Pension Issues and Divorce

Your pension, or that of your spouse, is treated the same way as any other property accumulated in the marriage. Specifically, any growth in the pension over the time you are married is split evenly between the spouses. Pensions are sometimes the most valuable asset to be divided. The problem with pensions is that they are sometimes difficult to value. The same pension can have vastly different values depending on the evaluation method that is used. Your divorce lawyer will be able to determine the best valuation of your pension.

Valuation of the Pension

The value of a pension is often more than you would think. Its value is certainly worth more than the contributions to the plan. The value is also not static. It changes depending on how much longer the member will be working, whether the pension is indexed, whether the pension is valued as though the member was terminated at the date of separation or will continue to work and participate in the plan.

The Family Law Act does not specify how to value a pension. However, the law is changing and it will be necessary to prescribe a single value for defined benefit pensions. When this law comes into effect, administrators of Ontario regulated, non-supplemental pensions plans will have to provide members with the value of their pension for marriage breakdown purposes. This will simplify the process as an actuary will not be required to determine the value of the pension. Not all pensions are Ontario regulated (i.e. supplemental pension plans) and it is unclear how the new laws will affect these plans.

Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is a benefit plan that most workers pay into. This entitles you to a retirement pension upon retirement or disability pension if you cannot work due to a disability. The amount of pension depends on the contributions made while working, which then correspond to a certain amount of pension credits.

Upon separation, the CPP credits that you and your spouse have earned while you were together can be added up and split between you. If your spouse had more credits than you, this can be a benefit as it may entitle you to an increased pension amount or entitle you to a pension. However, there is a maximum amount of credits you can get in any given year. If you are already at your maximum, you cannot increase that amount by credit splitting.