Pension Valuation and Pension Dividing in divorce

Pension Valuation and Pension Dividing in divorce

  • There is no pension value calculator.

  • You need to engage the pension plan administrator to get the value of a pension.

  • The Pension Plan Administrator may charge a fee for valuing the pension.

  • Canadian law provides that married people be granted an equalization payment when divorcing unless they agree to something different.

  • The highest amount a spouse can receive out of their partner’s pension is 50%.

Pension are Property in Divorce

When going through a divorce, many issues need deciding, such as child support, spousal support, and property divisions. Property is a broad category for different assets, including movable assets like vehicles, art, cash, jewelry, and non-movable assets like real estate. 

Another property type is pensions, and this particular property type confuses most divorcing couples. Can pension property be divided? If yes, how can it be valued and divided? These questions and more typically run through the mind of a person going through a divorce. In this article, we answer them, including knowing what type of pension you are trying to divide, whether it is a federal pension or a provincial one, and the laws that apply.

Pension valuation and dividing in Canada are dependent on whether the pension in question follows provincial or federal rules. In Ontario, most pension holders have an Ontario-regulated plan. If the pension in question is an Ontario-regulated plan, it follows provincial laws, the province, in this case, being Ontario. If it is federally regulated, it could be one of two types:

  • A federal public service plan, which typically applies to people who have worked for the Canadian government, such as the Canadian Army or The Royal Mounted Canadian Police.

  • A federally regulated plan, which applies when a person works for certain non-government employers such as airlines, banks, or railroads.

The Pension Benefits Act was put in place to regulate pension plans sponsored by employers for employees in Ontario. It does not apply to the federal public service plan, a federally regulated plan, or other pension/retirement plans such as a Registered Retirement Savings Plans (RRSPs).

Pension valuation in Ontario

On January 1, 2012, a new law took effect that guided how pensions were to be divided between spouses going through a divorce. Before this time, there was no standard form that you could use to get a pension valued. You had to hire a financial professional known as an actuary to value the pension for you. 

On June 22, 2011, the Ontario Government proclaimed an amendment to the Pension Benefits Act, streamlining the pension valuation process. The amendment took effect on January 1, 2012, where you could fill out a standard form to get the value of the pension. 

You could ask the pension plan administrator of an Ontario-regulated pension plan to value a pension with the filled-out form. However, there was a caveat; if you had a court order, arbitration award, or domestic contract that was made before January 1, 2012, the amendment would not apply to you.

If the caveat did not apply to you, you or your married partner could request a pension valuation by filling out a form known as Form 1 – Application for Family Law Value. Some other firms may also be added to this for you to fill. 

Most people make the mistake of assuming that they know the value of their pensions based on the pension statement they receive annually. This could not be further from the truth as a pension valuation is very different from a pension statement, and its value much higher than that of a pension statement. 

If the pension of interest in your divorce is a provincial pension, you will have to fill Form 1, provided by the Financial Services Commission of Ontario. After filling out the form, your pension will be valued by the Pension Plan Administrator. 

If the pension was a federal public service or federally regulated plan, you might still need to get an actuarial valuation. However, there are about six pension plans catered to by the federal government, and each pension plan is unique. Thus, you may not need to get the services of an actuary but only ask the pension administrator to provide you with an estimate.

How to calculate pension value for divorce

Much as you might like it to be, there is no pension value calculator. You need to engage the pension plan administrator to get the value of the pension of interest for you. Form 1 has a part, part E, that asks for the “Starting Date of Spousal Relationship”. This requests for the date you got married unless you have a court order, arbitration award, or agreement with a different date. If this is the case, you can use an earlier date than when you got married, as long as it does predate the time you started living together before you got married (if it applies). 

The next part of the form, part F, asks for a “Separation Date”. Sometimes, couples, for one reason or the other, do not agree on the date. If this applies to you, both of you can provide two potential separation dates. However, you should note that if you provide two dates, you and your spouse will need to fill out Form 1. Thus, your application will be treated like two different applications, with each one bearing a different date.

You should also know that the Pension Plan Administrator may charge a fee for valuing the pension, ranging between $200 and $800, depending on the type of pension plan. Also, if you had asked for two different valuations due to the disagreement on the dates, you and your partner may be charged a fee each.

Upon receipt of the completed application and attendant fees, if any, the plan administrator will provide a “Statement of Family Law Value” form within 60 days. This new form gives the value of the pension, and if you had asked for two valuations, you would get two copies of the form.

Spouse entitlement to pension after divorce

Canadian law provides that married people be granted an equalization payment when divorcing unless they agree to something different. An equalization payment is an amount of money a married person sometimes gets from their partner if they separate or the other person dies. 

It was created to get partners to share whatever increase in value they add while they were married to each other. If you and your partner had agreed to an equalization payment, you might be able to divide their pension to make the payment. 

How is pension treated at divorce/separation?

The pension plan administrator handles the division of pensions. For Ontario regulated plans, you need a court order, arbitration award, or domestic contract that deals with your pension with a date no earlier than January 1, 2012. With any of this, you can instruct the pension plan administrator on dividing the pension for you. 

Typically, when you get the value of your pension from the plan administrator, they also attach forms and instructions on how to ask them to divide the pension for you. Once you complete the forms, the administrator divides and pays your share of the pension within 60 days, and this is done free of charge. 

Generally, the highest amount a spouse can receive out of their partner’s pension is 50% of the value of the pension or, if it is paid monthly, the monthly benefit.

Let Us Handle the Paperwork

Deciding to handle your pension valuation and division by yourself is not really advisable. Fortunately, you don’t have to. At Divorce the Smartway, you can sit back and let us handle the nitty-gritty of the entire process.  

If you want someone to take that load off your shoulders, get in touch with us, or call us toll-free at 1.855.731.3500.  

Additional Voluntary Contributions Family Law Terminology

Additional Voluntary Contributions

Additional Voluntary Contributions: contributions to a pension plan made voluntarily by an employee besides those required for plan benefits. Extra benefits are purchased by the additional contributions, but no additional cost is borne by the employer.

Division of Pension Credits

Division of Pension Credits:  Is a provision in pension plan and/or pension plan legislation whereby one spouse has an entitlement to a portion of the pension of his/her spouse upon divorce. The other spouse may obtain his/her entitlement from his/her partners’ pension based on the time they were married. Division of pension credits is also referred to as credit splitting.

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About the Author:
Ken Maynard CDFA, Acc.FM

I assist intelligent and successful couples in navigating the Divorce Industrial Complex by crafting rapid, custom separation agreements that pave the way for a smooth transition towards a secure future. This efficient process is achieved in about four meetings, effectively sidestepping the excessive conflicts, confusion, and costs commonly linked to legal proceedings. Clients have the flexibility to collaborate with me either via video conference or in-person through a DTSW associate at any of our six Greater Toronto mediation centers, located in Aurora, Barrie, North York, Vaughan, Mississauga, and Scarborough.

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