Is my pension considered legal property during a divorce?
To start, PENSIONS ARE CONSIDERED PROPERTY under the Ontario Family Law Act and is valued in accordance with the Pension Benefits Act.
Family Law in Ontario provides that each spouse is automatically entitled to a share of the spouse’s pension, as it is considered part of the family assets that are to be equalized upon separation or divorce.
How does a pension get split in a divorce?
There are detailed rules on how that post-split division is calculated. This is where it gets a little complicated.
Assuming one of the spouses is a member of an Ontario pension plan, those rules apply mainly to married spouses who separated on or after January 1, 2012, or who separated prior to that date but had not yet resolved their property issues by then.
These rules can also apply to unmarried spouses, but only by agreement.
1) The “Preliminary Value” of a pension is the total value that the pension-holder earned while he or she was a member of a pension plan, up until the marital separation date.
2) The “Family Law Value” (sometimes called the “Imputed Value”) is that pro-rated portion of the Preliminary Value that was earned during the period of the pension-holder’s marriage to the other spouse (and if the spouses agree, any period of cohabitation can also be included in this amount).
Once the Family Law Value has been calculated, it forms part of the calculation for determining the pension-holding spouse’s Net Family Property for equalization purposes
The correct approach to valuing a pension will differ according to the type of pension.
Defined Contribution Pension – The Preliminary Value is calculated by taking the value at date of marriage and deducting it from the value at the date of separation.
Defined Benefit Pension – If the pension-holding spouse is not eligible for an unreduced pension on the separation date – the Preliminary Value of his or her pension is calculated through a complicated formula that incorporates various retirement dates. There is a different formula applied if the pension-holding spouse is already eligible for an unreduced pension on the separation date.
Note! that the pension division is actually optional, but only in that the pension-holding spouse can buy out his or her spouse’s interest in it, using other assets.