What is the Principle of Equalization in Divorce?
Posted on September 26, 2024
In Ontario, the Principle of Equalization is governed by the Family Law Act, laying out how assets that have increased in value over the course of a marriage should be divided among two spouses who are getting divorced. The goal of the Principle of Equalization and the Family Law Act is to balance the difference in net worth between both parties. When assets or the situation is more complicated due to the nature of how they are acquired, martial contracts, or other factors, it's recommended to seek legal advice and representation from a trusted family lawyer near you. At Karrass Law, in addition to family law or civil lawyers in Toronto, we also specialize in litigation and the complex division of assets, allowing us to better address your concerns and advocate for your best interests, whether you're splitting businesses, investments, international properties, or others.
Here is what you should understand about the Principle of Equalization and how your family lawyer in Toronto can support you.
How Are Assets Divided in Ontario?
Assets are divided by first determining the net family property and exclusions and then, in most cases, dividing them 50/50. Each party's net worth is calculated as of the date of separation, and the spouse with the greater net worth must pay an equalization payment to the other, balancing out the financial discrepancies.
Net Family Property and Exclusions
To calculate equalization, each spouse's Net Family Property (NFP) is determined. This involves calculating the value of all assets each spouse owns on the date of separation, minus any debts. The Net Family Property is essentially the increase in a spouse's net worth during the marriage. However, not all assets are considered part of this calculation, such as gifts or inheritances received during the marriage and those that were kept separate from the marital assets are typically excluded.
Understanding which assets qualify for exclusion can be challenging, especially when dealing with significant wealth or business interests. To understand how your assets will be valued and divided, book a legal consultation with Robert Karrass, a trusted civil lawyer in Toronto. Our team of civil lawyers and family lawyers can help identify what qualifies as an excluded asset and ensure that it is not wrongfully included in the equalization process. On the other hand, if you're concerned about an improperly calculated Net Family Property or hidden assets, explore your legal options with the family lawyers at Karrass Law.
How Equalization Payments Are Determined
When the higher value party is determined via the Net Family Property calculation, they will often be required to pay the difference in value to the other spouse, evenly dividing the value gained through the course of the marriage. The amount that must be paid is known as the "equalization payment." The rationale behind this is to ensure that both parties share in the financial gains made during the marriage, regardless of who earned the income or acquired the assets.
In some cases, the principle of equalization doesn't result in an entirely even split of property. Some assets, such as homes, cars, and personal bank accounts, may not be equally divided, especially if there is a marital contract in place, such as a post-nuptial or prenuptial agreement.
Streamline Complications to Division of Assets with Karrass Law
For those with a complex division of assets, such as those with multiple real estate holdings, shared businesses, or intricate investment portfolios, determining the correct equalization payment can become highly contentious. When a complex division of assets is required, a civil litigation lawyer in Toronto with expertise in asset valuation and financial disputes can provide the necessary insight to navigate this process. At Karrass Law, our lawyers are experienced with civil litigation as well as family law, giving you the power, skill, and insight of multiple lawyers in one.
To get started with a trusted family and civil lawyer in Toronto, contact Robert Karrass and the Karrass Law team.