By Sheryl Smolkin
Read this article and comments at Moneyville.ca
When you and your spouse exchanged wedding vows, you promised eternal love “till death do us part.” But often love doesn’t last that long.
In fact, Statistics Canada reports that for recently married Canadian couples, the risk of divorce by their 30th wedding anniversary is almost 40 per cent. And when spouses separate, one of the most contentious issues is how to split pensions, which form part of family property.
Family property issues are provincially-regulated and pension credit-splitting rules vary among provinces or if you work for a federally-regulated company. In Ontario, only legally married spouses are automatically entitled to a share of their spouse’s property. However, common law spouses can agree to a property split in a domestic contract.
Ontario family law legislation requires that family assets be “equalized” on separation or divorce. That means if you have property worth $200,000 and your spouse’s property is valued at $100,000, you have to pay your ex $50,000. The equalization payment can also be satisfied by trading off other assets. For example, if the values are comparable, full ownership of the family home may be transferred to your spouse, while you retain your pension.
Things get a little more complicated when the pension plan is the major asset and you need to use money in the pension plan to settle your spouse’s family property claim.
A domestic contract or court order can provide that a spouse is entitled to up to 50 per cent of the other spouse’s pension benefit accumulated during the marriage. But currently, non-member spouses cannot get their hands on the money until the member leaves his job or retires.
As a result, Ontario pension settlements on marriage breakdown have come to be known as “if and when payments.”
“If and when payments” are both problematic and inconsistent with the rules in other Canadian provinces. Most parties typically want to settle all of their marital property issues as soon as possible so they can get on with their lives.
Although the Ontario government finally recognized the hardship caused by the present system and passed new family property legislation late last year, the revised statutory provisions have not yet come into effect.
Under the amended rules, where a couple separates before retirement, the non-member spouse will no longer have to wait to get a share of the pension. It will be possible to satisfy the equalization payment by applying for an immediate transfer of up to 50% of the pension’s value to another pension plan or RRSP. The money can also be left in the member’s pension plan. Spouses of members who separate after retirementwill be able to apply to the pension plan administrator for a division of the pension in pay.
“The new rules will only apply to cases where a court order or domestic contract is made after the new family property legislation comes into force,” says Osler, Hoskin & Harcourt pension partner Douglas Rienzo. “It is not known when this will be, as regulations necessary to give effect to the legislative changes have not yet been released.”