Kelowna Divorce & Family Mediation Center | Parenting Plan | Couple & Family Mediation
Equalization Payments
Understanding the Basics of Calculating your Equalization Payment for your Divorce
Calculating your equalization payment for your divorce is a very common step to undertake during your proceedings. 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 the property, but they can agree differently in mediation.
There can be many issues about the value and ownership of a spouse’s assets.
The following steps are intended to give you a basic understanding.
It’s worth noting that this process is fairly complicated. This is why we normally do it together in the mediation process after the separation agreement has been signed. You can show the equalization formula to the family law lawyer who will provide you with legal advice, if necessary.
STEP ONE: CALCULATING EQUALIZATION PAYMENTS
The first step in calculating your equalization payment for your divorce is to make a list of all of your assets.
This may include:
- personal property
- real estate
- bank accounts
- shares in corporations
- and pensions including Registered Retirement Savings Plans
The value of most assets can be easily determined by reference to current fair market value. However, there are some assets where the determination of value can be quite complex, such as pensions or shares in companies that are not traded publicly. The Family Mediation Center will either work with your accountant if preferred or we have a professional accountant we can outsource this task to.
STEP TWO: Factor in your total debt
Subtract the total debt including:
- credit cards
- loans
- any outstanding credit facilities
STEP THREE: Calculate your Net
Calculate your net by adding up your total of assets
STEP FOUR:
Then deduct the higher amount calculated from the lower amount and then divide by 2.
See the next example for reference:
An example of sample couple John and Beth:
| Example:: | ||
| John | Beth | |
| RSP BMO | $ 30,000.00 | $ 20,000.00 |
| Rsp RBC | $ 10,000.00 | |
| Cash | $ 12,000.00 | $ 4,000.00 |
| Sub total | $ 52,000.00 | $ 24,000.00 |
| Visa | $ (1,000.00) | |
| MasterCard | $ – | $ (1,600.00) |
| Student loan | $ (2,400.00) | |
| Total | $ 51,000.00 | $ 20,000.00 |
As you can see if you calculate both totals, then John and Beth should share $ 71,000, which is then equally divided out to $35,500 between each of them.
As a result, John needs to pay Beth $15,500 to equalize. In this case, it is 50% /50%, however, in mediation, we may negotiate differently.
Do you have more questions about calculating equalization payments for your divorce?
Please contact me if you require more details about calculating equalization payments in BC. The Family Mediation Center would love to assist you with a separation agreement that is agreeable to both parties. You can also visit us on Facebook to learn more!