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The puzzle of common law pension rights

Posted by on Feb 24, 2011 in Moneyville, Retirement | 0 comments

By Sheryl Smolkin

Read this article and comments at Moneyville.ca 

Last week the Supreme Court of Canada clarified how common law spouses can claim a fair share of property assets accumulated during the relationship, but no court has tackled the wildly inconsistent pension rights of common law partners.

When a relationship ends, common law spouses who have lived together for at least one year can apply for a share of the other partner’s Canada Pension Plan credits accumulated during the marriage. If both have paid into CPP, generally the entitlement of the lower earner is increased and the future benefits of the higher earner are reduced by the same amount.

In all Canadian provinces, common law spouses also have a right to their partner’s workplace pension when a partner dies. But the definitions of common law spouse vary from one province to another and is typically different than under the CPP. To qualify in Ontario, the parties must have cohabited for at least three years, or for a shorter period if the couple has a natural born or adopted child.

But when common law spouse separate before the pension plan member dies, the family property rules in most provinces do not give the non-member spouse an automatic statutory right to any property accumulated during the marriage, including retirement savings. Unless there is a domestic contract, there is no guarantee as to how a court will divvy up a pension.

Manitoba is the only province that has addressed this inconsistency and amended its pension legislation to ensure that unless the parties opt out in writing, common law spouses are eligible for both death benefits under the pension plan when the member dies and 50 per cent of the workplace pension accumulated during the relationship if they break up.

While it can be argued that there are good policy reasons for giving only legally married couples an automatic right to share in family property if they divorce, maybe Manitoba has got it right when it comes to pensions. If common law spouses can split their CPP and collect pension plan death benefits when a partner dies, it seems to logically follow that the rights of common law spouses should be better protected when the parties split up.

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