Equalization Payment vs Spousal Support: What Canadian Couples Should Know

Divorce parts not only two souls. It parts a family, as well as its properties, assets, and responsibilities.

Both equalization payment and spousal support are financial concussions that follow a nuptial separation in Canada. But their purposes, processes, and calculation systems vary in intent, framework, and structure. With one, you get the right to claim a fairly equal share of the properties, while with the other, you receive monthly allowances for your survival.

If you are completely new to the idea of equalization payment vs spousal support, welcome to a journey that you shouldn’t dare tread alone. Because the road ahead is not only complicated. Also, many aspects of your life and properties depend on it.

This article will help you:

• Understand both the concepts
• The intent behind each concept
• How the court measures them
• Legal considerations about them
• Major differences between them

Understanding Equalization Payments

Subject to the Family Law Act and the Family Property Act, an equalization payment in Canada is made between separating partners as a crucial step in their divorce procedure. However, you can plead for the same arrangement for other types of separation, like the death of a spouse or a Civil Union marriage dissolution.

There are two factors that drive the court’s decision on the payment amount and its viability.

• The Net Family Property’s (NFP) worth
• The legal accountability of the relationship

When equating the property, the court

• Calculates the NFP of each spouse
• Includes all financial or non-financial assets
• Excludes gifts and assets circulated through inheritance
• Subtracts financial liabilities: debts, premiums, fines
• Determines the transferable assets
• Orders the higher NFP partner to pay the lower NFP partner

Purpose Of Equalization Payment

The emergence of a property share system, like the equalization payment, stems from a rather unusual perspective in Canadian Law. Beyond a bonding between two persons, the law sees a marriage as an economic partnership.

When in Canada, the jurisdiction recognizes all the efforts and hard work of its citizens, elevating the standard of living for their family members. Even the daily household chores done by someone less financially contributive.

In that light, it ensures that both partners, upon reaching the end of their terms, can start with an equal share of their hard-earned property.

The other motivation, underlying this unique approach, derives from the necessity to create a sustainable and fair framework. So, citizens can navigate a critical decision, like a divorce, without striking disputes and distress.  

When an Equalization Payment is Given?

There are certain eligibility criteria that partners must meet to seek an equalization payment.

• The marriage must be a legal contract
• The divorce must follow legal procedures
• The duration of the marriage must be reasonable
• One partner must have a higher NFP than the other

Window

The law also addresses the complications regarding a marriage dissolution by allowing a specific, considerable window for claiming the payment. A partner can apply within

• 6 months as of their separation date
• 2 years after the finalization of the divorce

Transfer

After a meticulous appraisal of the NFP and the payment, the court can order

• An instant transfer after the divorce or separation
• Installments over a course of 10 years or less

How to Calculate an Equalization Payment?

You can divide the estimation process for the payment into four basic steps:

• Listing and evaluating the properties
• Summing up debt
• Calculating payable amount
• Determining the transfer measure

Listing and Evaluating

The general expectation at this step is to disclose personal assets with utmost honesty and not to hide anything.

List every asset deemed equitable, including:

• Real estate
• Bank accounts
• Investments and shares
• Commodities and jeweleries
• Pensions and Savings plans

Summing Up Debts

Like the property, liabilities are also subject to a fair share.

Make a list of all the debit factors, draining your assets. Like:

• Credit cards
• Personal loans
• Outstanding credits
• Family debt
• Installments with interest
• Leases

Estimating Equalization Payment

At this point, each partner’s net property is measured by subtracting the debt amount from the property value.
Divide the difference between your and your partner’s net value, and you get the payable amount. For example:

If the higher NFP partner owns $5000

And  the lower NFP partner owns $3000

The payable amount will be: ($5000 – $3000) / 2 = $1000

Notably, all the assets’ value must be appraised by their current market rate. And for complex properties, like pensions, plans, and funds, it’s best to employ a professional appraiser.

Explaining Spousal Support

Also known as alimony, spousal support is a specific allowance a separating partner pays to another, allowing him/her to maintain their regular living standard. The necessity, amount, and duration of the payment follow the obligations set by the Divorce Act and Family Law Acts.

Unlike an equalization payment, spousal support is not a one-time settlement. It’s repetitive, where the payor partner keeps providing on a routine basis until the end of the term described in the court order.

A partner can receive spousal support regardless of their relationship type, as long as it is recognized by the law. It includes:

• Regular marital partnerships
• Civil Union partnerships
• Common Law partnerships

Purpose Of Spousal Support

Spousal support is offered as more of a compensation for the financial concussions the dependent partner suffers due to the relationship breakdown. 

Though it balances the sudden disruption in the living condition of that partner, at its heart, the payment compensates their sacrifices, contributions, and challenges during the relationship and after the divorce.

By allowing spousal support, the court

• Backs the sudden lifestyle transition of the weaker partner
• Ensures child support by specifying the amount in the allowance
• Prevents a decline in the physical and mental condition triggered by the abrupt financial change
• Allows the dependent partner the time to restore their career and find an alternative earning source

When is Spousal Support Given?

A partner becomes eligible for spousal support if they

• Have been in a nuptial binding either by a legal contract (regular and Common Union) or a cohabitation of 2 to 3 years (after being recognized as a Common Law partner)
• Have missed opportunities or sacrificed their career to sustain the relationship
• Have been dependent on the other partner for survival and maintenance

Window

There is no obligation to claim alimony within a certain period, as it comes as a natural right for all registered partners. However, some provincial laws may advice making a prompt call, not exceeding 2 years after divorce. 

Duration

Alimony can be short-term or long-term. The factors that contribute to its period or span are:

• The age and health condition of the receiver
• The length of their relationship term
• Future possibility to get back to work
• The age of the child

Normally, a long-term relationship requires a long or life-time support, as the partner becomes incapable of earning. Short-term relationships allow for shorter allowance, conditioning the partner to manage an earning source.

Amount

Perhaps the most intricate part of the process is to find that sweet spot to satisfy both parties and reach an agreement. During settling the amount, the court looks into factors, like:

• Spousal Support Advisory Guidelines
• Income and expenses of both parties
• Number of children and their expenses
• Years passed together as partners
• Roles and contributions played
• Needs and standard living style

How does the Court Determine Spousal Support?

The court will determine how much spousal support you should receive. The decision involves several layers of assessments and final consideration of a few factors:

The Time Spent Together

How long you have stayed with a partner will affect the duration and size of the support:

• Longer and larger support for a stay above 10 years
• Shorter and smaller support for a stay below 10 years 

The longer the marriage, the larger the support

After Marriage Lifestyle

The court puts special attention to maintaining both partners’ usual lifestyles. That means the support can’t make anyone go bankrupt.

Quite the contrary, if you have been leading a posh, plush life, the court will try its best to get you the support so that you can continue your way.

Financial State of Both Partners

The idea behind spousal support is to provide the financially dependent spouse with a prep allowance until they can stand on their own. It also makes sure that it doesn’t put a financial weigh on the other partner beyond his ability.

Contributions to the Marriage

The time and effort you have invested at work, earning money, raising children, and making meals are your contributions to your family. The court includes all sorts of industries as investments, and the scope surrounds more than just financial participation.  

Record of Domestic Violence

Of course, the law will look back at your marital history, looking for any ill practices, and above all, any events of domestic violence.

If any one of them has violated the other’s right anyhow, it will directly impact the amount of reward or payment.

Family and Financial Liabilities

If the paying partner has a family to take care of, which may include his parents, children, or siblings, the court will assess their ability to pay spousal support.

Equalization Payment vs Spousal Support- Key Differences

Both equalization and spousal support payments are post-separation measures to balance and serve the rights of both partners. But they vary in multiple aspects highlighted in the table below:

A divorce or separation is an unfortunate conclusion of a relationship, which may come to that point due to many reasons. But to make it tolerable, unambiguous, simpler, and fair, the Canadian Law has introduced unique measures like the equalization payment. The regular spousal support is also there, compensating for work, toils, and sacrifices of the subordinated partners. This article has explained everything you need to know to approach both balance and support systems rightly. But always consider consulting legal advisors and hiring one to get a court order fast and without hassle.

FAQs about Equalization Payment and Spousal Support

1. Is Equalization Payment the Same As Spousal Support?

Ans– No, an equalization payment and spousal support differ in their approach, objective, frequency, eligibility criteria, and many other aspects. Simply, one strives to allocate properties equally, while the other aims to support the regular lifestyle.

2. Are Divorce Equalization Payments Taxable In Canada?

Ans– No. An equalization payment is not taxable, as it can’t be marked as income. It’s only a transaction made between two partners to balance their shares of property.