Equalization of Assets

Equalization of Assets

When splitting up your assets and debts with your spouse during a divorce, it’s essential to know about equalization payments. Equalization payments are essentially a way for each party to end up with the same amount of property and money after finalizing a divorce. It’s essentially a process where one spouse gives money to the other spouse so that both spouses have the same net worth at the end of the divorce process.

Equalization of Assets

When splitting up your assets and debts with your spouse during a divorce, it’s essential to know about equalization payments. Equalization payments are essentially a way for each party to end up with the same amount of property and money after finalizing a divorce. It’s essentially a process where one spouse gives money to the other spouse so that both spouses have the same net worth at the end of the divorce process.

What is the Equalization of Assets?

Equalization of assets and debts is a way to ensure that each spouse gets half of everything acquired during the marriage. This applies to all assets, including real estate, pensions, investments, retirement savings, and vehicles.

Equalization payments can be complicated; however, they don’t always occur. Here are some of the steps involved in equalizing assets in a divorce.

  • Calculate how much each spouse has.
  • Determine which spouse has more assets or debts.
  • The spouse who has more assets or debts will pay an equalization payment to their ex-spouse to divide things equally between both parties.
  • The amount paid by one party should cover any difference between what each spouse owned before separation or marriage start date until now.
  • Make sure there are no additional costs or fees associated with this process before finalizing everything officially on paper!

Equalization Payments Post-Divorce

In the event of a divorce, couples in Ontario have to follow the Family Lawyer Act’s rules for equalization of assets. Concerning property division, Ontario is considered an equalization jurisdiction instead of a community property jurisdiction. Equalization jurisdictions define the scope of the assets subject to division and provide a formula for equalizing the net family mediation properties of each spouse.

The process involves four steps:

  • Determine the net value of each spouse’s assets and liabilities;
  • Determine which assets to include in the property division;
  • Account for any credits and setoffs;
  • Calculate the payment amount

There can be many issues about the value and ownership of a spouse's assets.

The following six steps are intended to give you a basic understanding . The process is fairly complicated and we do it together in the mediation process and after signing the agreement, you can show the equalization formula to the lawyer that will provide you with legal advice, if necessary.

Make a list of their assets. This may include personal property, real estate, bank accounts, shares in corporations and pensions including Registered Retirement Savings Plans. The value of most assets can be easily determined by reference to current fair market value. However, there are some assets where the determination of value can be quite complex, such as pensions or shares in companies that are not traded publicly. I either work with your accountant if needed or my accountant.

Subtract the total debt.

Calculate the net amount.

Deduct the higher from the lowers and divided in 2. 
If you add both totals, they should share $ 71,000, $35,500 to each one of them.

 

ExampleJohnBeth
RSP BMO$ 30 000$ 20 000
Rsp RBC$ 10 000 
Cash$ 12 000$ 4000
Sub total$ 52 000$ 24 000
Visa($1000) 
MasterCard ($1600)
Student loan ($2400)
Total$ 51 000$ 20 000

He needs to pay her $15,500 to equalize, in this case, 50% and 50% in mediation we may negotiate differently.