Division of Property

Division of Property

Property division often becomes problematic when couples decide to divorce or separate.

Division of property is different for married spouses than for common-law spouses. When married couples divorce, there are legal rules for dividing the property they had during their marriage.

How Is the Division of Property Determined?

Provinces and territories set out the rules for property division after a divorce; therefore, the laws vary in different parts of Canada.

Let’s use the province of Ontario as an example.

The General Rule

The general rule for property division among married couples in Ontario is that they equally share the value of any property gained during the marriage and which they still own when they separate or divorce.

Usually, each spouse keeps their own property, but they must share any increase in the value of their property that was built up during the marriage. To do this, one spouse pays the other spouse a sum of money, called an equalization payment.

A Brief Example of Property Division:

Equalization is the process of dividing family property between married spouses after a divorce.

The two steps in the equalization process are:

  • Calculate Net Family Property (NFP)
  • Share the increase in family property equally
Step 1: Calculate Net Family Property (NFP)

To do this, each spouse calculates their increase in net worth over the course of the marriage. This is called a person’s Net Family Property (NFP).

To calculate the NFP:

    • Determine each spouses’ net worth by accounting for all of their assets and debts on two dates, first on the date of their marriage, and then on the date of their separation (otherwise known as the “valuation date”);
    • Determine the value of all property excluding debts at the date of separation and subtract the value of all property excluding debts at the date of marriage.
Step 2: Share the Increase in Family Property Equally

After each spouse calculates their NFP, the spouse with the higher NFP has to share half of the difference between the two amounts with the other spouse who has less. This is called the equalization payment.

There are also exceptions to the general rule such as:

    • The matrimonial home
    • Excluded properties – Gifts and inheritances

Exceptions to the General Rule

Excluded Property

Some properties are not included in the Net Family Property (NFP) calculation. These exempted properties are called excluded properties. Examples of excluded properties, other than the matrimonial home and if received after the date of marriage are:

  • Inheritances;
  • Money received as a result of a personal injury, like a vehicle accident; or
  • Money received from a life insurance company because someone died.

To stay excluded, an excluded property should be kept separate and not intermingled with family funds or expenses during marriage. If an excluded property is intermingled with family property during the course of the marriage, it becomes hard to trace, and the amount that was spent cannot be excluded from that spouse’s NFP calculation.

For example, if a spouse uses their gift or inheritance towards buying or improving the matrimonial home. In that case, it becomes part of the family home’s value, which is then included in the NFP calculation.

The Matrimonial Home

The matrimonial home is treated differently than other properties. It is also called the family home, which is the property where your family regularly lived before you separated or divorced.

You can have more than one matrimonial home. For example, you may have an apartment and a summer cottage. If one of the spouses bought the home during the marriage, then both spouses have the right to an equal share of the full value of the matrimonial home at the date of separation.

The only instance the value of the matrimonial home would not be part of the equalization payment is if you and your spouse have signed a marriage contract or separation agreement that says the home will not be a part of the equalization process.

If one spouse brought the home into the marriage and still owns the home on the date of separation, there will be no date of marriage credit for the value of the home. This meaning that their NFP will include the entire value of the home, not just the change in value during the marriage. This can have a significant impact on the calculation of the equalization payment.

The rules of property division can be very complicated, and you may need to get legal advice from a family law lawyer.

Does My Spouse’s Misbehaviour During Our Marriage Affect Property Division?

The conduct of partners while married is not relevant to the division of property. Canada has a “no-fault” divorce system. This means that the court will not consider conduct within the marriage when making decisions regarding matters arising from the divorce.

Ultimately the court has the discretion to vary the equalization payment if it would be unconscionable to divide the assets equally.

For example, if a partner acted unconscionably in regards to some assets by lying about debts or liabilities at the time of marriage.

The conduct must be related to property for the court to consider unconscionability.

What Does Exclusive Possession of the Matrimonial Home Mean?

Exclusive Possession means that only one spouse has the right to stay in the matrimonial home. The other spouse loses the right to enter the matrimonial home.

Exclusive Possession orders usually apply to the matrimonial home that the couple owns. The order does not change the right that both spouses have to share the value of the family home.

Until a court order or agreement is made for exclusive possession, both married spouses have an equal right to stay in the matrimonial home until it is sold. It is irrelevant whose name is on the lease or legal title to the property.

Cottage or Secondary Living Property

Spouses can have more than one matrimonial home, such as a cottage or other apartments.

For example, suppose a cottage is an inheritance received after the date of marriage, belonging to one partner and is found to be a matrimonial home after divorce. In that case, it cannot be excluded from NFP. Both partners will equally share the value of the cottage as a matrimonial home.

If the cottage is found not to be a matrimonial home, the partner who inherited it may treat it as excluded property and would not include it in their NFP.

Are CPP Benefits Regarded as Excluded Property?

Canada Pension Plan (CPP) is a monthly, taxable benefit that replaces part of your income when you retire. You earn CPP credits as you work.

CPP is a special type of pension that is divided separately. The CPP credits you earned during your marriage are excluded property and will not be a part of the NFP calculation and equalization payment.

You can apply to Service Canada to divide CPP contributions that you and your partner earned while living together. To qualify for this, both you and your partner must have lived together for a year.

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