How Pensions Are Treated in an Ontario Divorce

Are Pensions Subject to Property Division?

Yes. Pensions accumulated during the marriage are included in the net family property (NFP) of the spouse who holds the pension. The portion of the pension value attributable to the period from the date of marriage to the date of separation is the relevant amount for NFP calculations.

Types of Pensions

Defined Benefit Pensions

A defined benefit pension promises a specific monthly income upon retirement, based on years of service and salary. These pensions are more complex to value because the benefit depends on future events (such as salary at retirement and life expectancy). Actuarial valuations are often required.

Defined Contribution Pensions

A defined contribution pension has a current account balance that grows over time. The value of the account is generally easier to determine than a defined benefit pension, as the account balance on the valuation date is ascertainable.

Valuing a Pension

Defined benefit pension valuations calculate the present value of the future pension benefits earned during the marriage. The resulting ‘commuted value’ represents the lump sum equivalent of the future pension entitlement.

Pension Division vs. Pension Equalization

There are two main approaches to dealing with pensions in an Ontario divorce. The first is to include the pension’s value in the equalization calculation and pay out the corresponding share in cash (from other assets or by payment arrangement). The second is to divide the pension itself — splitting the pension plan so each spouse has their own pension entitlement.

Pension Division Under the Pension Benefits Act

Under Ontario’s Pension Benefits Act, up to 50% can be transferred out of the pension plan into the other spouse’s own RRSP or pension plan. The process involves obtaining a court order or domestic contract and filing it with the pension administrator.

CPP Credit Splitting

The Canada Pension Plan (CPP) allows for credit splitting upon divorce. Each spouse receives an equal share of the CPP credits accumulated by both spouses during the period of cohabitation. This is an administrative process and does not require a court order, although an application to Service Canada must be made.

Practical Considerations

Pension division is a highly technical area. The plan documents, governing legislation, and the terms of any court order must all be carefully considered. Errors in pension documentation can result in the receiving spouse getting less than they are entitled to, or in unintended tax consequences.