Ask a separating couple what they own and most will begin with the house, then the cars and the savings account. A defined benefit pension may not come up at all, because no statement arrives showing a balance you can spend. Yet for a nurse at a hospital, a teacher, a municipal employee or a long-serving plant worker, a pension earned during the marriage can be worth more than the equity in a Brampton home.
Ontario has a specific system for valuing and dividing many workplace pensions. It lets a plan administrator produce a formal value, and it allows a share to be moved out of the plan without the spouse ever having to wait for the member’s retirement. It also has hard limits, and different rules for common-law partners, federally regulated plans and the Canada Pension Plan. Those differences are where mistakes tend to occur.
This article provides general information and is not legal advice. Pension rules are technical, and the correct approach depends on the plan and the couple’s circumstances.
Start by identifying which pension you have
Before anyone can talk about value, you have to know which rulebook applies. Most people fall into one of a few groups:
- Pension plans registered in Ontario. This includes many private-sector and public-sector plans. Ontario’s Pension Benefits Act and Regulation 287/11 under it apply. Large plans covering teachers and municipal employees are generally in this group.
- Federally regulated or federal public service plans. Employees of banks, airlines, interprovincial trucking firms and other federally regulated businesses often have plans under federal law, and federal public servants, military members and RCMP members have their own. Division is governed by federal legislation. With Brampton’s concentration of logistics and airport-related jobs, this comes up regularly.
- The Canada Pension Plan. This one is entirely separate. It is discussed below.
- Personal savings. An RRSP, LIRA or defined contribution account has a balance that is easier to see, but locked-in rules and taxes can still apply.
Ask for the plan booklet, your most recent annual statement and the name of the plan’s administrator. A defined benefit pension promises a formula-based income in retirement. A defined contribution pension is an account with a balance. The first of these is much harder to value by eye.
How pensions fit into equalization
For married spouses, a pension is property for the purpose of Ontario’s equalization calculation. Each spouse’s net family property includes the value of their pension interest on the valuation date, typically the date they separated with no reasonable prospect of resuming cohabitation. Section 10.1 of the Family Law Act provides that, for plans governed by the Pension Benefits Act, this value is calculated in accordance with that Act.
Remember that equalization does not mean splitting each asset. A married couple does not automatically get half of each other’s pensions. The pension value goes into one spouse’s column, and the spouse with the higher net family property generally owes the other a payment. The pension can be one way of paying this.
The relevant amount is the portion earned during the marriage, which the regulations work out by attributing part of the pension to the period between the date of marriage and the valuation date. Pension earned before the marriage is treated in a similar way to other property a spouse brought into the marriage, though it does not simply disappear from the calculation.
Getting the family law value
The first step is to ask for a formal number. Under section 67.2 of the Pension Benefits Act, the plan administrator prepares a statement of the imputed value for family law purposes, commonly called the family law value. This can be requested using a form published by the Financial Services Regulatory Authority of Ontario (FSRA), known as Form FL-1. The application goes to the plan administrator and not to FSRA.
- If Part I of the Family Law Act applies to the couple, which generally means they are married, either spouse can apply. You do not need your spouse’s cooperation to find out what the pension is worth.
- The statement must be given to both spouses, generally within 60 days of a complete application being received with the required documents.
- The administrator may charge a fee, up to a prescribed maximum.
- Evidence about the spouses’ dates, including the marriage date and valuation date, has to be provided. If you disagree about the date of separation, there is a process to handle that, although the administrator does not decide your family dispute.
Do this early. Sixty days can be a long time when you are preparing for a settlement meeting or a court deadline, and you do not want to be estimating a large asset.
The two ways of dividing it
Once the value is known, Ontario’s legislation offers different tools, depending on whether a pension is already in pay as of the valuation date.
Member not yet retired on the valuation date: lump-sum transfer. Under section 67.3 of the Pension Benefits Act, a spouse can apply for an immediate transfer of a lump sum out of the plan, if the transfer is provided for by a court order under Part I of the Family Law Act, or is authorized by a family arbitration award or a domestic contract. It might be expressed either as a specified dollar amount, or as a proportion of the family law value.
Generally, the money must go to another pension plan willing to accept it, a prescribed retirement savings arrangement such as a locked-in account, or another prescribed arrangement. In some cases, the amount might be left in the plan for the spouse, if the plan allows. Importantly, this is usually not cash in hand. The transfer stays in the retirement system and is often locked in until retirement age. It is a common surprise to be “awarded” an amount and discover you can’t use it to buy out the other spouse’s share of the home.
Pension already in pay on the valuation date: division of the payments. For a retired member, under section 67.4, the spouse may apply to receive a share of each pension instalment, expressed either as a specified amount or a proportion. This cannot be converted to a lump-sum transfer under the Family Law Act provisions.
In both cases, there is a cap. The order, award or agreement cannot give the spouse more than 50 per cent of the family law value. If it tries to, it is not effective to that extent. A settlement in which one spouse gives up the house and gets “all of the pension” will not work the way the parties intended, and this is a fairly common drafting error.
A share also has to be properly authorized. The statement of family law value doesn’t itself entitle the spouse to any of the pension. The transfer or division has to be provided for in the order or contract, and then the spouse must apply to the administrator using the prescribed form.
Should you transfer or trade?
Spouses often have a choice. One option is to transfer part of the pension. Another is to keep the pension whole and “pay” for it from other assets, such as more of the home equity or an RRSP rollover. Which is better depends on several things:
- Liquidity. A pension transfer is often locked in, but equity in a home is not. Does the spouse who is receiving money need access now, or need retirement income later?
- Tax. Pension money is pre-tax money, while the equity in a principal residence may be tax-free. Comparing a dollar in one with a dollar in the other can lead you astray. The Family Law Act lists contingent tax liabilities among the matters a court may consider in ordering a transfer.
- The effect on the member. A transfer permanently reduces the pension benefit that the member later receives. In some plans, it can affect early retirement or bridge benefits in ways that deserve a careful review.
- Retirement security. A court considering a transfer is directed to look at the assets available to each spouse, the proportion of net family property made up by the pension, liquidity, and each spouse’s resources for retirement.
- Plan restrictions. Administrators apply statutory restrictions, and a plan can have its own process. Get written confirmation of what it will accept before signing.
If an agreement is being negotiated, make sure that the wording is checked against the plan’s requirements. An administrator cannot implement a vague clause, and fixing this afterward may require consent from a former spouse who is no longer cooperative.
Common-law partners are not in the same position
Ontario’s equalization regime applies to married spouses only. Common-law partners do not have an automatic right to share in the value of each other’s pensions as they would under Part I of the Family Law Act. Their claims, if any, are made through other legal routes, and a partner who contributed to the other’s wealth may be able to make a trust or unjust enrichment claim, while support claims are a separate matter.
The Pension Benefits Act, however, uses a broader definition of “spouse” for these sections, one taken from section 29 of the Family Law Act, which includes people who have cohabited continuously for at least three years or who are in a relationship of some permanence and have a child together. This can allow partners to use the pension-division tools by way of a domestic contract or family arbitration award. There are limits. Only the plan member can apply for the family law value statement. The partner cannot apply for that on their own, so the member’s cooperation or a court’s direction may be needed. If you are in a common-law relationship and a pension is a major part of your financial picture, please get specific advice.
Canada Pension Plan credits are a separate matter
CPP is separate from the above, and it is frequently overlooked. A CPP credit split divides the pensionable earnings credits accumulated during your time together, so that both of you end up with an equal share of them for those years. Credit splitting can apply if you have lived together for at least 12 consecutive months. Service Canada’s current rules for couples whose relationship ended after 1986 include:
- Divorced or annulled marriages: there is no time limit for notifying Service Canada.
- Married and separated: at least 12 consecutive months living apart. There is no time limit, unless your spouse dies, and then you must apply within 36 months of the death.
- Common-law partners: at least 12 consecutive months living apart, and an application within 48 months of the date you started living apart, unless the former partner agrees in writing to waive that limit.
Separation agreements usually do not prevent a split of CPP credits in Ontario, except for very old agreements. Don’t include a clause assuming they do. Remember too that a split can reduce the CPP retirement or disability pension of the person who earned more.
Common mistakes
Having seen how the system works, here are some things that often go wrong:
- Leaving a pension off the financial statement. It must be disclosed. Failing to disclose a significant asset can be a ground for setting aside an agreement under section 56(4) of the Family Law Act.
- Guessing at value. The contributions on your annual statement are not the same as the family law value of a defined benefit plan.
- Missing the timeline. Equalization claims have limitation periods, generally the earliest of two years after a divorce, six years after separation, or six months after a spouse’s death.
- Forgetting about survivor benefits. Separation may affect who gets a survivor benefit or a death benefit. Designations and waivers need specific review.
- Assuming that a court order alone moves the money. The spouse has to apply to the administrator afterward, with the right forms. Follow through on it.
- Treating a federal plan as an Ontario plan. Federal pensions have their own forms and processes.
Practical next steps
If you are separated and either of you has a pension, collect the annual statements, the plan booklet and the administrator’s contact details. Confirm your date of marriage and separation, order the family law value if it applies, and think about your real retirement needs, instead of focusing only on the headline number. For background on how the rest of the family’s property fits into this, see our family law overview. If the valuation or the agreement wording is raising questions, our office can be contacted to arrange a consultation.