spouse making such a claim can rely on Section 5(6) to ensure that both parties exit the marriage on equitable financial grounds as opposed to equal financial grounds. However, it is important to keep in mind that unequal division is the exception and not the rule. Claims for unequal division typically require unique fact situations in order to persuade a court to exercise its limited discretion to award a spouse an equalization payment that is more or less than half the difference between the net family properties.
The law surrounding the issue of equalization, be it equal or unequal, is complicated to say the very least. There are numerous factors which must be considered when determining which assets should and should not be included in one’s net family property calculation and whether a claim for unequal division should be made. Spouses with questions about equalization, exclusions and claims for unequal division would be best served by seeking legal advice from experienced family law counsel.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.
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