Unequal Division of Net Family Property

Unequal Division of Net Family Property

Did you know that there are circumstances in which the court can order an unequal division of net family property?  Before getting into the circumstances in which this can be allowed, a brief overview and background is important.

Matrimonial property rights in Ontario are set out in the Ontario Family Law Act. It’s important to note that only married or formerly married spouses are granted rights under the Family Law Act.

Prior to a marriage breakdown, (which includes the death of one spouse, separation, and divorce), property is governed by the normal rules applicable to strangers that is, by title where that is determinable or other proof of ownership of a particular asset. It is only when a marriage breakdown has occurred (or an Application under the FLA, by one of the parties), does Part I of the FLA come into play. The process for dividing property upon a marriage breakdown is called Equalization.

The Typical Equalization Process
Typically, the equalization or division of property process is as follows: (1) First, calculate each party’s accumulated net worth during the marriage; (2) Then calculate the difference between the accumulated net worth for each party; and (3) Then 50% of the difference between the accumulated net worth for each party is paid out to the party with the lower net worth. Please note that this is a general overview of how the process works but can be much more complicated depending on the assets and debts involved.

Unequal Division of Net Family Property
However, there are times when a 50/50 division of property or equalization payment may not be justified. In such a case an unequal division of net family property may be necessary.  While the situations are limited, there are recognized grounds for such scenarios.

Although the law has attempted to ensure that both ex-spouses walk away from a marriage on about the same financial footing in the process known as equalization, there can be situations where equalizing property may be unconscionable to one of the parties and the court must order an unequal division of net family property

However, there are very limited circumstances where an unequal division of net family property is allowed. When such an order is made it is called an “unequal” division. To obtain such an order, the result of the normal calculation must be “unconscionable,” that is, it must “shock the conscience of the court” in relation to certain specific conditions that are set out in subsection 5(6) of the Family Law Act.

Subsection 5(6) of the Family Law Act provides the Court with the discretion to order an amount that is more or less than half of the difference between the parties’ respective net family property.

The exact wording of subsection 5(6) is as follows:

“The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family property would be unconscionable, by having specific regards to:
(a) A spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
(b) The fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;
(c) The part of a spouse’s net family property that consists of gifts made by the other spouse;
(d) A spouse’s intentional or reckless depletion of his or her net family property;
(e) The fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;
(f) The fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
(g) A written agreement between the spouses that is not a domestic contract; or
(h) Any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property

Case Law Considerations

A common question asked by some family law clients is about decreases to their net worth after separation. It is important to note that courts have found severe decreases to allow for an unequal division of net family property in limited circumstances.

For example, the Serra v. Serra decision of the Ontario Court of Appeal in 2009, found such a decrease to be unconscionable within the meaning of s. 5(6)(h) when it was beyond the control of a business owner and not merely a general market decline. As a result, the court decreased the equalization owed and ordered an unequal division of net family property.

Serra was successfully applied in the Ontario Superior Court of Justice decision of Kean v. Clausi in 2010, suggesting the possibility that the courts may be moving towards taking into account decreases in a payor’s net worth, after the valuation date (ie. separation date) in some circumstances.

It is important to note though, that the finding of unconscionability justifying an order for an unequal division of net family property is not common.

However, when an order for the unequal division of net family property is justified, the court can order more or less than the difference between net family properties to be paid by one party to the other.

However, there are cases where it was not just more of the difference between the parties’ net family property that was awarded. For example, the Ontario Court of Appeal in von Czieslik v. Ayuso held that “more” is not limited to the mathematical difference between the parties’ net family properties and awarded the wife 100% of the husband’s net family property.

The same principle would apply to the interpretation of “less.” For example, if the court is shocked by gambling losses, which constitute improvident depletion, and the offending spouse has nothing left, the court can allow the innocent spouse to refrain from paying an equalization payment, since the court cannot get the losses back for the spouse.

Summary

In summary it is important to remember that the threshold for showing unconscionability is exceptionally high. Circumstances which are “unfair”, “harsh” or “unjust” do not meet the test.  For the unequal division of net family property to occur a finding of unconscionability is necessary.

It has been held that in order for a court to find unconscionability exists, the court must find that an equalization of the spouses’ NFP, must “shock the conscience of the Court” based on the particular facts and circumstances that are to be decided on a case by case basis.

The onus/burden of proof is on the spouse who asks the court for an unequal division of net family property. Establishing the extremely high threshold is one which requires a strong and convincing evidence, and the ability to demonstrate the party seeking unequal division of martial property in his/her favour must be without a doubt, free from any wrongdoings or misrepresentations to the Court.

For more information about equalization or unequal division of net family property, or about obtaining a divorce in Ontario, please contact our Toronto divorce lawyer.

NOTICE AND DISCLAIMER: The material posted on this website is for informational purposes only and should not be relied upon as legal advice. If you are in need of legal advice relating to your particular situation it is highly recommended to consult with a lawyer.

Helpful Resources:

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Child Support
Division or Equalization of Family Property
Treatment of a Matrimonial Home
Enforcement of Support Payments
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