Ensuring Fair Financial Distribution in Divorce
Equalization payments in divorce are a tool used to ensure the fair distribution of finances, debts, and assets. Many factors can affect how this calculation is made, especially in cases containing shared assets and property. Our mediators will review all details pertinent to a fair, equitable division and ensure that each party understands how and why this fair financial distribution was reached.
If you’re unsure of how to divide your assets and are looking for a fair and fast way to move on from your divorce, book a Free Consultation.
What is an Equalization Payment?
An equalization payment is a financial adjustment made during a divorce settlement to equalize each spouse’s net worth. This ensures a fair and equitable division of financial assets and debts, regardless of who owns which assets or has incurred which debts during the marriage.
An equalization payment must be made from one party to the other. It is calculated by subtracting the lower net worth from the higher net worth and dividing the difference by two.
| Bob | Sue | |
| Assets | ||
| ● RRSP | $100,000 | $90,000 |
| ● TFSA | $40,000 | $30,000 |
| ● Vehicle Value | $20,000 | $10,000 |
| ● Joint Chequing Account | $2,000 | $2,000 |
| ● Joint Home | $480,000 | $480,000 |
| TOTAL ASSETS | $642,000 | $612,000 |
| Debts | ||
| ● Credit Card | $4,500 | $1,500 |
| ● Joint Mortgage | $175,000 | $175,000 |
| ● Student Loan | 9,000 | |
| TOTAL DEBTS | $188,500 | $176,500 |
| Bob | Sue | |
| Total Assets | $642,000 | $612,000 |
| Total Debts | ($188,500) | ($176,500) |
| Net Value | $453,500 | $435,500 |
| Equalization Payment | ($9,000) | $9,000 |
| Final Net Value | $444,500 | $444,500 |
Bob’s net value is $453,500 and Sue’s net value is $435,500. The difference between the two amounts is $18,000, so when that is divided by two, it means Bob (who has the highest net value) must pay Sue an equalization payment of $9,000 to ensure both leave the marriage with an equal share of the accumulated wealth.
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