What Is an Equalization Payment?
An equalization payment is a financial payment made by one spouse or partner to the other to ensure that both walk away from the relationship on fair financial footing. It prevents situations where one person keeps most of the assets, one person is left with most of the debt, or financial contributions are overlooked.
How Is Equalization Calculated?
Under the Family Property Act, RSA 2000, c F-4.7, the equalization process generally uses the following steps:
1. Identify Family Property
Family home: The house you lived in together, even if only one partner’s name is on the title.
Vehicles: Cars, trucks, recreational vehicles, and similar assets.
Bank accounts and savings: Chequing accounts, savings accounts, joint accounts, and cash assets.
Investments: Stocks, bonds, mutual funds, TFSAs, and other investment vehicles.
Pensions and RRSPs: Retirement savings and employer pension plans.
Business interests: Shares in a company, ownership in a small business, or professional practices.
Household items: Furniture, appliances, electronics, and other shared possessions.
2. Subtract Debts
Debts may include mortgages, loans, credit cards, and lines of credit.
3. Subtract Exemptions
Only the increase in value of exempt property during the relationship is typically divisible.
4. Calculate Each Spouse or Partner’s Net Family Property
Net family property equals total divisible family assets, less total debts, taking into account any proven exemptions.
5. Determine the Difference
If one partner’s net value is higher than the other’s, the difference is calculated.
6. Equalize the Difference
The partner with the higher net value pays half of the difference to the other. This payment is called the equalization payment.
A Simple Example
Imagine that A and B separate. A’s net family property is $300,000, and B’s net family property is $200,000.
Step 1: Find the Difference in Net Family Property
$300,000 − $200,000 = $100,000
Step 2: Divide the Difference by Two
The equalization payment is $100,000 ÷ 2 = $50,000.
Step 3: Apply the Equalization Payment
A: $300,000 − $50,000 = $250,000
B: $200,000 + $50,000 = $250,000
A pays B a lump sum of $50,000, so both end up with $250,000.
How Are Equalization Payments Made?
Equalization does not always mean writing a cheque. It can be completed through:
Cash;
Transfer of property, such as home equity;
RRSP rollovers;
Pension division; and/or
Payment plans.
Equalization payments are one of the most important parts of family property division in Alberta. Understanding how they work can help you protect your rights, make informed decisions, and avoid costly mistakes. Please reach out to one of our family lawyers for clarity about equalization payments and help navigating the next steps with confidence.