Am I required to divide my pension with my ex?

FPAC responds:

Under the Canadian rules that govern the division of property between married couples who separate, you are required to equally split all assets grown and contributed to during the time of marriage. These assets can include a pension, as in your case.

Usually, when a couple ends their relationship, any pensions are valued based on the date of marriage and the date of separation. That said, there is no requirement for any specific asset to be divided. Instead, the requirement is for the value of “matrimonial assets” to be equalized.

What happens if I don’t want to divide my pension?

Since the requirement is just for the matrimonial assets to be equalized, this means that if you have other equity equivalent to the value of the pension equalization number, you can offer that instead taking from the pension itself. For example, let’s say the value of your pension is $100,000 at the date of separation, and your ex is entitled to half that value, meaning $50,000. If both you and your ex agree to it, you could use the equity in your home or other savings to cover meet the obligation instead dividing the pension.

What if my ex doesn’t want a substitute asset?

On the other hand, if your ex wants your pension value and doesn’t want any substitute asset, or there are no other assets available for you to meet that financial commitment, then you must request that your pension provider separate the pension “at source.” In other words, a portion of the pension is transferred to the other spouse’s pension or locked-in retirement account (LIRA) without you making any withdrawals from the pension yourself.

How will dividing my pension affect my retirement income?

If your pension is divided at source, this will reduce the amount in your pension that can be used to provide income when you retire. Up to 50% of the value of the pension accrued during the marriage could be transferred to your ex. How this division will impact your pension payments depends on how close you are to retiring and the length of time you contributed during the marriage, since you are not obligated to divide the contributions you made before or after your separation.

As you can see, the question of how your pension might be impacted in a divorce can strongly impact your retirement income, and it’s not easy to know what the extend will be without looking carefully at the details for your case.

Working with a qualified divorce financial analyst, such as a Chartered Financial Divorce Specialist, can help you understand your options and the impact of the financial decisions you are making today and into the future.

Debbie Hartzman, CFP, CLU, RRC, CFDS, TEP, is a Certified Financial Divorce Specialist who has spent the last 20 years helping couples navigate the financial pitfalls of Separation and Divorce.

Qualified Advice is written by members of FPAC (the Financial Planning Association of Canada), a MoneySense content partner. Working closely with governments, regulators, financial planners, academia, vendors and the general public, FPAC’s goal is to set standards and principles that will allow financial planning to evolve into a knowledge-based profession that ultimately commands the credibility, public awareness and respect afforded to other advisory professions.

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