EQUALIZATION PAYMENTS UNDER
THE FAMILY LAW ACT

The Family Law Act, which came into force March 1, 1986, adopts quite a different approach from the former Family Law Reform Act. Previously, family assets such as the matrimonial home and its contents, family car, cottage, etcetera, were usually divided equally. It was more difficult for the non-owning spouse to obtain a share of non-family assets, such as business assets, pension plans, and R.R.S.P.'s. Furthermore, the Family Law Reform Act did not apply on death.

Now, each spouse is required to calculate the value of all property (with certain exceptions) owned at a certain date (usually the date the spouses separate) and the spouse with the lesser of the two amounts is entitled to half of the difference between them. Certain properties are excluded from the calculation. For example, personal injury awards, proceeds of life insurance policies, and inheritances or gifts from third parties will be excluded, as will property that was owned on the date of the marriage. However, any increase in the value of the property owned on the date of marriage is shareable. The full value of the matrimonial home or homes is always included in the value of property owned at the date of separation and its value is not deductible, even if it was owned by one of the spouses before the marriage, and even if it was acquired by gift or inheritance after the marriage.

Note, however, that the spouse who owned a property prior to marriage is entitled to exclude the value of the equity in that property from the calcualtion even where that property became a matrimonial home but was later dsiposed of prior to separation as it is no longer a matrimonial home at the date of separation.

In certain limited circumstances, the Court has discretion to award one spouse more or less than half the difference as calculated above. However, the test is a stringent one and will probably not be met in many cases.

It is the clear intention of the statute that Judges should avoid making an Order for satisfying an award that would result in the sale of an operating business, unless there is no reasonable alternative. The Court therefore, may order that one spouse pay the other a share of the profits from the business, or order that one spouse transfer, or have the corporation issue to the other spouse, shares in the corporation. Thus, profits that would ordinarily be retained in the partnership to meet working capital requirements may have to be paid out to the spouse of a partner, and shareholders may have to be share their power with an unwanted spouse.

Shareholder agreements should require that a shareholder be bought out should his or her spouse make a claim for an equalization payment under the Act. In this way, the separated shareholder would receive funds to help satisfy the spouse's claim in exchange for shares in the business, and the remaining shareholders could continue operating the business free of interruption by the spouse.

The Family Law Act also applies on death, but the surviving spouse must choose between invoking the remedy under the Act, and taking the inheritances under the deceased's will or on intestacy (where there is no will).

The parties to a marriage are free to exclude the operation of the Family Law Act by drawing up a contract. For example, to prevent a spouse from becoming entitled to share of the profits of a partnership, or from becoming a shareholder in a corporation, all the partners or shareholders should sign marriage contracts in which the spouses have agreed to forego such rights.

The comments contained in this article provide a brief overview only and should not be regarded or relied upon as legal advice or opinion. Debra J. Sweetman would be pleased to provide more information or specific advice on matters of interest to readers.

Debra J. Sweetman B.A.Sc., LL.B.
Barrister, Solicitor, Notary
340 Byron St. S., Whitby ON L1N 4P8 · (905) 666-8166 · Fax (905) 666-8163