CALCULATION OF NET FAMILY PROPERTY AND EQUALIZATION

The FLA sets out a regime for the division of property upon the breakdown of marriage.

The formula is designed to calculate the growth of each spouse’s net worth from the date of the marriage to the date that they separate (referred to as the “valuation date” or “V-day”) and equalize the difference between them.

To determine the difference, each spouse calculates his or her net worth on the date of marriage and on the valuation date. The increase is known as the net family property.

Net family property is calculated by determining the spouse’s valuation date value (the value of all the spouse’s property on the valuation date minus all debts and liabilities on the valuation date) as well as the spouse’s date of marriage value (the value of all the spouse’s property at the date of marriage minus all debts and liabilities at the date of marriage). The date of marriage value is subtracted from the valuation date value to arrive at a spouse’s net family property.

Once a net family property value has been determined for each spouse, the spouse with the greater net family property pays the spouse with the lesser net family property an equalization payment that is one-half the difference between their respective net family properties.

There are major exceptions to what is included in calculating net family property, which are referred to as exclusions.

These exceptions include the value of property other than a matrimonial home:

• That was received as a gift or inheritance from a third person after the date of marriage and before the valuation date.
• The value of property that was gifted from one spouse to the other during or before the marriage is not excluded and is included in the net family property of the spouse who received the gift. If the gifted or inherited property can be identified and traced into property that exists at marriage breakdown (other than a matrimonial home), it is excluded.
• If the donor or testator expressly stated that income from a gift or a bequest is to be excluded, it will also be excluded if it can be identified and traced. It is important to note that where the gift or inheritance becomes the matrimonial home or can be traced into the matrimonial home, it is no longer excluded. This is the case when the gift or inheritance is used to buy, renovate, maintain, or pay down encumbrances on the home. The deduction is from the party’s net worth at the date of separation. The value of a gift received after the date of marriage is added into net family property (part of the net worth at separation) but then deducted so that it has no impact on net family property. The difference in the result between a gift or inheritance received before the marriage as opposed to one received after the marriage is whether the increase in the value of the gift or inheritance is excluded from the net family property.
• Where a gift or inheritance is received before the marriage, the value of the gift or inheritance on the date of marriage is deducted in the net family property calculation.
• Where the gift or inheritance is received during the marriage, its entire value at the date of separation (including any increase in value from the time the gift or inheritance was received) is excluded.
• There are a number of other types of exclusions (insurance proceeds and general damages for personal injury), but gifts or inheritances are by far the most common.

If an exclusion cannot be traced to property that exists at marriage breakdown (other than the matrimonial home), the value of the excluded property is lost in the calculation of net family property, even if it can clearly be established as having been received during the marriage.