Written by Allison McAlpine
Typically, in a marriage, the largest assets a couple owns are the matrimonial home and a pension(s). When a client has a pension they often express a concern of having to give half of their pension to their ex-spouse. When a client’s spouse has a pension they often express a hope of automatically receiving half Pension division during a divorce of their spouse’s pension. Neither of these are correct assumptions when dealing with pension divisions upon a marriage breakdown in Ontario, Canada.
In Ontario, property division upon marriage breakdown, including pensions, are governed by the equalization process. Please review our blog on the equalization process here “Equalization – What is It and How is It Calculated?” . When dealing with pensions, they are just another asset that goes into the equalization calculation. A simple example is set out below:
Example:
| Husband Value | Wife Value | |
| Date of Separation Assets | ||
| Half of Jointly Owned Matrimonial Home
Value of Vehicles
Value of Bank Accounts, RRSPs, investments
Value of Employment Pension
Total Date of Separation Assets | $400,000
$5000
$10,000
$320,000
$735,000 | $400,000
$4000
$8000
0
$412,000 |
| Date of Separation Debts | ||
| Mortgage on Matrimonial Home
Credit Cards and Line of Credit
Notional Disposition Costs on Pension (Tax adjustment – random figure of 20%)
Total Date of Separation Debts | $100,000
$30,000
$64,000
$194,000 | $100,000
$10,000
$0
$110,000 |
| Date of Marriage Assets | ||
| Value of Employment Pension | $10,000 | 0 |
| Date of Marriage Debts | ||
| Random Tax Adjustment on pension at 20%
Net worth date of marriage (assets minus debts) | $2000.00
$8,000 | 0
$0 |
To calculate equalization in this example, we determine each party’s net worth on date of separation (assets minus debts) and then deduct from that figure each party’s net worth on date of marriage (as the spouses are only sharing the increase in net worth earned during the marriage known as net family property).
How Equalization Is Calculated
In the above example:
The Husband’s net family property is $735,000 less $194,000 less $8000 = $533,000
The Wife’s net family property is $412,000 less $110,000 less $0 = $302,000.
The Husband’s net family property is $231,000 more than the wife’s ($533,000 less $302,000). To determine equalization we divide the difference by 2 ($231,000 divided by 2 equals $115,500).
As a result, the husband owes the wife an equalization payment of $115,500 (note that this is less than half of the employment pension that the husband has). He can pay this from his share of the sale proceeds of the matrimonial home, from his pension or from any combination of assets. There is an option though to leave his pension intact if he can pay her in cash. Pension division during a divorce if paying any portion of the equalization payment from his pension, he would have to pay an additional “gross up” amount based on the taxes that the wife would have to pay when she withdraws the pension. An actuary can assist the parties to determine what the tax adjustment should be on the pension and what the gross up should be if necessary, otherwise the parties can agree on a random reasonable percentage.
How to Value Pensions
With Ontario-regulated pensions, the value of the pension is determined by the pension administrator. The parties have to submit various forms to the pension administrator to obtain this value (note: it is not the value on your annual pension statement).Divorce Lawyers You must obtain the Statement of Family Law Value from the pension administrator to determine the value of the pension for equalization purposes. The forms can be found on the FSCO website here: https://www.fsco.gov.on.ca/en/pensions/Family-Law/Pages/familylawforms.aspx.
If the pension is not Ontario-regulated then the pension should be valued by an actuary. Your lawyer can refer you to an actuary for that process.
