Next to your home, if you have a pension, there’s a good chance it’s your largest asset. Given the potential size of this asset and the rate at which a pension can grow, when you separate from your spouse, it is extremely important that you take the time to properly address pensions in any final settlement.
Is There an Entitlement to Division?
How your pension is treated in a family law settlement can vary from case to case. Married spouses have automatic property rights under the Family Law Act, specifically the entitlement to an equalization of net family property. In the equalization process, the value of any pension benefits accumulated during the marriage by either spouse should be part of the calculation. Click here to read more about equalization.
This is contrasted with common law spouses, who are not married, and who are not entitled to an equalization payment under the Family Law Act. Although common law spouses who have resided together for at least one year may be able to apply for a division of a pension entitlement under pension legislation, they are not automatically entitled to do so under family law legislation. The pension legislation is simply the mechanism whereby pensions are transferred, unlike the family law legislation which determines if and how property, including pensions, is to be divided upon separation.
A common law spouse claiming an interest in their spouse’s pension will first have to show that he or she is entitled to share in the growth of the pension during marriage. Entitlement may be a result of the dynamics of the relationship, which may include contributions that the common law spouse made towards their spouse’s career, earning potential, or services provided at home closely related to their spouse’s ability to work and earn the pension, and joint family ventures.
How is the Pension Divided?
Married spouses, who are entitled to an equalization payment, will need to decide whether it is more beneficial for them to include the value of the pension in the equalization of net family property, or whether they will divide the pension at source separately from the rest of the family property (if the pension plan is one that provides for this option).
The only way to determine which option is most beneficial for you, in your particular circumstances, is to have all of the necessary information available about the pension. In Ottawa, many people have pensions with the federal government, which are subject to division under the federal pension legislation. However, for family law purposes pensions must be valued pursuant to the Ontario pension legislation.
The Ontario pension legislation provides the method for calculating the ‘Family Law Value’ of the pension, which is the value of the entitlement, as well as the ‘Maximum Transferrable Amount’, which is the maximum amount of the pension that can be transferred from the pension to the former spouse. This means that if you have a pension administered by the Ontario government you can apply for a valuation from the pension administrator who will do so pursuant to Ontario valuation methods.
On the other hand, if you have a federal pension, the federal administrator of the pension plan can provide an estimate of the maximum transferrable amount (the maximum amount you can transfer to a former spouse), however you must have the pension valued by an independent actuarial to determine the Family Law Value (the amount of the entitlement) pursuant to Ontario valuation standards.
Once you have this information, your family law lawyer can help you work through the scenarios to understand the impact each option can have on your situation to help you make a realistic and cost effective choice for your family circumstances.