Help Center Category: Guides

Business Interests and Property Division in Ontario Divorce

Are Business Interests Subject to Equalization?

Yes. Business interests are included in a spouse’s net family property (NFP) for the purpose of equalization. This applies whether the business is a sole proprietorship, partnership, or corporation. The value of shares in a private corporation, the equity in a business, or the value of a professional practice must all be accounted for.

How Is a Business Valued?

Valuing a private business for family law purposes typically requires a qualified business valuator, often a Chartered Business Valuator (CBV). There is no single method of valuation — the approach depends on the type of business, its size, its history of earnings, and the industry it operates in.

Common Valuation Methods

  • Income approach: values the business based on its capacity to generate earnings, typically using a capitalization or discounted cash flow method.
  • Asset approach: values the business based on the net value of its underlying assets, less liabilities.
  • Market approach: values the business by reference to comparable sales of similar businesses.
Loan vs gift dispute between spouses in divorce

Disputes Over Business Valuations

Business valuations in family law cases are frequently contested. Each spouse may retain their own valuator, resulting in significantly different opinions on value. Courts must then weigh the competing valuations and decide on the appropriate value. The difference can be substantial, sometimes hundreds of thousands or even millions of dollars.

Pre-Marriage Value and Deductions

If a spouse owned an interest in a business before the marriage, the value of that interest at the date of marriage can be deducted from the NFP calculation. This requires accurate records of the business’s value at the time of marriage, which can be difficult to reconstruct years later.

Liquidity Challenges

One of the most practical challenges in cases involving business interests is liquidity. The equalization payment is owed in cash, but the primary asset may be an illiquid business interest. The business-owning spouse may not have liquid assets sufficient to fund the equalization payment without selling business assets, taking on debt, or negotiating a payment plan.

Protecting the Business During Separation

It is generally in both parties’ interests to ensure that the business continues to operate effectively during the separation process. Disruption to the business can reduce its value, harming both spouses. Where both spouses are involved in the business, interim arrangements for management and oversight may be necessary.

Marriage Contracts and Business Interests

Many business owners use marriage contracts (prenuptial agreements) to protect business interests from equalization claims. A properly drafted marriage contract can exclude a business or cap its value for equalization purposes. However, these agreements must be drafted carefully and comply with Ontario’s legal requirements to be enforceable.

Common Law Rights in Ontario: What You Need to Know

When Is a Relationship Common Law in Ontario?

For family law purposes in Ontario, two people are considered to be in a common law relationship (legally called ‘cohabitation’) if they have lived together continuously for at least three years, or if they have lived together in a relationship of some permanence and have a child together. Different statutes may have different definitions.

Do Common Law Partners Have Property Rights?

This is where common law and married status differ most significantly. Common law partners in Ontario do not have automatic equalization rights under the Family Law Act. There is no equivalent of the married spouse’s right to share equally in property accumulated during the relationship. Each partner generally keeps property in their own name.

Trust Claims

A common law partner may have a claim for a share of property through the law of unjust enrichment and resulting or constructive trusts. If one partner contributed money, labour, or other value to the acquisition, maintenance, or improvement of the other partner’s property, they may be able to claim a proportionate share. These claims can be complex and expensive to litigate.

Do Common Law Partners Have Spousal Support Rights?

Yes. Common law partners who meet the definition of ‘spouse’ under the Family Law Act (three years or a child together) are entitled to claim spousal support. The principles governing common law spousal support are the same as for married spouses: entitlement must first be established, and then amount and duration are determined, often using the SSAG.

What About the Matrimonial Home?

The special protections for the matrimonial home under the Family Law Act apply only to married spouses. A common law partner has no automatic right to possession of a home owned by the other partner. If you are a common law partner and you do not hold title to your shared home, you may have little or no right to remain in it after separation.

Inheritance and Common Law Partners

Common law partners in Ontario do not inherit from each other automatically under Ontario’s Succession Law Reform Act if there is no will. Unlike married spouses, common law partners have no automatic entitlement to a share of the deceased partner’s estate. It is critical for common law partners to have up-to-date wills.

Protecting Yourself as a Common Law Partner

Given the significant differences between common law and married status, common law partners should consider entering into a cohabitation agreement. This agreement can set out how property will be divided on separation, whether support will be paid, and other matters, providing much greater certainty than relying on the law.

Common Law Separation in Ontario: What Happens When You Split

There Is No ‘Common Law Divorce’

Unlike married couples, common law partners do not need to obtain a formal divorce. The relationship ends when the parties separate. There is no court process required simply to end the relationship itself. However, court proceedings may be necessary to resolve property, support, and parenting disputes.

Property Claims After Common Law Separation

As there is no equalization right for common law partners, each person generally retains the property in their own name. However, if one partner made contributions to the other partner’s property, they may have claims based on unjust enrichment or constructive trust. These claims must typically be brought within two years of the date of separation.

Spousal Support After Common Law Separation

Common law partners who qualify as ‘spouses’ under the Family Law Act may claim spousal support. The claim must be made within two years of the date of separation. Support entitlement is based on the same principles as for married spouses: compensatory, non-compensatory, and contractual grounds.

Parenting After Common Law Separation

The rules for parenting time and decision-making responsibility are the same for common law couples as for married couples. Both parents have an obligation to support their children, and courts apply the best interests of the child test regardless of the parents’ marital status.

Limitation Periods Matter

For common law partners, limitation periods can significantly affect legal rights. Property claims based on unjust enrichment must generally be commenced within two years of the date of separation. Spousal support claims must also be commenced within two years. Missing these deadlines can result in losing your entitlement entirely.

Steps to Take After a Common Law Separation

  • Document contributions you made to the other partner’s property.
  • Gather evidence of joint financial arrangements and agreements.
  • Seek legal advice early — limitation periods apply.
  • Review and update wills, beneficiary designations, and powers of attorney.
  • Consider whether a cohabitation agreement would have helped — and whether one should be entered into for future relationships.

Marriage Contracts and Prenuptial Agreements in Ontario

What Can a Marriage Contract Cover?

  • Ownership and division of property on separation.
  • Spousal support — including waiving, limiting, or increasing entitlements.
  • Ownership of specific assets, including businesses and investments.
  • How the matrimonial home will be dealt with on separation.
  • Any other matters relating to the couple’s financial affairs.

What Cannot Be Included in a Marriage Contract?

There are limits on what a marriage contract can do. A marriage contract cannot limit a spouse’s right to possession of the matrimonial home during the marriage. It cannot adversely affect the rights of a child to custody or access. It also cannot contract out of the obligation to support a child in need.

Requirements for a Valid Marriage Contract

Under the Family Law Act, a marriage contract must be in writing, signed by both parties, and witnessed. While independent legal advice is not technically required, courts are far more likely to uphold a marriage contract where both parties received their own independent legal advice before signing.

When Can a Marriage Contract Be Set Aside?

A court may set aside a marriage contract (or specific provisions) in certain circumstances, including if there was a failure to disclose significant assets or debts, if a party did not understand the nature or consequences of the agreement, if there was duress, undue influence, or fraud, or if the terms are considered unconscionable.

Protecting Your Marriage Contract

  • Both parties should retain their own independent lawyer.
  • Both parties must provide full and honest financial disclosure.
  • The agreement should be negotiated well in advance of the wedding — signing under pressure is a red flag.
  • The agreement should be reviewed periodically as circumstances change.
  • Keep all documentation showing the process by which the agreement was reached.

Can a Marriage Contract Be Changed?

Yes. The parties can amend or cancel a marriage contract by entering into a new written agreement. Any amendment must follow the same formalities as the original contract.

Are Prenups Only for the Wealthy?

Absolutely not. While marriage contracts are often associated with high-net-worth individuals, they can be valuable for anyone entering a second marriage, anyone with a business interest or significant assets, anyone with children from a previous relationship, or anyone who wants certainty about financial arrangements in the event of separation.

Cohabitation Agreements in Ontario: Protecting Your Rights Before Moving In

Why Do Common Law Couples Need a Cohabitation Agreement?

Unlike married spouses, common law partners in Ontario have no automatic right to share equally in property accumulated during the relationship. Without a cohabitation agreement, the outcome of a separation can be uncertain and expensive to resolve through litigation. A cohabitation agreement creates certainty and avoids the cost and conflict of court proceedings.

What Can a Cohabitation Agreement Cover?

  • How property owned before and during the relationship will be divided on separation.
  • Whether spousal support will be paid, and if so, in what amount and for how long.
  • Ownership and responsibilities for the shared home.
  • Division of shared expenses and financial responsibilities during the relationship.
  • How debt will be handled on separation.
  • Any other financial matters the couple wishes to address.

Legal Requirements for a Valid Cohabitation Agreement

Under Ontario’s Family Law Act, a cohabitation agreement must be in writing, signed by both parties, and witnessed. Both parties should receive independent legal advice before signing. Full financial disclosure by both parties is essential for the agreement to be enforceable.

What Cannot Be Included in a Cohabitation Agreement?

Like a marriage contract, a cohabitation agreement cannot include provisions that adversely affect the rights of a child or contract out of child support obligations. It also cannot override a spouse’s right to make a support claim in genuinely exceptional circumstances.

Can a Cohabitation Agreement Become a Marriage Contract?

Yes. Under Ontario’s Family Law Act, a cohabitation agreement automatically becomes a marriage contract if the parties later marry, unless the agreement specifically provides otherwise. This means that a cohabitation agreement entered into before marriage will continue to govern the parties’ rights after they marry.

When Should You Enter Into a Cohabitation Agreement?

The best time to enter into a cohabitation agreement is before moving in together, or as soon as possible after doing so. Like a marriage contract, a cohabitation agreement negotiated under pressure or in anticipation of an imminent separation may be more vulnerable to being set aside.

Can the Agreement Be Updated?

Yes. As circumstances change — for example, if you acquire a new property, start a business, or have children — it is wise to review and update your cohabitation agreement. Any amendment must follow the same formalities as the original agreement.

Independent Legal Advice in Ontario Family Law: Why It Matters

What Is Independent Legal Advice?

Independent legal advice means receiving advice from a lawyer who represents only you — not the other party — and who has no conflict of interest in the matter. The lawyer reviews the agreement with you, explains your legal rights and what you are agreeing to, answers your questions, and confirms that you understand and are signing voluntarily.

Why Is ILA Important?

An agreement signed without ILA is more vulnerable to being challenged and set aside by a court. Courts look for evidence that both parties truly understood what they were signing and the rights they were giving up. A lawyer’s certificate confirming that ILA was provided is strong evidence of an informed and voluntary agreement.

When Is ILA Particularly Important?

What Does an ILA Session Involve?

During an ILA session, your lawyer will review the proposed agreement in detail, explain what each provision means and its practical effect on your rights, identify any unusual or potentially unfair provisions, explain what you would be entitled to under the law if no agreement were made, and confirm that you are signing voluntarily and not under pressure.

The ILA Certificate

After providing ILA, a lawyer typically provides a certificate confirming that they provided advice to their client, that the client appeared to understand the nature and consequences of the agreement, and that the client signed voluntarily. This certificate is usually appended to the agreement and provides important legal protection.

Does ILA Mean the Agreement Is Automatically Valid?

No. Receiving ILA is important but does not guarantee that an agreement will be upheld. If the agreement contains terms that are unconscionable, or if there was failure to disclose significant assets, a court may still set it aside. However, ILA significantly strengthens the enforceability of an agreement.

Can the Same Lawyer Advise Both Parties?

No. For advice to be truly ‘independent,’ each party must have their own separate lawyer. A single lawyer cannot represent both parties in the same matter — this would be a conflict of interest. The lawyer who drafts the agreement should represent one party, and the other party must seek their own independent counsel.

Protecting Parents Who Lend Money to Their Children and Spouses in Ontario

The Risk: Gifts vs. Loans in Family Law

From a family law perspective, whether money given by a parent is treated as a gift or a loan makes a significant difference. A gift is included in the receiving child’s net family property and may be subject to equalization. A loan, if properly documented, is a debt that reduces the net family property of the debtor, potentially protecting its value from equalization.

What Happens Without a Loan Agreement?

If parents provide money without documentation, it is often treated as a gift in the event of a separation. The in-law spouse may then benefit from a share of those funds through equalization, which is rarely what the parents intended. Courts generally require clear evidence to treat parental contributions as loans rather than gifts.

How to Protect Parental Loans

Written Loan Agreement

The most important step is to document the loan in writing. A loan agreement should specify the amount lent, the date of the loan, the interest rate (if any), the repayment terms, and the consequences of default. Both parties should sign the agreement, ideally with independent legal advice.

Promissory Note

A promissory note is a simpler written promise to repay a specified amount. While less comprehensive than a full loan agreement, a signed promissory note provides important documentation of the intention to create a debt rather than a gift.

Mortgage or Charge on Property

In some cases, parents may wish to register a mortgage or charge against the property purchased with their funds. This provides formal security for the loan and makes it very difficult for the loan to be characterized as a gift.

Marriage Contracts and Parental Loans

A marriage contract or cohabitation agreement between the couple can also address parental contributions. It can explicitly identify money received from parents as a loan, not a gift, and exclude it from the equalization calculation. This approach requires the cooperation of both spouses but provides a high level of protection.

Acting Consistently With a Loan

Documentation alone may not be sufficient if the parties have not acted consistently with a loan relationship. If no repayments have ever been made and the ‘lender’ never sought repayment, a court may still characterize the funds as a gift. Regular (even nominal) repayments, consistent with loan terms, strengthen the loan characterization.

The Role of Wills in Prenuptial Agreements in Ontario

What a Marriage Contract Does

A marriage contract addresses financial rights and obligations between spouses in the event of separation or divorce. It deals with property division, spousal support, and related matters. Importantly, a marriage contract takes effect during life — it governs what happens if the marriage ends while both parties are alive.

What a Will Does

A will is an estate planning document that sets out how your property is to be distributed after your death. It is effective only on death. A will can name beneficiaries for your estate, appoint a guardian for minor children, and deal with other matters that arise on death.

How Marriage and Wills Interact in Ontario

In Ontario, marriage used to automatically revoke an existing will. Changes to the law have altered this rule for wills made on or after January 1, 2022 — marriage no longer automatically revokes a will made after that date. However, it is still important to review and update your will when you marry or enter into a cohabitation agreement, as your circumstances and intentions may have changed.

Can a Marriage Contract Address What Happens at Death?

A marriage contract can address spousal inheritance rights to some extent. Under Ontario’s Family Law Act, a surviving spouse has the right to elect to receive an equalization payment instead of taking under the deceased’s will or on intestacy. A marriage contract can waive or limit this right, which may be an important consideration for individuals with children from a prior relationship.

Out of court family law resolution in Toronto

Why You Need Both Documents

A marriage contract deals with your rights in the event of separation. A will deals with the distribution of your estate on death. Neither document fully substitutes for the other. If you have a marriage contract but no will, your estate may be distributed in ways you did not intend. If you have a will but no marriage contract, your rights on separation may not be protected as you wished.

Beneficiary Designations and Other Planning Considerations

Beyond wills and marriage contracts, comprehensive planning requires attention to beneficiary designations on RRSPs, TFSAs, life insurance, and pensions. These assets pass outside of your will and are governed by their own designation forms. Reviewing and updating these designations in conjunction with your will and marriage contract is essential.

Key Takeaway

A marriage contract and a will work together — they are complementary, not interchangeable. Anyone entering into a marriage contract should also work with their lawyer to review or prepare a will and ensure all estate planning documents are aligned.

Am I Eligible for Divorce in Ontario? Key Requirements Explained

Requirement 1: You Must Be Legally Married

To file for divorce in Ontario, you must be legally married. This applies whether the marriage took place in Ontario, elsewhere in Canada, or in another country. Marriages performed abroad are generally recognized in Canada if they were valid where they occurred. Common law relationships do not qualify for divorce — there is no ‘common law divorce’ in Ontario.

Requirement 2: One-Year Ontario Residency

At least one spouse must have ordinarily resided in Ontario for at least one year immediately before filing the divorce application. If you recently moved to Ontario, you must wait until you have lived here for one year. If you or your spouse live elsewhere in Canada, the divorce can potentially be filed in the province where one of you has resided for the required period.

Requirement 3: Marriage Breakdown Must Be Established

You must be able to establish that the marriage has broken down. The Divorce Act recognizes three grounds: separation of at least one year (by far the most common), adultery committed by the respondent spouse, and physical or mental cruelty by the respondent that has rendered continued cohabitation intolerable.

The One-Year Separation Period

The one-year separation period can begin even if the parties are still living in the same home, provided they are living separate and apart within that home. To be living separate and apart, there must be a breakdown of the marital relationship, demonstrated by factors such as separate sleeping arrangements, separate finances, and the absence of marital relations.

Can I File Before One Year Is Up?

You can file the application at any time after separation, but the divorce cannot be granted until one year of separation has elapsed. Filing early can help get the process started and may be advisable where there are property or support issues to address, even if the divorce itself will not be granted for some time.

Are There Bars to Divorce?

Under the Divorce Act, a court may not grant a divorce if there is a possibility of reconciliation that has not been explored, if the court is not satisfied that reasonable arrangements have been made for the support of any children of the marriage, or if there is collusion between the spouses (for example, a fabricated adultery claim).

What About Foreign Divorces?

A divorce obtained in another country may be recognized in Canada if both spouses were ordinarily resident in that country at the time of the divorce. Questions about foreign divorce recognition should be addressed with a qualified family law lawyer.