FAQ: Pensions

Find out the answers to frequently asked questions ("FAQs") with regard to family law and other legal issues.

Pensions – Dividing at Source

On January 1, 2012, the Ontario Legislature passed new laws with respect to the division of a spouse’s pension.

The major change that affected spouses dealing with their pensions upon the breakdown of the marriage was that pensions could now be divided at source. That meant, instead of including a spouse’s pension in the net family property (and thus subject to an equalization payment), the parties would take the pension out of their respective financial statements and leave it in the hands of a third party (pension plan administrator) to evaluate and subsequently transfer the value of the member spouse’s pension in the form of a lump sum payment once the pension was payable.

However, what if the spouses cannot agree on whether to divide the pension at source or include it in their financial statements?

The member spouse can apply to the courts to have his/her pension divided at source. In order to obtain an order to have a pension divided at source, the judge must be satisfied that the evidence put before the court satisfies section 10.1(4) of the Family Law Act.

The criteria outlined in section 10.1(4) of the Family Law Act are stated as follows:

(4)  In determining whether to order the immediate transfer of a lump sum out of a pension plan and in determining the amount to be transferred, the court may consider the following matters and such other matters as the court considers appropriate:

  1. The nature of the assets available to each spouse at the time of the hearing.
  2. The proportion of a spouse’s net family property that consists of the imputed value, for family law purposes, of his or her interest in the pension plan.
  3. The liquidity of the lump sum in the hands of the spouse to whom it would be transferred.
  4. Any contingent tax liabilities in respect of the lump sum that would be transferred.
  5. The resources available to each spouse to meet his or her needs in retirement and the desirability of maintaining those resources.

To learn more about pensions as well as the services provided by Krol & Krol, call 905.707.3370 today.

Dual spouses and their entitlement to benefits of pension plans

In determining the beneficiary of a deceased member’s pension plan, Ontario’s Pension Benefits Act defines the term “spouse” as either two persons who are married to each other or are not married to each other but are living together in a conjugal relationship continuously for a period of not less than three years.

Subsection 48(1) of Ontario’s Pension Benefits Act adds that when the member dies, his/her spouse is entitled to a lump-sum payment equal in value to the deferred pension.

Subsection 43(3) of Ontario’s Pension Benefits Act states that Subsection 43(1) does not apply where “the member, former member or retired member and his or her spouse are living separate and apart on the date of death.”

Finally, Subsection 48(6) of Ontario’s Pension Benefits Act permits member to designate beneficiary to their deferred pension plan upon death, in cases where the member has no spouse or was separated from their spouse at the time of death.

As was demonstrated in Carrigan v. Carrigan Estate, it is important for a member to understand and familiarize themselves with Section 48 of Ontario’s Pension Benefits Act, in situations where a member dies and leaves behind dual spouses.

In Carrigan v. Carrigan Estate, at the time of his death, Ronald Carrigan was involved in a common law relationship, and he had never gotten around to divorcing his original spouse whom was living separately from him for 10 years.

The question then became, who is entitled to the benefits under his pension plan?

The trial judge held that his common-law spouse was entitled to the benefits. He reasoned that while his wife was technically a spouse, she was a separated spouse, and thereby the only spouse that was living with the deceased at the time of his death was his common law spouse.

In the appellate Court, the judge reversed the decision and declared that neither one was a spouse by the standards of the Act. The judge explained Subsection 48 of the Act did not encompass common law spouses, and that the only spouse by its standards was living separately from the deceased at the time of his death.

In light of the above, it is imperative that one take control of the situation and , as subsection 48(6) states clearly, designate a beneficiary that is entitled to the member’s pension plan benefits upon his death.

To learn more about dual spouses as well as the services provided by Krol & Krol, call 905.707.3370 today.

Information on provincial pensions and how my divorce lawyer can help

In the event that you and your spouse/former spouse are both members of the same pension plan, you will both be required to make two separate applications to get Family Law Value for each pension. This will likely result in both you and your spouse paying two separate fees, if fees are required. You will fill out certain forms, issued by the Financial Services Commission of Ontario, to your Plan Administrator. After completing the required forms, the Plan Administrator will provide you with a family law value – in other words the value of the pension that relates to the period of the spousal relationship (married or common-law) for the Plan Member and the spouse/former spouse of the plan member.

In Ontario, it is permitted for one to authorize another individual, who may be their lawyer, to communicate with your Plan Administrator on your behalf. The appointed individual will be allowed to both communicate and receive the information on your behalf. In order to authorize this individual to act on your behalf legally, you must complete the Contact Person Authorization (FSCO Family Law Form 3), and send it to the Plan Administrator. This form needs to be completed in its entirety and signed by you in order to be processed properly.

In the event that you choose to change the person who is authorized to communicate and receive the Plan Administrator, you need to provide the Plan Administrator with another Contact Person Authorization (FSCO Family Law Form 3), with the information pertaining to the newly desired contact.

In the event that you have previously appointed a power of attorney for property or a court order, that individual may be allowed to act on your behalf with regards to Plan Administrator in specific situations.

In the event that you are acting on behalf of a Plan Member or spouse/former spouse of a Plan Member under a court order, you are authorized to complete the Application for Family Law Value (FSCO Family Law Form 1). Additionally, you are allowed to legally sign the form on his or her behalf in the event that you have been allotted that power through a court order. In this situation, you are required to include a certified copy of the court order along with the form. You are additionally required to identify yourself in either Part C or Part D of this Application Form.

For more information on the services provided by our team, divorce law, pensions and Plan Administrators, contact Krol & Krol at 905.707.3370.

Pensions in family law after Jan. 1, 2012

In the context of family law, Bill 133 has made the following amendments affecting Ontario registered plans:

1. There is a new method used to value all pensions.

2. If asked, the pension administrator must perform a valuation based on the new rules. Financial Services Commission of Ontario (FSCO) Form 1, 2 (and 3) along with supporting documents and the required fees constitute the valuation request.

3. The plan administrator is not permitted to implement a pension transfer/division in your family law case until he or she has prepared a valuation.

4. In order for a division to be implemented, the spouses must have an executed separation agreement or a court order that clearly addresses this matter.

5. If the member is not retired at the date of separation, there can be a lump sum transfer to a Locked-In Retirement Account (LIRA). This is also known as a locked-in RRSP.

Funds locked in a LIRA can generally only be accessed after the spouse reaches a pensionable age (this is usually at age 55). Once the pensionable age is achieved, the LIRA only provides periodic retirement income through a RRIF, LIF or annuity. At this time, there are “financial hardship” exceptions that allow for immediate lump-sum withdrawals. However, there can be significant tax consequences that result from immediate lump-sum withdrawals.

According to the new rules, a pension division is not automatic, and it is not mandatory.

A decision regarding pension division in your family law case should be made only after canvassing all of the relevant facts and strategies in your particular case. Prior to making this decision that can greatly impact on your family law case, it is prudent to obtain expert advise.

The solicitors at Krol & Krol have experience with pensions and how they are addressed in family law in Ontario. For a consultation with one of our solicitors with respect to a family law issue involving a pension, call 905.707.3370 today.