Sections 4 and 5 of are the key property provisions of the Family Law Act. In short, the first step in resolving the property issues of a separating couple is to calculate the net family property of each as of the breakdown of the marriage and then to equalize their net family properties. This calculation of net family property is dealt with in another blog.
As was addressed in that other blog, specific property is not divided or awarded as a result of an equalization, although the spouses may agree to transfer assets between themselves in order to minimize the equalization payment and/or to dispose of some of the property, or the court can make an order to that effect under section 9(1)(d) of the Act. Net family property under section 4 of the Act is comprised of all property in a spouse’s name, valued as of the valuation date, after deducting the debts andvalue of the property the spouse brought into the marriage. Property includes rights in a vested pension plan.
The valuation date is the earliest of the date of separation, divorce, annulment, an application under section 5(3) of the Act, or the death of one of the spouses. In most cases, excluded from a spouse’s net family property are (1) gifts or inheritances during the marriage and income therefrom, (2) damage awards, (3) life insurance proceeds and (4) property excluded by a domestic contract. A matrimonial home as defined by section 18 of the Act is not to be deducted fromnet family property, even if one spouse brought it into the marriage or it was acquired by gift or inheritance from a third party.
For most couples, the two most valuable assets subject to equalization are the matrimonial home and the pension plan of either or both spouses. It is important to note that under the definition of net family property under section 4(1) of the Act, the full value of the matrimonial home is subject equalization even if one of the spouses brought the house into the marriage. The same is true if the house was a gift or inheritance received during the marriage. However, if such a house is sold before the parties separated, and the proceeds of sale are not put into another matrimonial home, the sale price in excess of the amount that the value of the home increased during the marriage is arguably excluded from the titled spouse’s net family property under section 4(2) of the Act.
Marriedor soon to be married couples must be aware of this unusual treatment of the matrimonial home when organizing their marital affairs. For example, the Act’s treatment of the home may affect which house the married couple may live in during the marriage, assuming the each owns a home on the date of marriage. As important, it may also affect whether a spouse decides to use money from an inheritance or even a damages award either as a down payment on a home he or she brings into marriage, or the use of the inheritance or damages award during the marriage to, for instance, pay down the mortgage or make improvements to the home.