Understanding Family Law: Equalization & Property Division in Canada

When a relationship ends, dividing finances can be just as emotional as the breakup itself. Between figuring out assets, support, and what each person is entitled to, equalization payments can feel like one of the most confusing parts of a divorce. Things get even more complicated when insolvency enters the picture — especially if one spouse files a consumer proposal or bankruptcy while equalization payments are still owed.

And that’s where many people start to worry: what actually happens to those equalization payments? Are they treated the same as spousal support? Do they disappear? Can they be protected?

Understanding the difference between equalization payments, spousal support, and how insolvency laws work can help you protect yourself, your rights, and your financial future.

Equalization Payments Explained

When a couple separates in Canada, the law tries to make sure both people leave the marriage on fairly equal financial footing. Instead of splitting every single asset down the middle (your savings, their car, the house value, etc.), the process works like this:

1. Each spouse calculates what they owned on the day of separation
2. Then subtracts what they already owned before the marriage
3. What’s left is their net family property

If one person built up significantly more net value than the other, the law evens things out. That difference is paid through an equalization payment — a one-time lump sum meant to “balance the scales.”

It’s different from spousal support or child support, which cover ongoing living needs. Equalization is strictly about dividing assets.

How Equalization Differs from Spousal Support

Equalization payments and spousal support often get talked about together, but they’re actually very different things.

• Equalization payments are a one-time amount meant to balance out the value of what each spouse walks away with after separating.
• Spousal support, on the other hand, is ongoing financial support to help with day-to-day living costs.

Because they serve different purposes, they’re treated differently under Canadian law. Support payments — both spousal and child support — are protected and must still be paid, no matter what. Equalization payments don’t have that same protection.

Consumer Proposal or Bankruptcy and Divorce

When a spouse files a consumer proposal or bankruptcy after a divorce, the law draws a clear line: Support payments stay. Equalization payments may not.

This is where a lot of people get tripped up. Some separation agreements try to “relabel” an equalization payment as spousal support to protect it if insolvency happens. But courts — including in the Legallais, 2015 Carsewell Ont 11533, 256 A.C.W.S. (3d) 268) decision — have confirmed that you can’t simply rename an equalization payment and change how it’s treated.

The federal Bankruptcy and Insolvency Act still decides what counts as support and what counts as an unsecured debt.

Example Scenario

Here’s a simple breakdown:

• A spouse owes a $50,000 equalization payment
• They file a consumer proposal
• That equalization amount may be reduced or erased
• Any spousal or child support they owe stays fully enforceable

This often surprises people going through separation.

Why Equalization Rules Create Confusion

Equalization payments can get really confusing — when insolvency gets involved. The biggest issue is that some assets are legally protected in Canada and can’t be touched by creditors at all, even in a divorce. Things like most pensions, RRSPs (aside from very recent contributions), and many life insurance payouts are off-limits.

Here’s where it feels uneven: a spouse might file a consumer proposal, keep those protected assets, and still have their equalization payment reduced or wiped out. Meanwhile, the other spouse is left with far less than they expected. It’s a major gap in protection that catches a lot of people by surprise.

To try to fix this, some lawyers add special “insolvency clauses” to separation agreements. But, it’s clear that those clauses don’t always hold up. Don’t assume you can override federal insolvency laws just by tweaking the wording in an agreement.

Consumer Proposal and Separation: What You Can Do

If your ex has filed, or might file, a consumer proposal and divorce equalization payments are at risk, here are some helpful first steps:

• Review your separation agreement with a family lawyer
• Get clarity on what parts of the agreement are enforceable
• Speak with a Licensed Insolvency Trustee (LIT) to understand what you may still recover
• Avoid side deals or informal agreements without advice

The earlier you get advice, the better your chances of protecting your rights.

What If You Owe Equalization and File A Proposal?

If you’re the spouse who owes equalization and you’re thinking about filing a consumer proposal, it’s important to get good advice first. Filing a proposal may reduce the amount you owe, but full honesty and proper guidance matter.

Talk to both a family lawyer and a Licensed Insolvency Trustee so you know exactly how a proposal will affect your divorce agreement.

How Farber Can Help

Debt, divorce, and equalization can get complicated fast, but you don’t have to figure it out on your own. Farber’s Licensed Insolvency Trustees can walk you through your divorce-related financial obligations, explain how consumer proposals and divorce interact, and help you understand what repayment options or next steps make the most sense for your situation.

Book a free consultation today. Clear guidance can make a difficult situation feel a lot more manageable.

 

FAQs: Equalization Payments and Debt

What is an equalization payment in a divorce?

It’s the amount one spouse may owe the other to equalize the division of assets and liabilities accumulated during marriage.

Can an equalization payment be included in a consumer proposal?

Yes. Equalization payments are treated as unsecured debts and can be included in a consumer proposal, unlike child or spousal support.

What is the difference between equalization and spousal support?

Equalization is a one-time division of property, while spousal support is ongoing financial assistance. Support cannot be discharged through insolvency; equalization can.

Can you protect equalization payments in bankruptcy or a proposal?

Only if the payment is legally defined as spousal support and approved as such by the court — otherwise, it’s considered an unsecured debt.

What happens if your ex-spouse declares bankruptcy?

Equalization debts may be erased, but spousal and child support remain enforceable and take legal priority for repayment.