The money that the spouse with the higher total has to pay the spouse with the lower total is called an “equalization payment.” The purpose of an equalization payment is to put both spouses in an equal position. The result is that both spouses end up owning the same total value of property.
Is an equalization payment in a divorce taxable?
Generally, equalization payments between divorcing spouses do not create a “taxable event” and therefore are non-taxable. However, parties dividing assets must be cautious to consult a tax professional because tax may be owed in the future on certain assets received by a party in divorce.
What happens when one spouse makes an equalization payment?
Therefore, if one spouse holds legal title to all of the property involved in a net family property calculation then once the equalization payment is made he or she will continue to own and benefit from it without accounting to the other spouse for any increases or changes.
How is property and equalization calculated in a marriage?
In a nutshell, the net growth in value of the assets of each party during the marriage is calculated. That value is called the spouse’s “net family property” (NFP) and the spouse with the larger NFP must make a payment to the other party for half the difference to even things out. That payment is called an “equalization payment”.
Can a spouse apply for Equalization in the absence of death?
It is also possible to apply for equalization even in the absence of death of a spouse or marriage breakdown. Section 5 (3) of the FLA states that if, while the spouses are cohabiting, there is a risk that one spouse will “improvidently deplete his or her net family property,” the other spouse can apply for equalization.
What’s the difference between NET family property and equalization?
That value is called the spouse’s “net family property” (NFP) and the spouse with the larger NFP must make a payment to the other party for half the difference to even things out. That payment is called an “equalization payment”.
