Equalization - What is It and How is It Calculated?

In Ontario, equalization refers to property (assets and debts) division for married spouses only.  This does not apply to common-law couples (i.e., couples who cohabit but do not marry). 

Generally, for each spouse, the following calculation is completed:

               (a)  add up all of the assets that the spouse owned on the date the parties separated
                      (also known as the "valuation date");

               (b)  subtract all of the debts that the spouse had on the date of separation from the
                      value in (a) above to obtain that spouse's net worth on the date of separation; then

               (c)  subtract the net worth (assets less debts) that the spouse had on the date of
                     marriage.

The result of this mathematical exercise equals a spouse's net family property (NFP).  NFP refers to the increase in net worth that a spouse has obtained during the marriage.  The spouse with the highest NFP pays the other one-half the difference between the parties' NFPs.   Confused yet?  An example may help:

            Let's say the Husband had the following assets and debts

                a)  on the date of separation:
                      
                                        Matrimonial Home - 50% owned with wife: $150,000.00
                                        Car: $10,000.00
                                        Bank Account: $5,000.00
                                        Investments: $5,000.00
                                        Employment Pension: $100,000.00
                                        Mortgage on Matrimonial Home ($75,000.00)
                                        Credit Card ($5,000.00)

                                        = net worth on date of separation: $190,000.00

               b)  on date of marriage:
                 
                                       Car: $15,000.00
                                       Bank Account: $2,000.00
                                       Pension: $50,000.00
                                       Credit Card: ($10,000.00)

                                        = net worth on the date of marriage: $57,000.00

               c)  Husband's NFP = $190,000 less $57,000.00 = $133,000.00.

            Let's say we did the same calculation for the wife (using different numbers) and the wife's
            NFP was $75,000.00.  

            The difference in NFPs would be $133,000.00 less $75,000.00 = $58,000.00 half of which
            is $29,000.00.  That means that the Husband would owe the wife an equalization
            payment of $29,000.00 and since the matrimonial home is jointly owned each party is
            entitled to half the equity in the home as well.  The parties would keep all of their
            other property that is in their sole names and their own sole debts.

This is a simple example, but equalization can get quite complicated as there are laws relating to the matrimonial home owned on the date of marriage, excluded property, valuations, whether there should be an unequal division of NFPs and many more.  Spouses should retain lawyers to assist them with the equalization calculation and applicable laws associated with same.

                          

Why You Should Hire a Lawyer: The Dangers of "Do It Yourself Family Law."

 

Many individuals choose to represent themselves in a separation or divorce.  Some examples are as follows:

 

           1.  A party representing himself/herself in Family Court;

           2.  Both parties unrepresented and draft a Separation Agreement amongst themselves;

           3.  One party represented by a lawyer and the other party not obtaining Independent
                Legal Advice before signing a Separation Agreement.

 

There are dangers in all of these options as follows:

 

      1.  Self-Representation in Court - you are more likely to obtain a positive resolution if
          you hire a lawyer to represent you in Court or at least to coach you through the process

          (discussed below under Limited Scope Retainers).    If one party is represented by a
          lawyer and the other is not, then the self-represented party is at a significant  
          disadvantage in the case.  From not knowing the law, not knowing the rules of Family 
          Court, to not knowing how to properly fill out court paperwork the self-represented party is
          taking a risk in not hiring a lawyer to guide him/her through the process.

 

      2.  Self-Preparation of Separation Agreements - There are three significant risks of signing

           a home-made separation agreement:

 

               a)  The Agreement may be found unenforceable for a variety of reasons, such as

                    missing essential terms, not having independent legal advice, not having proper

                    financial disclosure exchanged, or having unclear/conflicting terms. 

 

                b)  A party may be agreeing to something that he or she does not intend.  If the parties

                     use a "precedent" separation agreement either from the internet or from someone

                     else that hired a lawyer to do their Agreement, the parties may include clauses from

                     these precedents that do not apply to their specific case or that the parties do

                     not understand the consequences of. 

 

                c)  A party may not have included a term/terms that should be included such as proper

                     releases, review clauses, termination clauses, etc. 

  

      3.  Not obtaining Independent Legal Advice - if one party does not obtain independent

           legal advice (ILA), that party may not thoroughly understand what he or she is signing or

           the consequences of it.  For the party that has a lawyer, the risk if the other party does not

           have ILA is that the Separation Agreement could be set aside for that very reason as the

           non-represented party could allege that he or she did not understand what they were

           signing or that they did not have the capacity to sign. 

 

Family Law is a complex area of law that is changing every day and has significant consequences for the daily life of the person involved (i.e., impacts their daily finances, how much time they see with their children, etc.).  All of the risks mentioned above can result in increased legal costs for the individual to hire a lawyer to try to fix what was done the first time when the individual was self-represented.  By hiring a lawyer to represent you in your separation or divorce you can save thousands of dollars in future legal costs.

 

Not everyone can afford a lawyer to fully represent them.  An alternative to hiring a lawyer for full representation is called a Limited Scope Retainer.  A Limited Scope Retainer is a client hiring a lawyer for a limited purpose of their case. Examples include:

 

         1.  Litigation Coach - the individual is self-represented, but hires a lawyer to coach them in

              the background, give an opinion on a specific legal issue, represent them only on a

              specific legal issue, represent them only for a specific step in the process, help the

              individual draft their court paperwork or provide ILA on a proposed resolution.

 

         2.  Provide ILA and draft a Separation Agreement in which the parties have agreed upon

              terms amongst themselves - the parties have saved money on the negotiation part of

              their case, but hire lawyers to ensure that the Agreement is legally binding, clear and

              sets out what they agreed to.  Further, the lawyers will ensure that their clients

              understand what they are signing, have capacity to sign, and understand the

              consequences of the Agreement.

 

 

At Chapman McAlpine Law, we offer both full representation and limited scope representation.  Whatever process you chose, we strive to offer family law services in an approachable, friendly and compassionate environment, while providing reasonable costs and exceptional service. Contact us today to book a one hour no-obligation consultation: 705-302-3696 or info@chapmanmcalpine.com.