Navigating Pension Valuation in the Wake of a Marital Split

When a married couple separates, they typically share the increase in the value of their property during the marriage. This increase is referred to as “net family property” (NFP). Each spouse will calculate their individual NFP by adding the value of their property minus any debts at the date of separation and subtracting the value of their property from any debts on the date of marriage.

If the couple owns property jointly, each spouse will include half its value in their individual NFP. This article will briefly overview how Ontario pensions are managed when calculating NFP and equalization.

Are pensions part of my NFP?

Pensions are considered property and will be included in the NFP calculation. Aside from the matrimonial home, pensions are often the single most valuable asset a person has. For the purpose of equalization, it is important to recognize the difference between a “pension statement” and a “pension valuation.”

The “pension valuation” used for the NFP calculation can be tens of thousands of dollars higher than the amount indicated on the “pension statement” that people regularly receive.

How is the value calculated?

To simplify the valuation of pensions, the Ontario government revised the Family Law Act and Pension Benefits Act in 2012. While previously individuals had to hire an independent actuary to assess the family law value of their pensions, it is now done by the pension plan administrator.

These changes apply to pensions that fall under the Pension Benefits Act, and do not cover federally regulated pension plans (e.g. plans in federally regulated sectors such as aviation, banking, telecommunications), federal government pension plans, or government sponsored retirement benefits such as CPP.

Further, the Family Law Act does not require common-law spouses to equalize their Net Family Property; thus, nothing requires common-law spouses to value or divide their pensions. However, they may do so under a domestic contract or a family arbitration award.

If you require a pension valuation or choose to obtain one, the first step is for the pension plan member or their spouse to complete an application for a pension valuation. The application is a standardized form produced by the Financial Services Regulatory Authority of Ontario. The pension plan member or their spouse then submits this application and the required fee to the administrator.

The pension plan administrator will then produce a Statement of Family Law Value of the pension. The pension plan administrator will usually require a few months to produce the Statement of Family Law Value, so it is important to apply for one as soon as possible to avoid any unnecessary delay in obtaining this important piece of financial disclosure.

Limits on Pensions as Equalization

After obtaining the pension valuation, the spouses may divide it as part of equalization. However, the administrator can only divide the pension if the spouses do so to satisfy an equalization payment. While the plan member may use their pension to satisfy equalization, they do not have to.

Further, the plan member cannot compel their spouse to accept a pension instead of other assets as an equalization payment, and the plan member cannot use more than half of the Family Law Value to satisfy their equalization payment. The form of payment to the receiving spouse also depends on whether the plan member has begun to receive a pension.

If the plan member was not yet retired as of the family law valuation date, the payment must be a lump sum transfer. However, if the member was retired, the pension can only be divided as it is paid out each month.

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If you are going through a separation or divorce, the lawyers at Malicki Sanchez can help you navigate and negotiate asset division and equalization.

By Christopher Materny