Pensions & Divorce/Separation in Ontario

How Are Pensions Affected by Property Division Laws?

Pensions are property under the Family Law Act, and are therefore included in a spouse’s net family property for the purposes of equalization.

The Family Law Act and the Pension Benefits Act were revised in 2012 to simplify the process of calculating and dividing the value of a person’s pension assets. Formerly, spouses would have to hire an actuary to determine the value of their pension assets. Now, that value is to be determined by the pension administrator.

As part of an equalization payment, courts can order a spouse to immediately transfer a lump sum out of his or her pension plan.

In determining whether or not such an order is appropriate, s. 10(4) of the Family Law Act specifies that the court will consider:

  • The nature of the assets available to each spouse at the time of the hearing.
  • The proportion of a spouse’s net family property that consists of the imputed value, for family law purposes, of his or her interest in the pension plan.
  • The liquidity of the lump sum in the hands of the spouse to whom it would be transferred.
  • Any contingent tax liabilities in respect of the lump sum that would be transferred.
  • The resources available to each spouse to meet his or her needs in retirement and the desirability of maintaining those resources.

If a spouse will receive the first installment of a pension on or before the valuation date, courts also have the power to order that payment to be divided.

Canada Pension Plan Credits

Canada Pension keeps a record of the contributions each person makes each year on their pensionable earnings under the Canada Pension Plan (CPP). The more pension contributions a person makes during their lifetime, the greater the government pension payout will be upon their retirement.

Pension contributions are referred to as “credits.” When married couples separate or divorce, the credits the spouses have accumulated over the course of their marriage are divided equally between them in a process referred to as “credit splitting.” If the spouses’ earnings during the marriage were equivalent, there will be no credits to split. But the greater the income disparity over the course of the marriage, and the longer the marriage, the greater the difference will be between their pension contributions during the marriage. The spouse with the greater contribution will then split his or her credits with the other spouse.

For married couples, this splitting of Canada Pension credits is mandatory, unless the spouses have a separation agreement that provides otherwise. For common-law couples, the split is not mandatory, but either spouse can apply to have their credits split. That application can only be made after the spouses have been separated for one year, but must be made within four years of separation.

To find out how your pension may be affected, or if you may be entitled to a portion of your spouse’s pension, call (905) 581-7222. Our Ontario family lawyers can advise you of your rights, responsibilities, and legal options.

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