Calculating who gets what after a divorce can be stressful and messy even in the most amicable situations. A separation can get even more confusing when certain assets change in value over the period of the marriage, come seperation both parties will want their fair share of any family property that’s worth has grown. This is where equalization payments come into play, the payment is an attempt to “equalize” all net value growth of each spouse’s property accumulated over the marriage. This ensures that each partner receives an even amount of the shared assets at the time of separation. The key to finding the equalization payment is to calculate the “Net Family Property” (NFP) of each spouse. The spouse with the higher NFP will be the one making the equalization payment.
So what is “Net Family Property” (NFP)?
NFP is the calculation of the total value of all overall increase in worth of what you owned and owed in the time period between your marriage and your separation, with certain deductions and exclusions. It is essentially a snapshot of your net worth at the date of marriage and at the date of your separation, with the difference being your NFP. Since many assets usually grow in worth, NFP will be your separation net worth minus marriage-day net worth. To get help dividing assets, Thistoo has created an Asset Calculator that allows you to fairly divide your assets based on the information you provide.
Some Important Notes about NFP
- If your net value has decreased since your marriage, meaning your property is worth less at separation then it was at the initial marriage date, your NFP is valued at $0, not a negative number.
- When NFP calculates the “value of things” this does not mean their initial cost, or what you bought them for, but instead what that thing would be worth if purchased/sold today. This is why assets like real estate, art, antiques, vehicles, stock options, shares in companies, and more, all need to be valued at the date of separation.
- As mentioned previously, there are certain deductions and exclusions regarding NFP, some of these exclusions may be:
- Any gifts or inheritances received by a spouse during the relationship
- Any property/assets owned prior to marriage
- Any property/assets covered by a marriage contract/prenuptial agreement
- Any personal injury payout for pain and suffering such as workers’ compensation
The equalization payments can be found by calculating each spouse’s individual NFP and the spouse with the higher NFP at the time of separation will pay half of the difference to the other person to “equalize” the overall growth in the family’s assets over the course of the marriage. This equalizes the growth in assets without taking into account whose assets grew more during the marriage. In Ontario, each person continues to own whatever property owned before the marriage, only the amount in which its value has increased over the marriage period is divided.
The Matrimonial Home
The equalization payments with the family home can get a bit more tricky, remember that everything is valued at the time of separation, so the value of jointly owned property, such as the home, continues to be shared after separation, because each spouse continues to own half. If the spouses bought the family home together during their marriage, they equally share its value, therefore when they separate, each has the right to share the full value of the family home at the date of separation, regardless of the name on the legal title to the property.
However, if one spouse owned the home prior to the marriage, special rules regarding the equalization payment and NFP apply. When calculating NFP, the homeowner will include the value of the house at the separation date but not at the marriage date.This can have a big impact on the calculation of the equalization payment, because the spouses value at the separation date is will be much larger than at the marriage date translating to a large equalization payment from the initial homeowner to the other spouse.
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