The Family Law Act provides a framework for how assets and debt can get divided during a separation and/or divorce and is intended to make way for an equitable division of assets as well as providing financial security following the end of a relationship. This becomes especially important if there’s no marriage or cohabitation agreement in place. Before we dive into the exclusions from net family property in Ontario, let’s take a moment to review how net family property is calculated in 2024.
How Do You Calculate Net Family Property and Equalization in 2024 in Ontario?
In Ontario, “Net Family Property” (NFP) refers to the value of each spouse’s property at the end of their marriage minus their debts and liabilities as defined by the Family Law Act. The NFP is calculated based on the value of assets and debts as of a specific date known as the valuation date. The valuation date is the date of separation with no reasonable prospect of the resumption of cohabitation. When calculating NFP, assets can include things such as real estate, vehicles, investments, pensions, businesses, savings accounts, jewelry, artwork and possibly more. The value of these assets is determined based on their fair market value as of the valuation date. Debts and liabilities, such as mortgages, loans, credit card debt and other financial obligations are then subtracted from the total value of assets to determine the value of net family property. The spouse with the higher value of net family property then makes an equalization payment of ½ of the difference between the 2 values in order to equalize them. You can learn more from one of our earlier blog posts on the equalization of net family property in Ontario. Now let’s take a look at exclusions from net family property.
What Are Exclusions From Net Family Property in Ontario in 2024?
The Family Law Act in Ontario lists a number of items that are considered excluded property. Excluded property is the value of the following property that a spouse owns on the valuation date that does not form part of the spouse’s net family property. These include things like:
- Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of marriage;
- income from property referred to above;
- damages or a right to damages for personal injuries;
- proceeds or a right to proceeds of a policy of life insurance as defined under the Insurance Act that are payable on the death of the life insured;
- property that the spouses have agreed by a domestic contract is not to be included in the spouses net family property; and
- and unadjusted pensionable earnings under the Canada Pension Plan
In order to mitigate financial losses in the event of a divorce or separation we always recommend having a cohabitation agreement or marriage agreement (prenuptial agreement) in place before committing to a spousal relationship. This can save you lots of money down the road in the event of a divorce or separation.
How is Equalization of Net Family Property Dealt With in Cases of Financial Abuse?
The Family Law Act provides for a variation of the equalization payment in the case of a spouse who has incurred debt recklessly or in bad faith or who has depleted his or her net family property recklessly or intentionally. For example, if one party used a credit card (family income) for gambling or substance abuse – one could argue that the other party’s net family property should have been higher. Section 5.6 of the Family Law Act provides the court with flexibility to depart from the default equalization of NFP in such situations based on the specific circumstances of each case. The court will consider evidence presented by both parties and weigh the relevant factors to determine whether unequal division of property is unconscionable.
Schedule a Consultation With Our Family Law Lawyers if You Need Legal Assistance on Exclusions From NFP
At Gelman & Associates, our divorce lawyers have decades of experience in handling net family property disputes in Ontario. With offices throughout Ontario, we make it easy for our clients to get the access to justice they need. Contact us today for a consultation with a member of our legal team.
Disclaimer: The content in this article is intended to act as a general overview on a legal topic and does not constitute legal advice. For specific legal advice please consult with a family law lawyer.
