Divorce Settlement in Ontario: What an Agreement Should Cover

Most separating couples would rather settle than go to trial. A settlement lets you decide the terms yourselves, but it only works if it covers the right topics and is signed in the right way.

This article walks through what an Ontario divorce settlement can include, the pension and tax points that are easy to miss, and what makes the agreement binding. It is general information, and a lawyer can confirm how it applies to your situation.

What a settlement is

A settlement is usually recorded in a separation agreement, which is a domestic contract. It may cover property, support and parenting. It is a separate step from the divorce itself, because a simple divorce application is for divorce only and no other claim, such as support or property, can be made in it.

Spouses are also expected to try to work things out outside court where appropriate. The Divorce Act requires parties to try a family dispute resolution process where appropriate, which includes negotiation, mediation and collaborative law.

Topics a settlement commonly covers

The date of separation matters because the valuation date for property can be the date the spouses separate with no reasonable prospect of resuming cohabitation. Make sure your agreement states the dates you are relying on.

Pensions, RRSPs and CPP

These assets are often the largest, and each has its own rules.

• Pensions: a spouse may apply for an immediate lump-sum transfer from a plan only if it is provided for by a court order, a family arbitration award or a domestic contract, stated as a fixed sum or as a proportion of the imputed value. Any lump sum above 50 per cent of the imputed value has no effect.
• RRSPs: funds can be transferred without immediate tax to a spouse's or former spouse's RRSP or RRIF if the spouses are living separate and apart and the transfer is made under a court order or written separation agreement.
• CPP: contributions made while spouses lived together can be split equally after a divorce or separation.

For common-law partners, different pension and CPP rules apply, including a 48-month application window for CPP credit splitting unless the other partner waives it in writing.

Making the agreement binding and durable

A separation agreement is unenforceable unless it is in writing, signed by the parties and witnessed. Even a signed agreement can be challenged. 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, did not understand its nature or consequences, or on contract-law grounds.

If you use arbitration, a family arbitration award is enforceable only if, among other conditions, each party received independent legal advice before making the arbitration agreement. In collaborative law, the lawyers' retainer includes a disqualification agreement, so both lawyers must withdraw if the matter goes to court.

Full financial disclosure is the best protection for both sides. Exchange complete statements of assets and debts before you sign.

What to do next

• List all assets and debts, including pensions and RRSPs, with values on the separation date.
• Decide how you will negotiate: directly, through mediation, or with lawyers.
• Note any deadline for an equalization claim, which can be as short as two years after a divorce judgment.
• Update your will, since a divorce revokes gifts to a former spouse unless the will shows a contrary intention.
• Have a lawyer review the draft before you sign.

Once the divorce is granted, it generally takes effect on the 31st day after the judgment is made. The court may order an earlier date if special circumstances justify it and the spouses agree and undertake that no appeal will be taken, or any appeal has been abandoned.

Frequently asked questions