In Ontario, the date of separation determines the valuation of all assets and debts that a married couple must divide and equalize. Ontario’s Family Law Act is fixed, firm and presumptive on this issue. The value of the assets and debts before or after the date of separation is not determinative of the equalization of the spouses’ net family properties. It is the value on the exact date of separation – called the “Valuation Date”.
Once the news of COVID-19 broke, the effect on the global markets has been devastating. The world equity and housing market has drastically lost trillions of dollars of value. It is safe to say that most Canadians have suffered a significant drop in their net worth.
In these circumstances, a unique consequence could be considered by a particular segment of society – married spouses who were actively considering separation. A spouse who announces his or her intention to separate now may be crystallizing the Valuation Date for the purposes of equalization of net family property.
To help explain this situation, consider the difference between the following two scenarios.
In both scenarios, assume spouse A exclusively owns a stock portfolio that she accumulated in her own name after they were married.
In scenario 1, spouse A separates before COVID-19 when her stock portfolio rose to a value of $1,000,000.
In scenario 2, spouse A separates after COVID-19 when her stock portfolio was devastated and dropped to $600,000.
In both instances, spouse A is obligated to pay spouse B one-half of the value of her portfolio by way of an equalization payment.
In scenario 1, spouse A must pay spouse B $500,000.*
In scenario 2, spouse A must pay spouse B $300,000.*
It is for this reason that spouses considering separation should consult with a divorce specialist.
*This example simplifies matters by concentrating on only one asset to the exclusion of all other assets and debts which would normally be accounted for in the equalization of net family property.