Pension Division After Separation in Ontario: What Gets Split

For many people, a workplace pension or RRSP is one of the largest assets they own, yet it is easy to overlook because you cannot see it in a bank account. When a marriage ends, those assets need to be identified, valued and dealt with.

This article explains the general approach in Ontario for married spouses. How it applies to your own plans depends on your situation, so confirm the details with a lawyer or the plan administrator.

Pensions are part of the property picture

Married spouses in Ontario share equally the value of property acquired during the marriage. Each spouse works out a net family property figure: property owned on the separation date, minus debts and excluded property, minus net property owned on the date of marriage (not counting the family home). The spouse with the larger figure pays half the difference as an equalization payment.

An Ontario pension is property counted in net family property. That means your pension is part of the calculation even though it may not pay out for years.

You do not have to divorce after separating. Provincial law, in Ontario the Family Law Act and the Children's Law Reform Act, deals with support and parenting for married couples who separate but do not apply for a divorce. Because the separation date matters so much to the calculation, it is worth writing it down early.

Getting a value for a workplace pension

To see a pension's value for family law purposes, ask the pension plan administrator. Start early, because it can take time to receive the information.

• Request statements for each plan either of you belongs to, including past employers.
• Ask what type of plan it is and what date the value is calculated to, and make sure the separation date is used.
• Keep the administrator's written response for your lawyer or financial professional.
• Ask about any rules that apply to your particular plan, since federal and other non-Ontario plans may follow different rules.

Once you have the value, it goes into the net family property calculation described above. How it is then handled in your case depends on your situation, so it is worth confirming with a lawyer.

RRSPs and tax-free transfers

A tax-free direct transfer from one spouse's or common-law partner's unmatured RRSP to the other is allowed if the two are living separate and apart at the time of transfer. It must be made under a court decree, order or judgment, or a written separation agreement, to settle rights arising from the breakdown. Form T2220 is normally used.

If funds are paid out to you rather than transferred directly, they are taxable. A tax professional can help you avoid an unplanned tax bill.

What may be left out, and who is covered

Because equalization is a married-spouse rule, common-law partners usually need other approaches, such as a cohabitation agreement or a court claim to recover a contribution.

Agreements, mediation and deadlines

Marriage contracts and cohabitation agreements can deal with property, support and where people live, but they cannot decide parenting or decision-making for children. Both parties must sign in front of a witness, who must also sign. Many people work toward agreement with the help of family mediation, which is available in Ontario family courts, and off-site family mediation is charged on a sliding scale based on income and number of dependants.

A court claim for an equalization payment must be started within six years after the day of separation, or two years after the divorce becomes final, whichever comes first. Whether a deadline can be extended depends on the facts, so do not count on that.

What to do next

• Write down your separation date.
• List every pension, RRSP and similar account for both spouses.
• Ask each plan administrator for a valuation.
• Ask a lawyer how your plans should be valued and divided.
• Ask an accountant about tax before moving any RRSP money.
• Make sure any written agreement states how each retirement asset is handled.

Frequently asked questions