The rights of surviving spouses to an equalization claim

Equalization is the division of the net family property following the breakdown of a marriage either by death or separation. The right to equalization and the process is set out in The Family Law Act.

Only married spouses have the right to equalization; common law spouses do not have this right.

The Family Law Act provides that the surviving spouse in a married couple has the right to choose to receive either:

a) an inheritance (under the terms of the Will or if there is no Will, the Succession Law Reform Act), or,

b) an equalization of the net family property.

Note that this is an “either/or” election: the surviving married spouse can take either an equalization or an inheritance but not both.

The surviving spouse has 6 months from the date of death to make this election. If no application is filed within this period, then the surviving spouse is deemed to have elected to take the inheritance (under a Will or intestacy).

So how does equalization work? It is the same principle as ‘splitting assets on divorce’. It works by calculating the net family property for each spouse on the valuation date and then ‘equalizing’ their assets. Valuation date is calculated as the day before the death occurred (for example if the deceased passed away on January 2, the valuation date will be January 1). The net family property for each spouse is calculated as the net worth of that spouse on valuation date, less the net worth of that spouse on the date of marriage, less any exclusions (for example traceable gifts).

If the surviving spouse’s net family property is larger than that of the deceased’s, the estate will not have a claim against the surviving spouse.

An example:

Deceased’s net worth was 1 million on valuation date, and his/her net worth on the date of marriage was 0, and there were no other exclusions.

Surviving spouse’s net worth was 150,000 on valuation date, and her/his net worth on the date of marriage was 0, and had received a gift of 50,000 during the marriage. [Note: Ontario family law has specific rules dealing with the ‘matrimonial home’ and these need to be considered when calculating net family property]

The deceased spouse net family property is 1,000,000 – 0 – 0 = 1,000,000

The surviving spouse net family property is 150,000 – 0 – 50,000 = 100,000

If the surviving spouse elects for equalization, then she/he gets (1,000,000 – 100,000) / 2, that is 450,000