Divorce and Pensions in Ontario: How Pension Value Is Divided

If one or both of you has a workplace pension, it may be one of the largest assets in your divorce. It is often hard to picture, because you cannot see a balance the way you can with a bank account.

This article explains in plain terms how pensions fit into property sharing in Ontario, what the Pension Benefits Act says about lump-sum transfers, and what to do about related items like the Canada Pension Plan and RRSPs.

Pensions count as property

Under Ontario's Family Law Act, when spouses separate or divorce, the spouse whose net family property is smaller is entitled to one-half of the difference between the two spouses' net family properties. Net family property is the value of what a spouse owns on the valuation date, minus debts and permitted deductions, and it is never less than zero. RRSPs and pensions are counted as property.

The valuation date is the earliest of several dates, and one of them is the date the spouses separate with no reasonable prospect of resuming cohabitation. That is why the date of separation matters for your pension.

How the pension is valued

For a pension under the Pension Benefits Act, the imputed value of a spouse's interest for family law purposes is set under that Act. In plain words, this figure is the value placed on the pension for property-sharing purposes. How it is worked out in your case depends on your plan and your situation, so it is worth confirming with a lawyer.

If the spouses are common-law and not covered by Part I of the Family Law Act, the pension valuation date is the date they separate, and only the plan member, former member or retired member, not the other spouse, may apply for the statement of imputed value.

Lump-sum transfers out of the plan

An order may provide for an immediate lump-sum transfer out of the pension plan. A spouse may apply for that transfer only if it is provided for by a court order under Part I of the Family Law Act, a family arbitration award or a domestic contract. The amount must be stated as a fixed sum or as a proportion of the imputed value.

There is a ceiling. An order, award or contract has no effect to the extent it gives the eligible spouse a lump sum of more than 50 per cent of the imputed value of the pension.

• Court order under Part I of the Family Law Act
• Family arbitration award
• Domestic contract, such as a separation agreement

Other retirement assets to keep in view

• CPP credits: contributions made while spouses lived together can be split equally after a divorce or separation. For divorces or annulments on or after January 1, 1987, the spouses must have lived together for at least 12 consecutive months, and there is no time limit to apply.
• Common-law partners: they must have lived together and then apart for at least 12 consecutive months each, and the application must be made within 48 months of separating, unless the living former partner agrees in writing to waive the limit.
• RRSPs: funds can be transferred without immediate tax to a spouse's or former spouse's RRSP or RRIF if you are living separate and apart and the transfer is made under a court order or a written separation agreement dividing property. The CRA reports this on Form T2220.

Some property is excluded from net family property, such as gifts or inheritances from a third party received after the marriage (other than a matrimonial home), and the person claiming an exclusion must prove it. A court may also award more or less than half the difference if equalizing would be unconscionable.

What to do next

• Write down the date you separated, since it can fix the valuation date.
• Gather recent pension statements, plan documents and RRSP statements for both of you.
• How your pension would be valued depends on your plan and your situation, so it is worth confirming with a lawyer.
• If you settle by separation agreement, make sure it is in writing, signed by both of you and witnessed, or it is unenforceable.
• Note the time limits for an equalization claim before they pass.

A separation agreement may cover property, support and parenting. A court may set aside a domestic contract, or a provision in it, if a party failed to disclose significant assets, debts or other liabilities.

Pension rules are technical and the tax consequences of transfers can be significant, so it is worth having a lawyer, and where relevant an accountant, review your agreement before you sign.

Frequently asked questions