Division Of Property / 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.

Although assets are rarely sold on the very day of marital breakdown, they will eventually be sold even if it is only a deemed disposition on death. Capital assets owned at the date of marriage breakdown may have inherent contingent capital gains (or even recapture of depreciation deducted for accounting and tax purposes over the years) that will be triggered by their eventual sale. There are commissions relating to the sale of some assets, such as the matrimonial home. The courts have indicated that it is the onus of the owner of a taxable asset to establish when it is likely to be disposed of and, thus, when the costs of disposition will be incurred. A calculation is done using current taxation rates (since any others would be entirely speculative), and a present value calculation back to the date of marital breakdown is performed.

There are very limited circumstances under which the equalization payment can be other than as described above. When such an order is made it is called an “unequal” equalization. To obtain such an order, the result of the normal calculation must be “unconscionable,” that is, it must shock the conscience of the court in relation to certain specific conditions that are set out in s. 5(6) of the FLA.

The finding of unconscionability and, thus, an order for unequal division of the parties’ net family property are extremely rare.

Absent an order for an extension of time, a claim for equalization cannot be brought after the earliest of six years after separation, two years after a divorce or judgment of nullity is granted, or six months after the first spouse’s death.

The courts permitted spouses to argue constructive and resulting trust principles, namely, that there had been an unjust enrichment on the facts in favour of the owning spouse that ought to be shared through a declaration that the property was equitably owned equally by both spouses.

In Kerr v. Baranow, the Supreme Court of Canada introduced the concept of “joint family venture” as a way of proving unjust enrichment.

The test for unjust enrichment has not changed (it still requires proof of enrichment or benefit to the defendant, a corresponding deprivation suffered by the plaintiff, and the absence of juristic reason for the enrichment), but the court set out factors to consider in assessing evidence of a joint family venture and the key elements to consider when addressing a remedy in unjust enrichment cases.

A joint family venture arises where contributions of both parties have resulted in an accumulation of wealth.

To determine whether the parties have been engaged in a joint family venture, the particular circumstances of each relationship must be taken into account, including mutual effort, degree of economic integration, actual intent, and priority of the family during the relationship.

FLA (Part II) sets out several rights unique to matrimonial homes within the province.

The dwelling must be used at the time of marriage breakdown as a matrimonial home, and its use need not be full-time but must be consistent with the normal use of such property.

A matrimonial home cannot be sold or encumbered without the written consent of the other spouse, regardless of how title may be held. Without written consent, the sale or mortgaging may be set aside by a court.

A court may order that any property owned by either spouse be preserved during the course of litigation.

It can be limited to the preservation of the value of property, which permits the owner to continue to treat the property in its usual fashion (such as buying and selling shares, running a company, or even selling or encumbering it) so long as the value remains intact in some form or other, pending final determination or settlement.

The court can also order preservation of a specific property, forbidding it to be sold or encumbered in any way. Finally, the court can freeze assets such as bank accounts or stock trading accounts so that no one can deal with them until further court order.