Equalization is a formula, set out in Ontario's Family Law Act, which we use to effect property division between divorcing spouses (the formula applies only to parties who are married to each other).
I used the phrase "property division" because that generally helps a client understand where this concept is used among issues common to a matrimonial case. Technically, however, the phrase is incorrect in describing what happens in Ontario: the Family Law Act envisions not the actual division of property (each party is entitled to 2 chairs out of 4) but the sharing of "value" - the spouses share with each other the increase in their respective net worths between the date of marriage and the date of separation. This means that the spouse with a greater net family property (see explanation elsewhere in this blog) has to give the other spouse one-half of the difference between them, with the effect that their net family properties are equalized.
Using the simplest example possible, if a husband and a wife were separated and the only asset between them was a pension, which resulted from the husband's employment, then the value of that pension would be considered his net family property. If the pension has the value of $100,000, and the wife has no assets of any kind at separation, then the husband would have to pay to her $50,000 in an equalization payment. At the end of this process, each would end up with $50,000.
There are other important elements which fit into the equalization formula and you will find them further explained in other posts in this blog (eg: "excluded property" and "date of marriage deductions").
I used the phrase "property division" because that generally helps a client understand where this concept is used among issues common to a matrimonial case. Technically, however, the phrase is incorrect in describing what happens in Ontario: the Family Law Act envisions not the actual division of property (each party is entitled to 2 chairs out of 4) but the sharing of "value" - the spouses share with each other the increase in their respective net worths between the date of marriage and the date of separation. This means that the spouse with a greater net family property (see explanation elsewhere in this blog) has to give the other spouse one-half of the difference between them, with the effect that their net family properties are equalized.
Using the simplest example possible, if a husband and a wife were separated and the only asset between them was a pension, which resulted from the husband's employment, then the value of that pension would be considered his net family property. If the pension has the value of $100,000, and the wife has no assets of any kind at separation, then the husband would have to pay to her $50,000 in an equalization payment. At the end of this process, each would end up with $50,000.
There are other important elements which fit into the equalization formula and you will find them further explained in other posts in this blog (eg: "excluded property" and "date of marriage deductions").
