Dividing Pensions on Marriage Breakdown

A Family Lawyer is the Key to Resolving Problems Relating to Divisions of Pensions

In the past, some common reoccurring problems have risen from the division of pensions upon family breakdown. For example, if a member spouse’s benefits are not readily available due to the fact that the member spouse is yet to retire, then an accurate payment will be highly difficult to assess. This difficulty is caused by the disparities that can arise between pension entitlement and accessibility.

To help resolve these common problems, the new bill, Bill 133, the Family Statute Law Amendment Act, has been passed. This bill makes amendments to the calculation of pensions between separating spouses under the Pension Benefits Act and the Family Law Act. To understand and take advantage of these changes, you must find a divorce lawyer who can use the new Bill 133 to benefit your case. To find the right family lawyer, search our family lawyer referral service.

A Skilled Divorce Lawyer will Help Determine Accurate Equalization Payments

A divorce lawyer will have extensive knowledge of the new Pension Benefits Act and the Family Law Act which will determine the lawful way to divide pensions upon divorce. Property that was accumulated by spouses during marriage will now be equalized on the breakdown of the marriage. Before the new Bill 133 was passed, the property value was split at the time of an evaluation. Now, the value will be determined by future income streams determined by an actuary. This value is included in calculating a spouse’s net family property which can result in a substantial payment. To ensure the correct valuing of pensions are determined, a divorce lawyer who is experienced in Family Law must review all aspects of your evaluation.

Canadian-Lawyers.ca has made it easy to browse and compare lawyer profiles all in one place. Use our service to find a certified divorce lawyer in Canada or the USA today.

Jodi Kovitz is a Toronto lawyer and expert in family arbitration and collaborative law. Below is her article from The Lawyers Weekly which discusses implications of Bill 133.

July 2, 2010

For years, the Ontario family law Bar lobbied the attorney general to introduce legislation to reform the historically problematic division of pensions on family breakdown. In May 2009, Ontario finally passed Bill 133, the Family Statute Law Amendment Act, which makes amendments to the calculation and distribution of pensions between separating spouses under the Pension Benefits Act and the Family Law Act. (The provisions of Bill 133 concerning pensions will not be proclaimed in force until the accompanying regulations have been enacted.)

In Ontario, the value of property accumulated by spouses during marriage, including any increase in value of property they brought into the marriage, is "equalized" on the breakdown of the marriage. The process involves an accounting of the value of property of every kind to determine the equalization payment owing by one spouse to the other.

The value of a spouse's entitlement to receive a pension is considered to be "property" under the Family Law Act and is therefore subject to the equalization. The value of a defined benefit pension has traditionally been the present value of the probable future income stream (net of taxes), as determined by an actuary. The value of a defined contribution pension has typically been the amount in the fund to the employee's credit at the valuation date.

Where a member spouse has an interest in a plan with a high value, that value is included in calculating his net family property, resulting in a substantial equalization payment. In most cases, the member spouse's benefits are not yet payable, because the member spouse has yet to retire. This result is often problematic, since a significant disparity can arise between the value of the pension entitlement and its accessibility to satisfy the equalization payment. As a result, plan members have in the past had to borrow money or sell other assets to satisfy the equalization payment; in many cases, they may not have had the ability to do so.

Spouses could also elect to carve out the pension from the equalization process. This is often referred to as an "if and when" arrangement - the pension is divided between the spouses only if and when it is paid. While the Supreme Court of Canada ruled in Best v. Best, [1999] S.C.J. No. 40 that courts can make an order for an "if and when" division pursuant to subs. 9(1)(d)(i) of the Family Law Act, this option is practically only available if the spouses agree to it.

Even if spouses can agree to an "if and when" arrangement or get a court order for one in exceptional circumstances, these arrangements pose a number of difficulties. There are significant risks that the pension will never be equalized with the non-member spouse, difficulties in determining the appropriate share to be paid over to the non-employee spouse, variations in the amount that is eventually paid to the non-employee spouse and a risk that such arrangements could be unenforceable.

Once proclaimed, Bill 133 will provide many changes to the Family Law Act and Pension Benefits Act of Ontario for defined benefit pension plans. Highlights include:
  • the option of dividing the pension in pay between the spouses if the parties separate post-retirement;
  • the option of transferring a pre-tax amount from the pension (maximum of 50 per cent) to a pension or retirement savings vehicle or locked-in fund of the non-member if the parties separate prior to retirement;
  • by agreement in a domestic contract, unmarried spouses may opt into the pension division system; and
  • pre-tax "valuation" of the pension will be performed by pension plan administrators, rather than by actuaries hired by the parties.

Some practitioners have welcomed the changes provided for by Bill 133, saying they may simplify the process for dealing with pension assets on marriage breakdown and permit the settlement of equalization claims out of pension interests or out of pensions in pay. On the other hand, critics have argued that the formula for division (not yet known) could prove to be unfair to the spouses of the pension members. There are also concerns that pension plan administrators will not be qualified to assume the new role of valuing pensions for family law purposes and that there will be so many exceptions that the process will be difficult to manage. Much of the effect of the reforms will depend on the regulations currently being drafted.

Family law clients and their counsel have a dilemma in terms of whether to proceed under the current legislation, or to wait until Bill 133 is in force. The existing approach is known but not always satisfactory, and the new approach has benefits but is not entirely understood. There are transition provisions that will make the forthcoming changes apply retroactively to unresolved matters, but these rules do not permit pension division under the new law if a statement is set out in a prior order, arbitration award or domestic contract - which means that clients and counsel have to think through this choice very carefully.

Jodi Kovitz practises all aspects of family law as an associate at Torkin Manes LLP in Toronto. She has received advanced training in family arbitration and collaborative law.

Find a Canadian Family Lawyer on Canadian-Lawyers.ca - Powered by Lawyers.com.
Terms & Conditions    Privacy    Cookie Policy    Copyright© 2016 Internet Brands, Inc.All rights reserved.