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LIRA rules in Separation and Divorce?

Locked-in Retirement Account

  • Required to provide a statement showing your LIRA balance, on your date of marriage as well as your date of separation.

  • The Income Tax Act is an act that provides tax-free rollovers of LIRA between separating spouses.

what-you-need-to-know

What Is a Locked-in Retirement Account?

A Locked-in Retirement Account (LIRA) is a form of registered retirement investment fund in Canada that allows withdrawals only under exceptional situations before retirement. The locked-in retirement account is intended for a former pension plan member, an ex-spouse, or a surviving spouse to hold pension assets.

While the funds are locked in, cash withdrawals are not permitted. Transferred pension money to a LIRA can be used to buy a life annuity or transferred to a life income fund (LIF) or a locked-in retirement income fund (LRIF).

How Locked-In Retirement Accounts are factored in Divorce

Either spouse can own property and carry debts under their names. This means that you do not automatically become the co-owner of any preexisting assets such as a Locked-In Retirement Account (LIRA). This asset belongs solely to your spouse, and it will increase their date of marriage deduction, and possibly cause a decrease to their net family property if they come into a marriage with a preexisting Locked-In Retirement Account.

The function of the net family property is to measure the forward progress during the marriage, starting from the date of marriage and ending at the date of separation. The assets of a spouse are considered matrimonial assets that are to be equalized or divided, regardless of whose name they are under. It is crucial to understand that assets may not be divided or equalized in the event of a divorce.

Your spouse and yourself can come to an agreement that other debts or assets of equal value can be used to cover anything that is owed. Your spouse and yourself might agree to not divide any of your debts or assets at all, which would leave your assets unaffected. In the end, whatever conclusion your spouse and you come to regarding your assets, it would be prudent for any decision made to be done on a complete set of facts (financial disclosure).

financial disclosure is crucial

In the event of a divorce, you, your spouse, and your advisor will need to be aware of all assets between yourself and your spouse. To do this, both parties are required to present information on all assets, income, and debts. This is known as financial disclosure and is crucial for both parties to reach an informed divorce settlement.

Your locked-in Retirement Account (LIRA) statement and records will be used to substantiate your LIRA Account holdings when preparing your Financial Statement Form required in your jurisdiction.

If you are unable to find the necessary documents in your personal files, then you may request them from your financial planner, investment advisor, accountant, tax files, and your local bank.

What happens to your retirement savings in a divorce?

what-you-need-to-know

Is a LIRA an asset to be addressed in separation and divorce

Accordingly, you will be required to provide a statement involving your LIRA balance, including your date of marriage as well as your date of separation. A significant issue in regards to LIRA is that its value is calculated by taking note of differed taxes that are required to be paid. Notional tax rates are commonly applied, based on expected income and the taxation level upon the retirement of the person who acquires them.

The Income Tax Act is an act that provides tax-free rollovers of LIRAs, RRSPs, and RRIFs between spouses that have a written separation agreement or court order. This allows for equalization of registered assets without remarkable tax implications, with records of your financial position, as well as your spouse’s at the date of marriage and date of separation. All of this aids with calculating net family property faster and simpler.

Can a LIRA be transferred to a spouse?

The Income Tax Act provides tax-free rollovers of LIRA Accounts between spouses that have a written separation agreement or court order. This allows for equalization of registered assets without remarkable tax implications, with records of your financial position, as well as your spouse’s at the date of marriage and date of separation. All of this aids with calculating net family property faster and simpler.

Making an LIRA Account financial disclosure

what-you-need-to-know

In the event of a divorce, you, your spouse, and your advisor will need to be aware of all assets between yourself and your spouse. To do this, both parties are required to present information on all assets, income, and debts. This is known as financial disclosure and is crucial for both parties to be honest to reach a divorce settlement.

Your locked-in Retirement Account (LIRA) statement and records will be used by the bank to substantiate accounts, pensions, securities, and savings of your Financial Statement when preparing a separation agreement, or the financial disclosure Form which is required in your jurisdiction.

If you are unable to find the necessary documents in your personal files, then you may request them from your financial planner, investment advisor, accountant, tax files, and a local bank.

LIRA Account financial disclosure Documents

LIRA Locked-in Retirement Account

The statement is typically sent to subscribers on a quarterly basis, usually in March, June, September and December. If you have not received your statement for the period, you may need to conduct inquiries.

More about finding your Locked-in Retirement Account (LIRA): Statement

A statement is used to summarize your investment holdings as well as provide you with transaction details over the reporting period. You have multiple options when requesting your Locked-In Retirement Account (LIRA) statement for your financial disclosure requirements. Don’t worry, most of these are quick and very simple to do.

The majority of deposit-taking institutions are able to send you your monthly statement by mail, said paper statement will contain all pertinent account information including your transactions and balances, as well as the amount of interest you have earned.

These statements will be made available on the same day every month. If you have not received your statement around this time, contact your financial institution and request a copy. It is also vital to inform your financial institution of any address changes so they are able to make sure that you receive your statement at this new address.

E-Statements

Most financial institutions will offer an option to not receive paper statements and instead opt for E-statements. These statements will be sent by your financial institution by email to an address you provide. These emails will contain your statement as a file attachment or a link to view the document on their website. These e-statements will contain all of the information you would find on a paper statement.

Online Banking

If you choose to sign up for online banking with a financial institution, you will be able to access your current and historic statements online. After logging on to the lender’s website using a username and password of your choice, you will typically be able to select an option to view your statements, and a list of available statements will be presented to you on your browser. Now you will be able to click on the one you wish to view and it will open in a new tab on your browser or as a .pdf file. From here you will have the options to view, print, and save the files to your personal storage device.

If, for whatever reason, you are not able to access your information online, then you will be able to do so in person at your financial institution. After providing a valid form of ID to prove you are the account holder, you will be able to request a printed copy for yourself from the financial institutions representative. While you are there, it would be prudent to verify a delivery method on your statement that best suits your needs.

Who owns this document?:

These documents are individually owned by either spouse and are not jointly owned together.

Obtaining a digital copy of this document:

what-you-need-to-know

Obtaining  a digital copy of this document

  1. Many online sources allow you to download a digital copy to the device.
  2. Most up to date Web Browsers allow you the option of “Print to PDF”
  3. Scan your hard copy to a pdf.   

Note: This can be done on a personal (home or work) scanner, or can be done at a retailer such as Staples Business Depot

Final Thoughts

Navigating the complexities of a marriage breakdown can be daunting, especially when it involves the division of pension assets. It's crucial to understand the intricacies of the Ontario Family Law Act and the Ontario Pension Benefits Act, which govern the division of registered pension plans in the event of a separation or divorce.

The family law valuation date, which is typically the separation date, plays a significant role in determining the family law value of the pension accrued. This value is crucial in formulating a fair and equitable separation agreement. It's also important to note that the division of pension benefits may involve a lump sum transfer or lump sum payment, depending on the specifics of the pension plan and the applicable legislation.

In cases where one spouse is an active plan member or a retired member receiving pension payments, the other spouse, whether legally married or in a common law relationship, may be entitled to a portion of the member's pension. This could be in the form of survivor benefits or a share of the pension benefits upon the member's retirement or death.

Given the complexity of these matters, it's advisable to seek independent legal advice. A legal or financial advisor can provide guidance on the pension valuation process, the implications of a domestic contract, and the potential tax adjustments associated with the division of pension assets. They can also help interpret the plan member's status, the implications of a court order, and the details of the pension plan, including the normal retirement date and the options for retirement savings.

Remember, the decision-making process during a marriage breakdown can be emotionally charged and complex. It's crucial to take the time to understand the intricacies of your pension plan, the family law values, and the potential impact on your retirement savings. It's also important to complete all required documents, such as a joint declaration or a spouse's application, to ensure a smooth process.

In conclusion, while the division of pension assets can be a complex aspect of a separation or divorce, understanding the key elements of the process and seeking professional advice can help ensure a fair and equitable resolution. Whether you're dealing with a lump sum transfer, a survivor pension, or a life income fund, remember that you're not alone. There are resources and professionals available to help you navigate this challenging time.

At DTSW:

We understand that navigating the complexities of separation and divorce can be overwhelming, especially when it comes to understanding the intricacies of financial matters like LIRA. You're not alone in this journey. Our team of professionals at DTSW is here to assist you. We help intelligent and successful individuals like you to craft clear and straightforward separation agreements, ensuring a smooth transition towards a secure future.

We believe in sidestepping the excessive conflicts, confusion, and costs often associated with legal proceedings. We offer a collaborative approach, where you can choose to work with us via video conference or in-person at any of our six Greater Toronto mediation centers, located in Aurora, Barrie, North York, Vaughan, Mississauga, and Scarborough.

Remember, every question you have is important, and we're here to provide the answers. We encourage you to reach out to us. Let's take the first step together towards understanding and resolving your unique situation.

Schedule a Get Acquainted Call with us today. Let's start the conversation and pave the way for a secure future, the smart way.

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since you’re here…

Do you value fair costs, compressed timelines, your well-being and a favourable outcome?
If you have children, are approaching retirement, or simply in the primary pursuits of life, no matter what your station in life, separation and divorce often presents some unique challenges. That said reaching a settlement should not break you financially or break your family. Like life, Separation and divorce also have their stages. The early decisions you make and the path you take are directly connected to the quality of your outcome.

The path you take

Let’s hear from Divorce Industry insiders about lawyers and litigation.

“Entering the litigation process forces people to take an adversarial stance because that’s the way the system is designed.”

“Because a court can only do so many things, the answers are impeaching us already. Has to be custody, has to be access, has to be amount of support, has to be division of assets, in a way that the law stipulates. So they’re very bounded by the results because a court can only order so many things.”

“Lawyers unfortunately because that’s their job, tend to reinforce that [adversarial stance]. When you have people who are hurt, who are in crises, who are afraid, who are worried, and they see it as a war. And that’s really dreadful for kids”

June Maresca – Family Court Judge

“The process requires people to bring out the worst in each other. My ex-husband is like this and like that, all the most horrible things. My ex-wife is like this and like that, it brings out the worst in people. So the other party reading that gets their back up and retaliates.”

“She said I knew that our marriage was broken, but after the litigation our family was broken. And it just, it broke my heart.”

Toni Pietrantoni – Family Law Lawyer

“Once you thrown mud at somebody and they throw mud back at you, it typically gets to the point where the hate level does not decrease, the hate level increases.”

“When I see litigation, it’s based on a binary system. You either win or you lose, or on an issue, you’re right or you’re wrong.”

Richard Bennett – Family Law Lawyer

“And at one point my mom said well you have to choose who you’re going to live with, me or your dad. And I couldn’t study for about a good two months and we had finals coming up, so it was difficult.”

Child of Divorce

“The time has come for a fresh conceptual approach to resolution of family disputes in Ontario”

Warren Winkler – Ontario Chief Justice  2007 – 2013

“The empirical evidence shows that it isn’t necessarily the separation and the divorcing of parents that creates the psychological and emotional damage in children, it is the conflict that happens afterwards.”

Julia Haasz  – Family Law Lawyer

“The litigation process is expensive, time-consuming, and it’s not going to have the effect people think it’s going to have.”

Francine E. Van Melle  – Family Court Judge

What about Self-Representation?

The family court system has seen a terrific increase in the number of self-represented litigants (self-reps, or SRLs) over the past few years. But what does it mean to be a self-rep? Judges and lawyers, as well as the system itself, are all struggling to understand who how to better accommodate self-reps in a system built upon the expectation of both parties having lawyers to act for them.

The National Self-represented Litigants Project revealed some disturbing figures. Over a period of 4 years and 3 months ending April 6, 2016, in Ontario Superior Court cases where there was one self-rep and one represented client, the self-rep won only 14% of the time and lost 73% of the time. (The remainder resulted in no orders or split orders.) While there are many explanations for this, it’s clear that a person without any legal help or assistance is facing an uneven playing field.

The resolution value ladder

The resolution value ladder

The further down the resolution value ladder you start, the higher cost go, and the longer timelines extend. Bypass low-value processes and start with the high-value mediation process. Whether you have a settlement in mind and just need a separation agreement prepared or need assistance reaching a settlement, contain costs and conflict by working with a neutral third-party – mediator.

Learn more about Soft Landing Divorce Settlement Method

“Research tells us the greater the degree to which the parents own the outcome, the greater the likelihood they will actually follow through, and that reduces the conflict.”

“People are like snowflakes, families are like snowflakes. No two are the same. And so the benefit of a collaborative process, there is no rubber stamp, there is no template that anyone has to fit in to”

Gary Direnfeld Social Worker MSW, RSW

About the Author:
Ken Maynard ADFA, Acc.FM

I assist intelligent and successful couples in crafting clear and straightforward separation agreements, ensuring a smooth transition towards a secure future. This is achieved in four meetings or less, sidestepping the excessive conflicts, confusion, and costs often associated with legal proceedings. You have the option to collaborate with me via video conference or in-person with a DTSW associate at any of our six Greater Toronto mediation centers, located in Aurora, Barrie, North York, Vaughan, Mississauga, and Scarborough.

Have a few questions -  Tap here to Schedule a Get Acquainted Call

 

 

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Ken Maynard ADFA, Acc.FM