Knowing how to value and divide your provincial pension benefits when you and your spouse are going through a separation can be challenging. The legislation that governs pension valuation and splitting can be complicated to understand—especially if math is not your area of expertise!
To help clarify the rules for administering provincial pension benefits upon marriage breakdown, the Financial Services Regulatory Authority of Ontario recently released a guidance document for pension administrators and other professionals – as well as a plain language guide for members and their spouses. The terms of this guidance came into effect on November 9, 2021.
If you and your spouse are separating and trying to figure out how to value and divide your provincial pension benefits, this post will provide you with the basics of what you need to know. However, we recommend contacting a family lawyer for advice on applying these rules to your specific situation.
When married spouses separate, each spouse keeps the property they solely own. However, if a spouse’s property increases in value during the marriage, they must share that increase (less any debts) with their spouse. This process is known as “equalization”.
To determine whether equalization is required, each spouse must calculate their “Net Family Property”. This calculation is made by subtracting the net value of a spouse’s property (assets less liabilities) on the date of marriage from the net value of their property (assets less liabilities) on the date of separation.
The law entitles the spouse with the lower Net Family Property to one-half the difference between the two Net Family Properties. This transfer is known as an “equalization payment”.
Each spouse must include the value of their provincial pension plan (if they have one) on the date of separation and the date of marriage (if applicable) when calculating their Net Family Property.
If Spouse 1 had a pension valued at $50,000 on the date of marriage and now valued at $100,000 on the date of separation, both of these values are included in calculating their Net Family Property. If Spouse 2 did not have a pension on the date of marriage but has a pension valued at $25,000 on the date of separation, the pension will only appear as an asset as of the date of separation.
Date of Separation $280,000
Date of Marriage $100,000
Net Family Property $180,000
Date of Separation $320,000
Date of Marriage $220,000
Net Family Property $100,000
In this example, Spouse 1 owes Spouse 2 an equalization payment of $40,000. This represents one-half the difference of their respective Net Family Properties.
A spouse who owes an equalization payment may choose to use their pension to make this payment. With the help of their lawyers and other financial professionals, the spouses decide whether to divide the payor spouse’s pension or use other assets to make the equalization payment. This decision is typically based on the liquidity of the payor spouse’s other assets.
In Ontario, only married spouses are required to equalize their Net Family Properties upon separation. The rules on property division and equalization for married spouses do not apply to common-law spouses. However, common-law spouses have similar rights and obligations regarding spousal support, child support, and pension survivor benefits.
While it is not required by law, common-law spouses may choose to equalize their Net Family Properties – including their pension plans – through a domestic contract. If you are considering dividing your pension with your common-law spouse, it is worthwhile to speak with a lawyer first.
The Financial Services Regulatory Authority has distilled the process for valuing and dividing a spouse’s pension into a six-step process. Steps 1 to 3 explain how to obtain the value of your pension so you can calculate your Net Family Property.
Step 1: You or your spouse apply to your plan administrator for a Statement of Family Law Value.
Step 2: Your plan administrator prepares the Statement of Family Law Value.
Step 3: If you (the pension member) owe your spouse an equalization payment, you must both decide whether you would like to divide your pension to satisfy this payment.
If you decide to divide your pension to make an equalization payment, steps 4 to 6 guide you through the process of splitting your pension.
Step 4: Your spouse (non-pension member) applies to your plan administrator for a payment from your plan.
Step 5: Your plan administrator pays your spouse.
Step 6: Your plan administrator adjusts your remaining pension share.
Ontario’s Financial Services Regulatory Authority is a provincial body, so its guidelines only apply to provincial pension plans. They do not apply to federally-regulated pension plans, federal government pension plans, government-sponsored retirement benefits, or any other retirement or pension benefits not governed by the Ontario Pension Benefits Act.
The family lawyers at NULaw have extensive experience helping clients value and divide their property after separation. If you have questions about whether the pension rules in this blog apply to you or about pension division after a marriage breakdown, contact us at 416-481-5604 or reach out online for a consultation.