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We’ve previously blogged about division of property in divorce. Generally, when spouses marry, each becomes automatically entitled to an equal share of the profits of that marriage (i.e- one half of the value of any property accumulated during the marriage).
Upon breakdown of marriage, courts will divide the difference between the net family property and award ½ of that difference to the spouse with the lower net family property. This is known as “equalization of property”.
The general rationale behind equalization is that a marriage is an equal partnership during which each of the spouses contributes to child care and other household responsibilities. As a result, upon marriage breakdown, each spouse should therefore be in an equal position financially.
However, there are some circumstances in which the court can order an unequal division of net family property.
Standard Equalization Process
Division or equalization of property following breakdown in marriage is governed by Part 1 of the Family Law Act.
Generally, equalization occurs as follows:
- Each party’s accumulated net worth during marriage is calculated;
- The difference between the accumulated net worth of each party is calculated;
- 50% of the difference between the accumulated net worth for each party is paid to the party with the lower net worth.
This rather straightforward process can, and does, become rapidly complicated depending on the number of assets and debts at issue between the parties on separation.
Unequal Division of Property
Despite Canada’s “equalization” regime, where the equal division of property may be unfair to one of the spouses, the court can order an unequal division of net family property under s. 5(6) of the Family Law Act.
There are limited circumstances in which this will happen. Before the court will order unequal division of property, it must be satisfied that the results of the standard equalization process would be “unconscionable”. In order for the court to decide whether it ought to award an unequal amount (i.e- an amount that is more than or less than ½ of the difference between each of the spouses’ net family properties) the court must evaluate each of the factors outlined in s.5(6), which are:
- A spouse’s failure to disclose to debts or other liabilities existing at the date of marriage;
- The fact that debts or other liabilities that are claimed in the reduction of a spouse’s net family property were incurred in bad faith or recklessly;
- The amount of a spouse’s net family property that is gifts made by the other spouse;
- A spouse’s intentional or reckless depletion of his/her net family property;
- Whether an amount a spouse would receive is disproportionately large in relation to a period of cohabitation that is less than five years;
- If, in supporting the family, one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse;
- Any written agreements (other than domestic contracts) as between the spouses;
- Any other circumstance relevant to acquiring, disposing, preserving, maintaining, or improving property.
The burden of proof is on the spouse who is seeking the unequal division. The threshold for establishing unconscionability is exceptionally high. The circumstances must essentially “shock the conscience of the court”. Circumstances that are “unjust” or “unfair” will not be sufficient to meet the test.
If you have questions about separation, divorce, or equalization of property please contact Jason P. Howie, online or at 519.973.1500. We have experience advising on complex property division matters. Many of our clients are referred to us by former and current clients, as well as by lawyers, accountants and other professionals.
