Pensions and Equalization

with Mary Tersigni

Transcript of Pensions and Equalization

As has been explained in other video blogs, when a married couple separates, the parties’ property will be divided through a process known as Equalization of Net Family Property. To briefly recap, each party’s individual assets and liabilities along with the couples’ joint assets and liabilities will be included in a calculation to determine what one spouse will pay to the other to finalize the financial issues associated with the separation. The purpose of an equalization payment is to attempt to ensure that both parties walk away from the marriage in a relatively similar financial situation. Today I will be speaking specifically about how Pensions are dealt with when a couple separates.

Aside from the Matrimonial Home, in most cases, pensions can be one of the largest assets which need to be equalized upon separation or divorce. Many clients may argue that it is unfair to have to divide the value of their pension or pensions with their spouse as this asset is something they have worked very hard for. The state of the law currently does not view pensions any differently than any other type of asset which was acquired during the span of the marriage. As such, the parties must keep in mind the purpose of equalization and the goal to ensure that neither party walks away from the marriage in a vastly different financial position than the other.

The value of party’s private pension obtained through employment and/or their RRSPs on the Date of Separation will be included as part of the Equalization Calculation. Where an individual had a pension and/or RRSP prior to the date of marriage, the increase in the value of the pension between the date of marriage and the date of separation will be the value used for the equalization calculation.

As there are many different types of pensions available today, your lawyer will likely advise you to have your pension properly valued by an actuary. This expert will take into consideration the type of pension in question as well as whether it is locked in or vested, a defined contribution or defined benefit plan, and other outside factors that will weigh on its value. As lawyers, we are not trained to complete such calculations and therefore, we will not be able to advise you with respect to what the actual value of your pension was on your date of separation. While there may be a significant expense associated with hiring an actuary to complete this type of valuation, in the long run, it will be well worth the money.

That being said, it is important to note that the way in which pension valuations are dealt with for family law matters will be changing in the future. Pursuant to Bill-133 the proposed changes include a standard formula by which an individual’s pension will be given a value for equalization purposes. Furthermore, it will be the pension providers that will be responsible for providing a value of the pension in question. The changes to the law have not yet taken effect, and we currently do not know when this law will come into effect, however, it is important for you to note that when they do, the law shall apply retroactively. This would mean that any independent valuation obtained from an actuary prior to that date would no longer be useful once the law takes effect.

I will now turn my focus to the Canada Pension Plan and how the fund which every employed individual in Canada must pay into, is handled slightly differently than other types of pensions. An individual’s CPP credits are typically not included in family law negotiations as there is an absolute right, by law, for these credits to be equalized upon separation or divorce, whether the couple is married or living in a common law relationship. For this reason, and because the determination of an individual’s CPP credits is something that is determined by the Government, your lawyer will likely advise you to contact your local service Canada office for further information on how to split your Canada Pension Plan credits.

For more information on Pensions and the process of Equalization, please visit our website.