When a couple in Ontario decides to separate or divorce, they are generally required to divide the assets they accumulated during their marriage by equalizing their net family properties (NFP). The determination of which assets are included in your NFP significantly impacts the resulting equalization payments. However, certain assets acquired during the marriage can be excluded from the NFP, thereby reducing its total value.
Legal Framework: Section 4(2) of the Family Law Act (FLA)
Section 4(2) of the Family Law Act (FLA) specifies the types of assets that can be excluded from an individual's NFP. To qualify as an exclusion, the asset must have been acquired after the date of marriage. The following are examples of assets that may be excluded:
- Property Acquired as a Gift or Inheritance from a Third Party: Any property received as a gift or inheritance from someone other than the spouse can be excluded.
- Income from Property Acquired as a Gift or Inheritance: Income generated from such property can also be excluded.
- Damages from Personal Injury Settlements: Compensation received from personal injury claims is excluded.
- Proceeds of a Life Insurance Policy: Any proceeds received from a life insurance policy are excluded.
- Assets Agreed to be Excluded by Domestic Contract: Any assets that both parties have agreed to exclude in a domestic contract (e.g., a prenuptial agreement) are excluded.
- Unadjusted Pensionable Earnings under the Canada Pension Plan (CPP): These earnings are also excluded.
Special Considerations: The Matrimonial Home
The FLA also outlines specific conditions under which exclusions may apply. One notable exception is the matrimonial home. Unlike other assets, the matrimonial home may not be excluded from the NFP, even if it was received as a gift or inheritance. Due to the unique legal status of the matrimonial home in Canadian law, it is advisable to consult with a family law lawyer for guidance in such situations.
Ensuring Exclusions for Gifts and Inheritances
For gifts and inheritances to be excluded from the NFP, it is beneficial for the original donor to explicitly mandate their exclusion in a will or other official document. If the value of the property acquired as a gift or inheritance increases during the marriage, the donor's will or official document may also stipulate that such increases are to be excluded from the NFP.
Tracing Assets Back to Gifts or Inheritances
It is also possible to exclude assets acquired through the use of gifts or inheritances. For instance, if an individual purchases a boat using funds from an inheritance, both the value of the boat and the remaining value of the original inheritance can be excluded from the NFP. This principle of tracing property back to gifts or inheritances can apply to various assets acquired during the marriage, including income.
Understanding which assets can be excluded from your NFP is crucial for fair and accurate equalization payments during a separation or divorce. For assistance in identifying assets eligible for exclusion and navigating the complexities of family law, it is advisable to consult with experienced family law lawyers.
For Family Law Services, Ahmad Law offers compassionate and professional assistance. Whether you're navigating family disputes or need guidance on legal matters, our dedicated team is here to support you.
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