As many are aware, in Ontario, the Family Law Act, R.S.O. 1990, c.F.3 (the “Family Law Act”) addresses issues of property division and support when married and common law spouses separate and divorce, while the Succession Law Reform Act, R.S.O. 1990, c.S.26 governs issues relating to, among others, testate and intestate succession, dependants’ support.
In a series of blogs, we provide information on the key points of intersection between family law and estates law. Any such discussion, though, ought to begin with an explanation of what net family property (“NFP”) is and how it is calculated in accordance with the Ontario Family Law Act.
In essence, the NFP of a spouse is the difference between the value of a spouse’s property on the date of marriage and on a particular valuation date. Equalization is achieved when the spouse with the higher NFP pays the other spouse half of the difference between their respective NFPs. In most family law cases, the valuation date is the date on which the spouses separate and there is no reasonable prospect that they will resume cohabitation. Other possible valuation dates include the date the divorce is granted and the date when the marriage is declared a nullity. In the estates context, the valuation date is the date before a deceased spouse’s date of death. The specific steps to follow in calculating NFPs and equalization payments are as follows:
- Determine the value of each spouse’s assets on the valuation date, excluding those assets identified in subsection 4(2) of the Family Law Act. Some examples of excluded assets are: gifts or inheritance from a third person after the date of the marriage, as well as income therefrom; damages from a personal injury settlement; and proceeds of a life insurance policy as defined under the Insurance Act;
- Subtract all of each spouse’s debts from her/his total assets on the valuation date;
- Determine the value of each spouse’s assets on the date of marriage. If one of the spouses was the owner of the couple’s matrimonial home, do not include the value of the home; and
- A spouse’s NFP is the difference between the value of her/his assets on the date of marriage and the net value of her/his assets on valuation date. The spouses’ NFPs are equalized when the spouse with the higher NFP pays the other half of the difference between their NFPs.
Subsection 5(1) of the Family Law Act provides, in part, “when a divorce is granted … or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them”. On the death of a spouse, subsection 5(2) provides that “when a spouse dies, if the NFP of the deceased spouse exceeds the NFP of the surviving spouse, the surviving spouse is entitled to one-half the difference between them”.
Effectively, this means that the right to a division of NFP exists even after the death of a spouse. Readers should be reminded, at this juncture, that “spouse”, for the purposes of the Family Law Act, does not include common law partners.
As one spouse dies, the surviving spouse must elect to receive an equalization payment or one of the following:
- In the case where the deceased spouse has died testate, to take under the will;
- In the case where the deceased spouse has died intestate, to receive the entitlement pursuant to Ontario laws of intestacy; OR
- In the case of a partial intestacy, to take under the will and in accordance with the Ontario laws of intestacy.
In the next blog, we will discuss mechanics as to how elections and applications for equalization of NFP are made.
